The Monetary Authority of Singapore (MAS) rolled out a comprehensive taxonomy for sustainable finance, focusing on climate change mitigation.
The Singapore-Asia Taxonomy for Sustainable Finance is a groundbreaking system that defines the clear criteria and thresholds defining green and transition activities.
It spans eight pivotal sectors: Energy, Real Estate, Transportation, Agriculture and Forestry/Land Use, Industrial, Information and Communication Technology, Waste/Circular Economy, and Carbon Capture and Sequestration.
A key highlight is the introduction of a pioneering “transition” category, specifically contextualised for the Asian region. This category defines activities that may not currently meet green thresholds but are on a trajectory towards net-zero outcomes or actively contributing to achieving them.
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The taxonomy has two innovative approaches to define transition activities: a traffic light system and a measures-based approach.
The former categorises activities as green, transition, or ineligible across the eight sectors, while the latter incentivizes capital investments in decarbonization measures, aiming to reduce emissions intensity and meet green criteria progressively.
“Defining transition is particularly salient in Asia, where the progressive shift towards a net zero economy is taking place alongside economic development, population growth, and rising energy demands,” MAS said in a statement, adding that this can mitigate the risks of greenwashing or transition washing, providing much-needed clarity in the financial landscape.
This taxonomy is expected to aid financial institutions in identifying and disclosing the alignment of their financed activities with the taxonomy’s principles.
The taxonomy also establishes a credible framework for the phased-out transition of coal-fired power plants (CFPPs) which is crucial in the Asia-Pacific region where coal accounts for nearly 60% of power generation.
Notably, the taxonomy sets stringent entity and facility-level criteria for the phase-out process, aligning with a 1.5°C scenario. It mandates the replacement of electricity from phased-out CFPPs with clean energy within the same electricity grid and necessitates a just transition plan for affected coal plant workers.
To enhance global alignment, MAS is mapping the Singapore-Asia Taxonomy to the International Platform for Sustainable Finance’s Common Ground Taxonomy (CGT).
Once completed, this alignment is expected to bolster taxonomy-aligned financing solutions and promote sustainable development in markets covered by the CGT, including the EU Taxonomy and People’s Bank of China’s Green Bond Endorsed Project Catalogue.
Through collaborations like the Singapore-China Green Finance Taskforce, MAS aims to promote financial products referencing the China Green Bond Catalogue, the Singapore-Asia Taxonomy, and the CGT once the mapping is completed.
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