Sustainability Financing: Singapore Again Consults on ‘Green’ Taxonomy and Relevant Standards

Singapore’s Green Finance Industry Taskforce (GFIT) revealed a second session paper on 12 May 2022, proposing detailed thresholds and standards for a revised Singapore taxonomy for Singapore-based monetary establishments to determine “green” actions or actions transitioning in direction of inexperienced.

This paper comes after a January 2021 session paper, which broadly launched a “traffic light” system for classifying actions as inexperienced (environmentally sustainable), amber (transition), or crimson (dangerous) primarily based on their contributions to a proposed set of environmental targets.

SUMMARY OF SECOND CONSULTATION PAPER

The second session paper builds on the assist of this taxonomy by expounding on the site visitors mild system for a narrower group of focus sectors.

First, it proposes a mixture of principle-based standards and thresholds for financial actions in, initially, three sectors: power, transport, and actual property. These sectors have been prioritized as they’re decided to have the best environmental influence in Singapore.

Under the revised site visitors mild system, an financial exercise could also be categorised as inexperienced, amber, or crimson relying on its stage of contribution to local weather change mitigation, one in every of 5 environmental targets.

Second, the session paper provides granularity to the utility of the site visitors mild system, because it sub-categorizes actions within the power, transport, and actual property sectors and proposes detailed metrices and thresholds for every of them. This minimises ambiguity and the potential for greenwashing round monetary merchandise and providers, which ought to in flip stimulate demand for environmentally sustainable financing.

Third, the session paper supplies detailed steerage on the reporting of an organization’s income, capital expenditures, and working expenditures which can be aligned with the inexperienced taxonomy standards.

TAXONOMY IN PRACTICE

The key objective of creating a inexperienced taxonomy for Singapore-based monetary establishments (FIs) is to encourage the move of capital to assist the low-carbon transition wanted to keep away from catastrophic local weather change, in addition to the environmental targets of Singapore and the Association of Southeast Asian Nations (ASEAN), that are serviced by Singapore-based FIs.

A key characteristic of the taxonomy is to contribute to, and improve interoperability with, different regional and nationwide taxonomies. Accordingly, this could assist market members to measure and examine environmental efficiency, in addition to align belongings and companies throughout jurisdictions at a decrease transaction price.

Who Will Use the Taxonomy?

It is anticipated that Singapore-based FIs offering debt and/or fairness capital can be the first customers of the taxonomy. Companies, regulators, and different monetary market members that have to outline inexperienced actions, on the opposite hand, can be secondary customers of the taxonomy.

How May the Taxonomy Be Used for Each Stakeholder?

For FIs, the taxonomy can function a strong device to redirect capital flows in direction of sustainable and low-carbon transition actions. It can help them of their decision-making when allocating capital to completely different firms, funding funds, and different autos which can be aligned with their environmental targets.

For firms, the taxonomy can facilitate clear and constant disclosures of their very own financial actions and environmental profile. By serving to firms align their companies to inexperienced financial actions, this might additionally help them in getting access to inexperienced financing alternatives.

Moving ahead, it’s proposed that FIs begin reporting on their taxonomy alignment from 2023 onwards. Over the following one to a few years, it is strongly recommended that buyers report their eligibility and the alignment of their investments with the taxonomy utilizing the exercise classification system. In the long run, as firms start to report activity-level monetary information and metrics on the alignment of their actions utilizing technical screening standards, buyers ought to report each eligibility and alignment of their investments with the taxonomy.

NEXT STEPS

GFIT goals to launch the standards and thresholds for the remaining 5 sectors for local weather change mitigation in late 2022 and to finalise the total inexperienced taxonomy in 2023. In the meantime, all suggestions on the second session paper have to be submitted to GFIT by 23 June 2022. Please contact us if you want help on consolidating and submitting your suggestions on the second session paper.

ABOUT GFIT

Convened by the Monetary Authority of Singapore, GFIT is an industry-led initiative comprising representatives from FIs, corporates, non-governmental organisations, and monetary {industry} associations. It seeks to speed up the event of inexperienced finance by means of 4 key initiatives: (1) creating a taxonomy, (2) enhancing the environmental danger administration practices of FIs, (3) enhancing disclosures, and (4) fostering inexperienced finance options.

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