A brief history of taxonomies in Asia

Taxonomies have emerged as vital tools for sustainable finance, providing clarity on sustainable activities. The EU taxonomy, established in 2021, is a benchmark, but Asia has developed its frameworks. China was an early adopter with its Green Bond Endorsed Projects Catalogue (GBEPC) in 2015. Countries like Singapore, Thailand, and Indonesia have since followed suit.

Principles and features

A robust taxonomy must provide clear definitions, science-based criteria, and transparency to avoid greenwashing. Singapore and the EU offer comprehensive frameworks covering multiple sectors. In contrast, Malaysia and the Philippines rely on qualitative assessments, allowing subjective interpretations, which may weaken their ability to guide sustainable investments effectively.

Disclosures

Most Asian taxonomies are voluntary, with few mandatory reporting requirements. The EU mandates disclosure, enhancing accountability. Singapore and Hong Kong may introduce mandatory reporting in specific sectors, but the current lack of compulsory reporting in most Asian countries raises concerns about transparency.

The stance towards fossil fuels in the region’s taxonomies

Fossil fuels are treated differently across Asian taxonomies. Indonesia allows new coal plants to be classified as green under certain conditions, while Thailand and Malaysia exclude coal entirely. Singapore’s traffic light system designates coal projects as inadmissible, except for accelerated shutdowns, and sets strict lifecycle emissions limits of under 100 gCO2e/kWh for gas projects.

Variations in defining transition finance

Transition finance is crucial for economies striving to decarbonise. The ASEAN taxonomy and Singapore’s framework use a traffic light system to classify activities as green, amber (transitional), or red (non-compliant). Singapore includes sunset clauses, ensuring that transition activities either progress to green or phase out. Indonesia’s criteria are more lenient, permitting high-emission activities under certain conditions.

Emission standards and transition thresholds

Singapore and Hong Kong apply stringent lifecycle emissions limits of 100 gCO2e/kWh for green classification, which Singapore will tighten further by 2035. Indonesia has the most lenient criteria, allowing up to 510 gCO2e/kWh for transition activities, raising questions about its commitment to emissions reduction.

Narrow focus

Many Asian taxonomies focus on specific environmental objectives, often neglecting broader goals like biodiversity protection. While the EU incorporates social safeguards like the “Do No Significant Harm” (DNSH) principle, few Asian frameworks, such as Singapore’s, include similar provisions.

Significant trends at regional and national levels

At a regional level, the ASEAN taxonomy has set a framework for transition finance, using a traffic light system. However, it remains voluntary and serves only as a model for member countries. Singapore leads with the most comprehensive taxonomy, using detailed technical criteria and strict emissions standards to guide green and transition activities. However, emerging technologies, such as hydrogen readiness, pose challenges for enforcement.

Hong Kong focuses on four key sectors—electricity, transport, construction, and waste management—and aligns closely with EU standards. This supports interoperability, though the city’s taxonomy is expected to expand to include social and environmental safeguards.

China uses the GBEPC, a whitelist of green projects, rather than a formal taxonomy. Efforts are being made to align it with the EU through the China-Europe Common Ground Taxonomy (CGT), though China continues to support fossil fuels through green bond issuances.

Indonesia’s taxonomy is the most lenient, allowing new coal plants and other high-emission activities to be classified as green under certain conditions. This raises concerns about its alignment with global sustainability goals.

Thailand’s taxonomy excludes coal from being classified as green and limits gas use in new power plants. In Malaysia and the Philippines, the principles-based taxonomies lack quantitative criteria, which could lead to inconsistent assessments.