In the evolving landscape of sustainable finance and environmental responsibility, taxonomies have emerged as essential tools for defining and classifying green investments. This article delves into the world of taxonomies, exploring the EU Taxonomy, ASEAN Taxonomy for Finance, and Thailand Taxonomy, each playing a crucial role in shaping the future of sustainable financial markets. Let’s dive into each of them briefly.
EU Taxonomy
The EU Taxonomy is a framework established by the European Union (the EU Taxonomy Regulation is effective from July 2021) to classify economic activities based on their environmental sustainability. It defines which activities can be considered environmentally friendly and aligned with climate and environmental objectives. The EU Taxonomy covers several key environmental objectives, including climate change mitigation, climate change adaptation, sustainable use and protection of water and marine resources, transition to a circular economy, pollution prevention and control, and protection of ecosystems. This framework is used for transparency and disclosure purposes, helping businesses and financial institutions assess and report on the sustainability of their activities in line with the EU's green finance agenda.
The EU Taxonomy is not a mandatory list for investors to invest in. It does not set mandatory requirements on environmental performance for companies or financial products. Investors are free to choose what to invest in. However, it is expected that over time, the EU Taxonomy will encourage a transition towards sustainability in order to achieve the EU’s climate and environmental goals.
Click here to read more about the EU Taxonomy for sustainable activities.
ASEAN Taxonomy for Finance
The ASEAN Taxonomy is based on four Environmental Objectives (EOs): Climate Change Mitigation, Climate Change Adaptation, Protection of Healthy Ecosystems and Biodiversity, and Resource Resilience, and the Transition to a Circular Economy. To be classified under the ASEAN Taxonomy, any activity must demonstrate that it contributes to at least one of these EOs and does not have any adverse effects on other EOs.
The ASEAN Taxonomy Version 1 was published in November 2021. The ATB called for stakeholder consultations after the publication of Version 1. Over 80% of respondents emphasized the need for a common language. The lack of standardized and credible data was seen as the greatest challenge to successful implementation. International investors want ASEAN to align with international green investment standards, but the process is complex, and tailoring the ASEAN Taxonomy to individual countries could be beneficial. National taxonomies in ASEAN have also been developed. These national taxonomies have varying scopes and approaches, with some establishing defined criteria and others emphasizing a principles-based approach.
ASEAN Taxonomy Version 2 centers around the classification of activities. An activity takes place when resources such as capital, goods, labor, manufacturing techniques, or intermediary 14 products are combined to produce specific goods or services. An activity is not the same as the facilities used to conduct the activity.
Click here to download and read more about the ASEAN Taxonomy for Sustainable Finance Version 2.
Thailand Taxonomy
The Thailand Taxonomy was established in December 2022 and led by the Thailand Taxonomy Board and agencies from both the public and private sectors, with the International Finance Corporation (IFC) and Climate Bonds Initiative (CBI) as consultants.
Thailand Taxonomy in Summary
is a reference tool for economic activities according to environmental objectives
is transparent, grounded in the latest climate science, and aligned with the goal of reaching net-zero emissions by 2050 as prescribed by the relevant Paris agreement that keep warming below 1.5°C.
employs a so-called traffic light system that distinguishes between green, amber (transitional), and red activities and is in compliance with the Do No Significant Harm (DNSH) and Minimum Social Safeguards (MSS).
uses as a common reference on a voluntary basis.
It is divided into two phases: phase 1 was focused on the energy and transportation sectors, and phase 2 (in progress) will be focused on manufacturing sector, agriculture sector, real estate and construction sector, and waste management sector.
To read more about the Thailand Taxonomy, click here.
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