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Asean unveils first version of taxonomy for sustainable finance
Initiative aims to be an inclusive classification system that takes into consideration unique needs of the region
12 Nov 2021 | The Asset

Government and private representatives from the Asean financial sector achieved a milestone this week towards meeting Paris Agreement commitments by introducing a common language across the region for financing sustainable economic activities.

In conjunction with the 26th session of the United Nations Conference of the Parties on Climate Change (COP26), the Asean Taxonomy Board (ATB) released the Asean Taxonomy for Sustainable Finance – Version 1.

The initiative provides a frame for discussions with official and private sector stakeholders to work together on the development of the Asean Taxonomy. It serves as a reference point to guide capital and funding towards activities that promote the sustainable transformation of the region in a systemic manner.

The Asean Taxonomy is a collaborative initiative of the four Asean sectoral bodies that make up the ATB, namely 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).

This follows previous sustainable finance initiatives by Asean sectoral bodies, such as the Asean Green, Social and Sustainability Bond Standards, and the Asean Sustainable Banking Principles. The Asean Taxonomy represents the collective commitment of Asean member states in transitioning towards a sustainable region. It is designed to be an inclusive and credible classification system for sustainable activities and will be one of the key building blocks in attracting investments and financial flows into sustainable projects in the region.

The Asean Taxonomy recognizes international aspirations and goals, and takes into consideration the region’s unique needs. As such, it aims to be inclusive and beneficial to all member states. To cater for diversity, the ATB has decided upon a multi-tiered approach with 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 benchmark eligible green activities and investments.

Version 1 elaborates on the key components of the Asean Taxonomy:

  • Four environmental objectives and two essential criteria for the assessment of economic activities that act as the foundation to safeguard the environment and promote transition to low-carbon and environmentally sustainable practices;
  • A list of focus sectors that the Plus Standard will cover as a first step. These include the six most material sectors in terms of GHG emissions and gross value add (agriculture, forestry and fishing; electricity, gas, steam and air-conditioning supply; manufacturing; transportation and storage; water supply, sewerage and waste management; and construction and real estate), and three enabling sectors whose products and services contribute to achieving environmental objectives (information and communication; professional, scientific and technical; and carbon capture, storage and utilization);
  • A sector-agnostic decision tree to guide users of the Asean Taxonomy in classifying economic activities under the Foundation Framework, with suggestions for additional sector-specific guidance for member states and entities who seek more specific guidance; and
  • The “stacked approach” that will be used to determine thresholds and technical screening criteria under the Plus Standard, which will be developed in the next phase.

The environmental objectives and essential criteria, as well as the sector-agnostic decision tree that make up the Foundation Framework, are designed to be readily applicable to all member states as well as stakeholders in the financial sector and business enterprises.

For member states and stakeholders that require more guidance, the Plus Standard, which will cover the technical screening criteria and quantifiable thresholds for activities within the selected focus sectors when finalized, can be adopted based on their individual readiness.

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