Global Green Taxonomy Development, Alignment and Implementation.pdf

Prepared by Climate Bonds Initiative and sponsored by UK PACT Global green taxonomy development, alignment, and implementation Global green taxonomy development, alignment, and implementation Climate Bonds Initiative 2 Taxonomy in place Taxonomy in draft Mexico UK European Union Chile Colombia Brazil Australia nullssia China Monnullolia India nullnnullapore Thailand Kanullanullstan null nullealand nulluth Anullica nulluth Korea nullminican nullepublic Philippines nulletnam nullpan Indonesia AnullAnull Malaysia nulli nullnnulla Canada Global Green Taxonomy nullClimate Bonds Initiative 2null2 Background The Climate Bonds Initiative nulllimate Bondsnullis an investornull nullocusednullnonnullronullit ornullanisation nullhose main nullornullincludes nulleen bond standards and certinullicationnullnulleen bond data and marnullet analysisnullpolicy analysis and developmentnullClimate Bonds has supported nulleen bond marnullet development in many countries and renullionsnullincludinnull Europenullthe Unull Chinanull IndianullBranulllnulland Mexiconullin partnership nullth nullovernments and renulllatorsnullsuch as the United nulltions Environment Pronullammenullthe United nulltions nullvelopment Pronullammenull the European Commissionnullmultilateral development nullinance institutionsnullthe nullCnulland othersnullClimate Bonds is an invited member onull the nulleen nullnance Committee onull the Chinese nullciety onull nullnancenull Contents Background 2 1. Introduction 3 2. Audit onull international taxonomy development null 3. Case studynullAligning tnull Cnullina and null taxonomies null null Implementation onull green taxonomies null null Conclusion and discussion 12 Acknonullledgementsnull The authors thannullthe support nullom Bolu nullannull and nullnnulln nullunull Autnullrsnull nullaoyun nullunullnullnhonnull nullenull Manshu nullnnull Taxonomy in development Taxonomy in discussion Global green taxonomy development, alignment, and implementation Climate Bonds Initiative null 1. Introduction 1.1 Tnull purpose and utility onull a taxonomy The nulllobal nulleen and sustainable nullinance marnullet has seen exponential nullonullh in the past several yearsnullnullstainability themed nullinancial products includinnull bondsnullnullndsnulland ETnulls have become an important part onull the investment landscapenull This has motivated the nullonullh onull detailed nullidancenullin the nullorm onull taxonomiesnullaround nullhat constitutes a nullalinullinnull investment to achieve desired environmental obnullctives and maintain marnullet intenullitynull A sustainability andnullor nulleen taxonomy is a classinullication system identinullinnull activitiesnullassets and revenue senullents that deliver on nulley sustainability nulloals based on the elinullibility conditions set out by the taxonomynullnullor examplenullthe EU taxonomy classinullies a list onull environmentally sustainable economic activities nullth thresholds and metricsnullChinanulls nulleen classinullication system identinullies a list onull assets and pronullcts that are elinullible to be nullinanced usinnull nulleen bondsnullas these assets and pronullcts manulle a substantial contribution to improvements onull environmental issuesnullclimate channulle and resource enulliciencynull null The sustainabilitynullnulleen taxonomies add clarity and nullidance to marnullet participants by helpinnull investors and companies identinull nulleen activities and manulle innullormed decisions on sustainable economic activitiesnullA nulleen taxonomy helps renulllators and investors reduce the risnull onull nulleennullashinnull and thus improve the intenullity and reduce transaction costs in the sustainable nullinance marnulletnull 1.2 Alignment onull leading global green denullinitions In 2null2nullthe Climate Bonds Initiative nulllimate Bondsnull introduced voluntary nullidelines nullor the marnullet in the nullorm onull a taxonomy and related certinullication schemenullnullbsenullentlynullas the sustainable nullinance marnullet expandednulla nullonullnnull number onull nullrisdictions around the nulllobe started to reconullise the importance onull its approach and develop their classinullication schemes onull sustainable economic activities to scale up nulleen and sustainabilitynullelated nullinancinnull As nulleen taxonomies are desinulled by each nullrisdictionnullthere are concerns about marnullet nullanullentationnullThe inconsistency in nulleen denullinitions can connullse businesses and investors nullhen conductinnull crossnullborder activitiesnullThusnullharmonisinnull elinullible assets and metrics across nullrisdictions has become an important aspect onull current taxonomy developmentnull nulltional and international ornullanisations have made enullorts to alinull various taxonomies to reduce marnullet nullanullentation and nullacilitate the crossnullborder nulllonull onull nulleen capitalnullThe European Commission launched a research pronullct on nulleen nullinancenull related standards in 2nullnulland approved the nullirst nulllenullated Act on the EU taxonomy in 2nullnull Countries includinnull Mexiconullthe United Kinnulldomnullnullornullianullnulluth Anullicanulland Bannullladesh vienull the EU taxonomy as a benchmarnulland intend to adopt certain criteria and metricsnull 2 Many taxonomies in draft also embrace the EU taxonomynulls concepts onull transition activities nullhich nullocus on lonullcarbon transitions onull the hinullhnullmpact industriesnull nullecentlynullChina has made nullrther enullorts to advanceits nulleen nullinance anullendanullIn April 2nullnull the Peoplenulls Bannullonull China nullBnullnull tonullether nullth the nulltional nullvelopment and nullenullorm Commission nullnullCnulland the China nullcurities nullenulllatory Commission nullnullCnullnullintly released the Green Bond Endorsed Projects Catalogue 2021 Edition representinnull another manullr development in uninullinnull its domestic nulleen denullinitionsnullnulldely considered the leadinnull nulleen taxonomy nullor Chinanullthe 2nullnull Edition Catalonulle also adopts the do no sinullinullicant harm nullnullnull principlenullalinullinnull nullth international standardsnull There are multiple taxonomies currently in place or under development and this report summarises development trends and the implications nullor the sustainable nullinance marnulletnullThis report also includes a comparison onull the EU and China taxonomiesnullbrienullly introducinnull their desinull nulleaturesnull nullidinnull principlesnulland technical screeninnull criteria nullor marnullet participants to understand the steps in taxonomy developmentnull nullnallynullthis report discusses the usability onull nulleen taxonomies and implementation options nullor marnullet participantsnull Global green taxonomy development, alignment, and implementation Climate Bonds Initiative null 2.1 Taxonomy development milestones nullalinnull up sustainable nullinance throunullh a taxonomynullbased approach has nullained nulldespread momentumnullIn nullrisdictions includinnull Chinanullthe EUnullnullpannullMalaysianullMonnullolianullnullssianull nulleen taxonomy renulllations or nullidance are already in placenull nullher nullrisdictions are currently developinnull or considerinnull nulleen taxonomiesnullsuch as nulluth Anullicanullnulluth KoreanullAnullAnull BannullladeshnullCanadanullChilenullColombianullnullminican nullepublicnull IndianullIndonesianullKanullanullstannullnullnull nullealandnullPhilippinesnull nullnnullaporenullThailandnullthe United KinnulldomnullnulletnamnullMexiconull and nulli nullnnullanull null In nullvember 2nullnull the International Platnullorm on nullstainable nullnance nullPnullnullpublished its nullirst EUnullhina Common nullound Taxonomy nullnullTnullInstruction nulleportnullsettinnull the stanulle nullor closer alinullment onull nulleen denullinitions betnulleen the nullorldnulls tnullo larnullest economiesnullboth leaders in sustainable nullinancenull 2.2 Taxonomy development approacnulls nullile the principles and methodolonullies onull national taxonomies dinullernullaccordinnull to a UnullEnull and IPnull input paper submitted to the nullnullnullstainable nullnance nullrnullnnull nulloup in 2nullnull the leadinnull taxonomies nullenerally nullollonull three approaches listed belonull null There could be overlap in these approachesnulland the three methodolonullies can be used independently or in combinationnullnullor examplenulla taxonomy based on a technical screen criterianullbased approach could include a nullhitenulllist nullor some activities or could contain nulluidinnull principlesnull 1. nullitelistnullbased This approach nullocuses on identinullinnull elinullible pronullcts or economic activities under each sector or subnullectornullInstead onull nullollonullnnull a technolonullynulleutral approachnullthis type onull classinullication lists technolonullies that are considered nulleen or sustainable and provides detailed descriptions onull elinullibilitynull The nullhitelistnullbased taxonomies do not alnullays start by screeninnull nullhole economic activities but seenullto identinull activities that are already nulleen or contain nulleen components nullhich could brinnull more positive impacts to the environmentnull nullile the nullhitelistnullbased approach excels in its simplicitynull it may renullire additional nulldnullement calls nullom external revienull to ensure rinullournullThe nullhitelist approach could contain technical screeninnull standards nullor certain activities and pronullcts to denulline elinullibilitynullThis approach nullas applied to the taxonomies developed by ChinanullMonnullolianulland nullssianull Table null Milestones nullor nulllobal taxonomy development over the past tnullo yearsnull nullngolia nulltional nulleen Taxonomy nullcember 2nullnull null Taxonomy nullnal nulleport by Technical Expert nulloup nullEnull March 2nullnull nulllaysia nullank nullgaranull Climate Channulle and Principlenullbased Taxonomy April 2nullnull Cnullina nulleen Bond Endorsed Pronullct Catalonulle nullnullnullEditionnull April 2nullnull nullpan Basic nullidelines on Climate Transition nullnance nullhounullh not yet a detailed taxonomynull May 2nullnull nullssia nulltional nulleen taxonomy adopted nullvember 2nullnull 2. Tecnullical screening criteria nullnullnullbased A critical component onull a nulleen taxonomynullthe Tnull innullorms thresholds and screeninnull criteria nullor economic activities and their compliance nullth the specinullic obnullctivesnullThe Tnull determine nullhether economic activities are manullnnull a substantial contribution to environmental and nullnull to other environmental obnullctivesnullnullthin sectorsnullthe Tnull approach is intended to be technolonullynulleutral in screeninnull the elinullible pronullcts and assets nullor inclusion and therenullore does not prenull determine any specinullic technolonully or subnullector activitiesnull nullnullevernullthe operationalisation onull the Tnull nullould necessitate the availability onull the renullired datanullThe EUnull nulluth Anullicanulland Korean taxonomies use the technical screeninnull criteria approachnullnullhile the Chilean and Colombian taxonomiesnullcurrently under developmentnullnullll linullely also nullollonull this methodolonullynull 3. nullinciplenullbased This approach denullines a set onull core principles nullor marnullet participantsnullThis approach is exemplinullied by taxonomies developed by Malaysia and nullpan and is similar to the nulleen Bond Principles published by International Capital Marnullet Association nullCMAnull Bannullnullnullara Malaysia uses a principlesnullbased taxonomy nullor climate channulle mitinullation and adaptationnullIt contains core nullidinnull principles to assess nullhich economic activities can be nullnded and includes a nonnull exhaustive list onull examplesnull 2. Audit onull international taxonomy development Global green taxonomy development, alignment, and implementation Climate Bonds Initiative null 2.3 Implications nullor tnull sustainable nullinance market The nullonullnnull acceptance onull taxonomynullbased renulllations in various nullrisdictions nullll contribute to lenullitimate marnullet developmentnullnulleen taxonomies enable investors to connullidently source pronullctsnullassetsnullor expenditures that comply nullth renulllationsnulland manulle betternullnnullormed investment decisions nullhile minimisinnull the risnullonull nulleennullashinnull Alonnullide the taxonomy development around the nullorldnullclearer denullinitions nullor sustainable nullinance productsnullincludinnull nulleen bondsnullnulleen loansnullnulleen asset bacnulled securities nullBnullnulland nulleen indicesnull could help channel the renullired capital to nullacilitate the lonull carbon transition and resultant sustainable developmentnull nullnullerent approachesnullnullanularitynulland technical screeninnull criteria in taxonomies impact their practical application in terms onull data collectionnullproduct desinullnulland verinullication processesnullInull taxonomies contain detailed screeninnull criteria and disclosure renullirementsnullinvestors can monitor the pronulless onull sustainable investment and measure impacts nullthin the respective sectorsnullnullor examplenullthe EU taxonomy renullires larnulle companies to disclose the proportion onull turnover and relevant CAPEnulland nullEnullalinulled nullth the taxonomynullIt renullires investors to disclose the proportion onull underlyinnull investments that are taxonomy alinullednull null Throunullh consistent reportinnull investors could measure the denullee onull sustainability nullthin an investment or a companynulls activitiesnull nullnullevernullthe complexity onull screeninnull criteria and disclosure also brinnull many challennulles to the data collection and verinullication processes nullor sustainable marnullet participantsnull The Pnullnulls report on EU taxonomy implementation details some onull the challennulles and recommendations that a nulloup onull investor institutions hinullhlinullhted based on their experiencesnull The data renullired to apply the taxonomy may not be nulldely disclosed by companiesnullnullor examplenullrelevant expenditure data on climate channulle adaptation is nullenerally lacnullnnull and the nullalitative nature onull nullnull criteria manulles it particularly challennullinnull to assessnull null nullurthernulltaxonomies are dynamic tools that nullll evolve nullth scientinullic advancementnullrenulllation updatesnulltechnolonully developmentnulland marnullet needsnullTherenullorenullmarnullet participants providinnull nulleedbacnullon their experience onull usinnull taxonomies nullll enable improvements and encouranulle broader acceptancenull 2.nullnulltlook and nullture steps nullile there are concerns about marnullet nul