ASEAN releases first version of sustainable finance taxonomy

The document will provide a framework for discussions between the public and private sectors on developing a formal sustainable finance taxonomy for the region, an ASEAN statement said.

The taxonomy (87-page, 2.97MB PDF) was set up based on two main elements, a principles-based ‘foundation framework’ which provides a qualitative assessment of activities, and a ‘plus standard’ with metrics and thresholds to further qualify and measure eligible green financial activities and investments.

The ‘plus standard’ will cover nine sectors including the six most material sectors in terms of greenhouse gas (GHG) emissions and gross value add, and three sectors whose products and services contribute to achieving environmental objectives - information and communication; professional, scientific and technical; and carbon capture, storage and utilisation.

The first version of the taxonomy has four environmental objectives and two essential criteria for the assessment of economic activities as a basis for protecting the environment and helping transition to low-carbon and sustainable practices.

It also includes an approach guiding users in classifying economic activities under the ‘foundation framework’ and providing additional sector-specific guidance for member states and entities who seek more specific guidance. A ‘stacked approach’, which is also included in the taxonomy, will be used to determine thresholds and technical filtering criteria under the ‘plus standard’.

John Yeap of Pinsent Masons said: “In order to encourage capital seeking green investments to flow across national borders, there has to be a common understanding of what is green.  Investors in Singapore for instance looking to deploy capital in projects in say neighbouring Malaysia, need to know Malaysia would have a similar approach to defining green. A common ASEAN approach will work towards facilitating inter-regional capital flow. Ultimately, the goal must be the adoption of a global standard so as to remove taxonomy as a possible barrier to cross border and cross region investments.”

ASEAN member states and stakeholders that require more guidance can adopt the ‘plus standard’ based on their individual readiness.

The ASEAN taxonomy, released by the ASEAN Taxonomy Board (ATB) during COP26, is a collaborative initiative of the ATB. The ATB includes the ASEAN Capital Markets Forum (ACMF), the ASEAN Insurance Regulators Meeting (AIRM), the ASEAN Senior Level Committee on Financial Integration (SLC), and the ASEAN Working Committee on Capital Market Development (WC-CMD).