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Green finance taxonomies, or classification systems for sustainable financing, vary in scope and definition across Asian jurisdictions. A new Institute for Energy Economics and Financial Analysis (IEEFA) report examines the policy approaches, challenges, and opportunities in Asia’s green finance landscape through a comparative analysis of regional and national green and sustainable finance taxonomies. The report offers recommendations for businesses and investors to make informed decisions on sustainable economic activities.
“In Asia, due to the differences among the national standards, taxonomies have often created confusion while trying to codify and promote green standards and concepts,” says report author Ramnath N. Iyer, IEEFA’s Sustainable Finance Lead, Asia. “In addition, none of the Asian jurisdictions have made reporting data against the taxonomies mandatory.”
Iyer summarizes the characteristics of a well-designed taxonomy as providing clear definitions and objectives, being interoperable with other taxonomies while accounting for national transition needs, aligning with internationally accepted standards, and requiring mandatory compliance and reporting.
“A comprehensive taxonomy can also mitigate the risk of greenwashing by enforcing stringent reporting requirements and maintaining transparency,” says Iyer.
Leaders and laggards in Asia
According to Iyer, the Singapore-Asia Taxonomy for Sustainable Finance is the most comprehensive. It covers a broad range of sectors and has detailed thresholds, or Technical Screening Criteria (TSC), delineating which activity is permissible and when.
“The Singapore, Thailand, and Hong Kong taxonomies have the most stringent quantitative criteria. Only those with lifecycle emissions under 100 grams of carbon dioxide per kilowatt-hour (gCO2e/kWh) are classified as green,” says Iyer. “In contrast, Malaysia and the Philippines follow a principles-based taxonomy that avoids using quantitative criteria. The decision of whether an entity is doing enough remains subjective.”
China’s Green Bond Endorsed Projects Catalogue (GBEPC), first released in 2015, specifically excludes gas financing as eligible under its green framework. While the Hong Kong, Singapore, and Thailand taxonomies are similar in this regard, most Asian taxonomies are more permissive with gas.
Read the report: Sustainable finance in Asia: A comparative study of national taxonomies
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