What are Sustainable Finance Taxonomies?

Meggie Eloy

5 years: Technical analysis

In this video, Meggie dives into the world of taxonomies in sustainable finance, explaining their role in classifying sustainable economic activities and preventing greenwashing. She explores how taxonomies guide investments, enhance transparency, and align with global and regional sustainability goals. Meggie highlights the essential elements of effective taxonomies, such as clear objectives, eligible sectors, and scientific screening criteria. She also discusses key examples, including the EU and ASEAN taxonomies, and the importance of interoperability to harmonise standards while accommodating regional differences.

ESG Bond Markets

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What are Sustainable Finance Taxonomies?

7 mins 17 secs

Key learning objectives:

Understand the purpose and structure of taxonomies in sustainable finance
Recognise the role of taxonomies in preventing greenwashing and ensuring investment transparency
Identify the essential elements of a good taxonomy, including objectives, eligible sectors, activities, and screening criteria
Outline the importance of regional and global interoperability among taxonomies

Overview:

Taxonomies classify sustainable economic activities, guiding investments and preventing greenwashing. They define criteria for labelled bonds, ensuring transparency and credibility. Various users, including financial institutions, governments, and companies, apply taxonomies to align with sustainability goals. Effective taxonomies have clear objectives, sectors, activities, and scientific screening criteria. Global taxonomies like the EU and ASEAN models vary but emphasise regional needs. Interoperability across taxonomies is vital to harmonise standards and support 1.5°C climate goals while accommodating local differences.

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Summary

What are taxonomies, and why are they relevant to sustainable finance?

Taxonomies are classification systems that define sustainable economic activities. They guide issuers, investors, and policymakers in aligning with recognised standards, ensuring labelled bonds meet sustainability criteria, attract investors, and avoid greenwashing.

Who uses taxonomies, and how do they benefit?

Financial institutions, companies, investors, project developers, and governments use taxonomies to ensure compliance, transparency, and alignment with sustainability goals. They help evaluate investments, promote green projects, and support decision-making, reporting, and incentives.

What makes a taxonomy effective?

Effective taxonomies include clear objectives, eligible sectors and activities, and scientific screening criteria, ensuring quantifiable, binary standards. These features enhance credibility and support alignment with sustainability goals.

What are some examples of regional taxonomies and their differences?

Examples include the EU taxonomy, which incorporates "do no significant harm" principles and social safeguards, and the ASEAN taxonomy, which provides high-level guidance without technical thresholds. Regional taxonomies reflect local market needs but aim for interoperability.

Why is interoperability important in taxonomies?

Interoperability ensures consistency across taxonomies, preventing conflicting standards and promoting global alignment with the 1.5°C climate goal. It balances regional differences while maintaining common sustainability metrics.

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Meggie Eloy

Meggie Eloy is a Senior Technical Analyst in CBI's Capacity Building and Technical Assistance team, providing technical assistance to prospective debt issuers through portfolio reviews, entity readiness assessments, GSS+ training, and capacity building. She also supports clients in creating credible transition plans by reviewing existing plans to ensure they follow best practice guidelines. Prior to her role, she worked in CBI's Certification team, reviewing and processing green bond applications to determine certification. She has assisted in delivering over 300 billion US Dollars of Use of Proceeds debt instruments, focusing on limiting global warming to at or below a 1.5°C future. Meggie has worked across sectors such as Renewable Energy, Low Carbon Buildings, Low Carbon Transport, and the transition of hard-to-abate sectors like Steel, Cement, Hydrogen, and Basic Chemicals. She holds an MSc in Corporate Environmental Management from the University of Surrey, a BSc in Geography from the University of Leicester, and a CFA Level 4 qualification in Climate and Investing.

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