What is a Green Taxonomy?
The Green Swan Initiative’s Response to the Green Finance Industry Taskforce (GFIT) Taxonomy Public Consultation on Identifying a Green Taxonomy and Relevant Standards for Singapore and ASEAN
With increasing attention on the sustainability of financial products, especially in the wake of the COVID-19 crisis, we have witnessed unparalleled financial flows towards green, social and sustainability bonds and ESG-funds.1 This has stoked fears of a “green” bubble2 , with investors drawing parallels between the market for sustainable assets and tech stocks during the dot-com bubble.3
Despite the boom in the ESG market, it is doubtful as to whether capital is actually flowing towards achieving sustainability goals - in mid March 2021, former Blackrock Chief Investment Officer of Sustainable Investing wrote an expose opinion piece on greenwashing in sustainable finance.4 With little regulation over “green” and “sustainable” labels, many existing mutual funds have been rebranded as such without any substantial change to the fund or its underlying strategies. The phenomenon is so pervasive that the United States Securities and Exchange Commission announced in March 2021 that it was creating a Climate and ESG Task Force to identify ESG-related misconduct, including inaccurate disclosures by funds and companies.5
Central to ensuring that capital is channeled to support climate targets is the use of taxonomies. Taxonomies are a classification system grouping economic activities according to how closely aligned they are to certain objectives - these objectives may include climate adaptation, climate mitigation, Sustainable Development Goals (SDGs),6 or even social and governance objectives. In other words, taxonomies define what is green in order to minimise greenwashing.
As seen from the EU’s experience with releasing their Taxonomy7 , the formulation of a taxonomy is a highly politically sensitive exercise, with the fossil fuel sector and environmental groups representing two ends of competing interests. It is with balancing different interests in mind that the Singapore Green Finance Industry Taskforce (“GFIT”) released a Consultation paper8 on developing a Singapore Taxonomy in January 2021. To that end, the Green Swan Initiative submitted our feedback for the Consultation on 11 March 2021. You can access our response here: download PDF.
footnotes
1 Tim Quinson (2021), The Boom in ESG Shows No Signs of Slowing, Bloomberg Green bloomberg.com/news/articles/2021-02-10/the-490-billion-boom-in-esg-shows-no-signs-of-slowing-green-insight
2 Billy Nauman (2021), ‘Green bubble’ warnings grow as money pours into renewable stocks, Financial Times, ft.com/content/0a3d0af8-7092-44c3-9c98-a513a22629be
3 NLars Erik Taraldsen and Ott Ummelas (2021), World’s Biggest Wealth Fund Draws Dot-Com Parallel With ESG, Bloomberg, bloomberg.com/news/articles/2021-02-25/world-s-biggest-wealth-fund-draws-dot-com-parallel-with-esg
4 Tariq Fancy (2021), Financial world greenwashing the public with deadly distraction in sustainable investing practices, USA Today, usatoday.com/story/opinion/2021/03/16/wall-street-esg-sustainable-investing-greenwashing-column/6948923002/
5 US Securities and Exchange Commission (2021), SEC Announces Enforcement Task Force Focused on Climate and ESG Issues, sec.gov/news/press-release/2021-42
6 The Sustainable Development Goals were set in 2015 by the United Nations General Assembly and designed to be a blueprint to achieve a better and more sustainable future
7 Mehreen Khan (2020), Scientists warn of ‘disconnect’ between EU climate goals and finance rules Experts, Financial Times, ft.com/content/3b017b2b-e8a5-4ea0-b7d0-c96337e33e5f
8 Green Finance Industry Taskforce (GFIT) (2021), Taxonomy Consultation Paper, Association of Banks in Singapore, abs.org.sg/industry-guidelines/gfit-taxonomy-public-consultation