If you are a green and sustainable investor in Asia you’re likely to get confused about the various taxonomies that apply across Asia. But clarity is needed to accelerate the net zero transition and ensure it’s effective and equitable, according to a new report from Institute for Energy Economics and Financial Analysis, which seeks to clarify the various approaches across jurisdictions.
According to the institute Singapore, Thailand, and Hong Kong taxonomies have the most stringent quantitative criteria delineating only lifecycle emissions under 100 grams of carbon dioxide per kilowatt-hour (classified as green).
In China, Green Bond Endorsed Projects Catalogue excludes gas financing as eligible, while the Hong Kong, Singapore, and Thailand taxonomies are similar in this regard. But most other Asian taxonomies are more permissive with gas.
Report author Ramnath N Iyer, IEEFA’s Sustainable Finance Lead, Asia, identified the Indonesian taxonomy as an outlier in terms of its lenient classification criteria.
“In Indonesia, financing for new and existing coal plants is classified as green or transition finance. It also allows for the use of carbon offsets (generally not an acceptable form of emission reduction for taxonomy purposes) and assumes the widespread availability and adoption of the unproven carbon capture and storage technology.”
The Indonesian taxonomy contradicts prevailing standards and risks losing credibility in international sustainable finance if such financing is classified as green or transition finance, Iyer said.
In Europe the EU Taxonomy regulation, established in 2021, is the most comprehensive framework and is the only taxonomy that has made reporting mandatory for corporations. “The EU’s Corporate Sustainability Reporting Directive (mandates that companies disclose their taxonomy alignment, providing a clear framework for accountability. Most Asian taxonomies, however, have limited or non-existent mandatory requirements for disclosure, being entirely voluntary,” Iyer said.