Last year, the Monetary Authority of Singapore (MAS) introduced the Singapore-Asia Taxonomy, a new framework for sustainable finance. This taxonomy outlines specific criteria for identifying green and transition activities within eight key sectors, marking a significant step forward in regional sustainability efforts. This article explores the core aspects of this taxonomy and provides practical insights for businesses to understand and use these new requirements effectively.
What does the Singapore-Asia Taxonomy entail?
The Singapore-Asia Taxonomy aims to provide a comprehensive framework to guide businesses and investors in identifying sustainable and transition activities. It uses a “traffic light” system to classify activities into three categories:
Green Activities: These contribute substantially to climate change mitigation by operating at near-zero emissions or following a 1.5°C-aligned pathway.
Amber (Transition) Activities: These activities are in transition towards greener standards or facilitate significant short-term emissions reductions. They are not yet fully aligned with a 1.5°C pathway but are expected to move towards this goal by a defined “sunset date,” generally set around 2030.
Ineligible Activities: These activities are either directly unsustainable or not compatible with the 1.5°C pathway, such as high-carbon sectors requiring substantial emissions reductions or phase-out.
Introduction of The Transition Category
The amber (transition) category acknowledges that some sectors may not immediately meet the green criteria but play a crucial role in achieving short-term emissions reductions. This category allows for a structured pathway towards sustainability, incorporating both immediate reductions and long-term goals. Activities in this category must demonstrate a commitment to moving towards green standards, with a sunset date (usually around 2030) ensuring that they will eventually align with these stricter criteria. The detailed criteria and thresholds for each category help prevent greenwashing and ensure transparency and credibility in sustainability claims.
Who is Impacted?
The taxonomy impacts various stakeholders:
Financial Institutions: Banks, investment funds, and other financial entities are primary users. They need to classify their investments according to the taxonomy and report on their alignment with green and amber criteria.
Businesses: Companies will use the taxonomy to align their operations with sustainability goals, access green finance, and ensure regional and international standards compliance.
Policymakers and Regulators: They can use the taxonomy to shape environmental policies, direct capital flows towards sustainable activities, and assess financial stability risks related to unsustainable practices.
Key Sectors Affected
The taxonomy targets eight sectors with significant environmental impacts: energy, maritime transport, manufacturing, agriculture, real estate, waste management, water and wastewater management, and Information and communication technology (ICT). Businesses in these sectors must align their operations and reporting with the taxonomy’s guidelines, enhancing their sustainability credentials and access to sustainable finance. For example, the taxonomy sets interim transition thresholds for the maritime sector, promoting the use of low-carbon fuels, and outlines criteria for phasing out coal-fired power plants responsibly.
Impact on Financial Institutions
Financial institutions are crucial to the success of the Singapore-Asia Taxonomy. By integrating the taxonomy into their financing activities, they can more effectively evaluate the environmental impact of their investments and contribute to regional sustainability goals. Financial institutions must classify their investments, report on their alignment with the taxonomy, and use the taxonomy to attract investors interested in reliable green and transition investments. Adopting the taxonomy helps institutions secure funding and ensures compliance with rigorous sustainability standards.
Global Interoperability
To enhance global coherence, the Singapore-Asia Taxonomy is being aligned with the International Platform for Sustainable Finance (IPSF)’s Common Ground Taxonomy (CGT), which integrates the EU Taxonomy and the People’s Bank of China’s (PBOC) Green Bond Endorsed Project Catalogue. This alignment aims to establish a unified set of definitions, facilitating cross-border investments and taxonomy-aligned financing solutions. Additionally, the Monetary Authority of Singapore (MAS) is collaborating with the PBOC through the Singapore-China Green Finance Taskforce to promote financial products that reference both the China Green Bond Catalogue and the Singapore-Asia Taxonomy, further streamlining cross-border financing flows.
Canada has also introduced their own sustainable investment guidelines, aimed at accelerating progress toward net-zero emissions by 2050. Known as a taxonomy, these guidelines classify investments based on scientifically backed criteria that align with the goal of limiting global temperature rise to 1.5°C. Canada’s taxonomy will promote green investments in low- or non-emitting activities and include a “transition” category to help decarbonize emissions-intensive sectors. By focusing on key industries such as energy, transportation, and agriculture, this initiative aims to drive private investment into sustainable economic activities. Like Singapore, Canada is aligning its sustainability standards with global benchmarks, allowing investors to assess opportunities consistently across markets.
Benefits of the Taxonomy
The Singapore-Asia Taxonomy offers numerous advantages for businesses by establishing clear and standardized definitions and reporting requirements. It helps companies align their practices with regional and global sustainability goals, improves environmental impact assessments, and integrates sustainability into core operations. This alignment strengthens market position and supports broader climate objectives. Key benefits of the Taxonomy include:
- Clarity in communication for financiers, issuers, policymakers, and regulators through a unified language.
- Alignment with global commitments by translating sustainability goals, such as those outlined in the Paris Agreement, into actionable criteria for investors.
- Transparency and consistency in reporting for financiers, companies, and government agencies.
- Understanding of environmental risks and opportunities, which supports various investment styles and strategies for green and transitional investments.
- Contextualized environmental data that highlights how companies are progressing toward a low-carbon transition and building climate resilience.
- Mitigation of reputational risks by ensuring the credibility of sustainability claims.
- Incentives for sustainable practices, motivating companies to invest in green activities.
Leveraging Cority’s Sustainability Solutions
Cority offers robust solutions to help businesses adapt to the Singapore-Asia Taxonomy. Cority’s software streamlines the collection and analysis of environmental data, facilitating compliance with the taxonomy’s criteria. Real-time reporting capabilities enable businesses to track their progress against the taxonomy’s thresholds, making informed decisions about their sustainability strategies.
Moreover, Cority provides strategic advisory services to assist businesses in developing and implementing effective sustainability strategies. This includes identifying investment opportunities in decarbonization technologies, ensuring regulatory compliance, and aligning financial planning with sustainable finance opportunities. Cority’s comprehensive approach equips businesses with the tools and expertise needed to navigate the new regulatory landscape and capitalize on emerging opportunities.
Resources:
https://www.mas.gov.sg/development/sustainable-finance/green-finance-industry-taskforce
https://www.climatebonds.net/files/reports/guidelines_for_financing_a_credible_coal_transition.pdf
