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News & Views

Singapore set to publish green taxonomy

Singapore’s Green Finance Industry Taskforce has launched the final consultation on a green taxonomy that will have wide-ranging impact on climate finance across Asia.

Content Tags: Banking  SE Asia 

Singapore, Southeast Asia’s financial hub, will soon join the ranks of jurisdictions that have defined, after extensive consultations, what is green and what is not. The country’s central bank, the Monetary Authority of Singapore (MAS), this month announced a final public consultation on its proposed classification system.

Within a country’s sustainable finance regulatory toolbox, a taxonomy is indispensable. Green taxonomies are essentially classification schemes – rules of the game that decree which activities are in line with a climate change mitigation objective and to what extent. Amongst the many actors involved in channelling capital into decarbonisation, it sets out the lowest common factor.

To assist with the task, the MAS has convened a taskforce. The Green Finance Industry Taskforce (GFIT) comprises the top echelons of the corporate, financial and non-governmental sector entities operating out of Singapore. Banks, asset managers and insurers are involved too. Developing Singapore’s taxonomy is one of its core mandates.

The Singaporean taxonomy will target five goals: mitigation, adaptation, protecting biodiversity, promoting the circular economy and pollution control. On paper, this is a standard assortment of policy goals. However, the strategy bit of the puzzle is where taxonomies get drawn into fierce debates. Singapore’s proposed taxonomy strategy, currently in its third and final public consultation, is significant for three reasons:


Singapore’s green taxonomy will set a powerful precedent for the shape, modes and intensity of climate finance in Asia.

Atharva Deshmukh, head of research, Net Zero Investor

Atharva Deshmukh, head of research, Net Zero Investor

1. Stop. Watch. Go

    The proposal adopts what the MAS calls a “traffic light classification system”. The argument here is that economic activities can vary in their expected contribution to each of the five taxonomy objectives. A “green” classification means an activity “contributes significantly” to a net-zero pathway, while “red” refers to “harmful” activities, not aligned with decarbonisation.

    The “amber” category deals with the most political of them all – “transition” activities. In the recent past, contests over what is transitional in nature have attracted criticism in Europe. Some argue that if an activity produces relatively lower, albeit high, emissions, but enables a broader systemic tilt (for instance, through affordability or availability of supply) then it is, within a time frame, acceptable in the short term. Think coal-based energy systems choosing to rely on gas while renewables play catch-up.

    Critics of this argument suggest that such strategies could set in motion a lock-in effect for some “transition” activities and that the timeline could then be exceeded. The MAS definition says that transition activities are those that “are either transitioning towards green within a certain time frame or enabling significant emissions reductions in the short term”.

    The “amber” category is particularly challenging to operationalise for the industrials sector. Primarily, this is due to the uncertainty that surrounds emissions-reduction technology – something the GFIT acknowledges.

    Singapore’s taxonomy adopts a “measured-based” approach to deal with this. The GFIT says this approach “requires the production process of the industrial raw materials to adopt a range of emissions-reduction measures. For example, in cement manufacturing, the amber category in the taxonomy provides a list of decarbonisation measures or retrofitting plans which should be put in place to support better energy efficiency outcomes”.

    2. Do No Significant Harm

      As part of its proposals, the GFIT is soliciting opinions on what is known as the “Do No Significant Harm” (DNSH) criteria. This is something Europe’s policymakers have introduced too. In the EU’s case, accompanying laws introduced clarifications regarding what “significant harm” is defined as.

      The DNSH criteria are meant to address the interdependent nature of the taxonomy policy objectives. They state that while meeting one or more objectives, an activity must not cause “significant harm” to the others.

      To clarify what this means, the GFIT cites a case study: “The construction of a hydropower generation facility may have met the thresholds and criteria to be classified as a green activity under the climate change mitigation objective. The DNSH criteria would additionally require that the construction and operation of the facility not result in significant adverse impact to the environmental ecosystem within the vicinity of the facility, and the facility owner has to demonstrate that practical measures will be put in place to mitigate any adverse impact.”


      The taxonomy’s extensive activity and emissions coverage will encourage Singapore-based financial institutions to direct capital flows towards green and transition activities, thereby guiding the region’s transition to a low-carbon future.

      Gillian Tan, chief sustainability officer, MAS

      3. Regional footprint

        What happens in Singapore is hugely consequential to the wider region. The taxonomy is no different. Gillian Tan, chief sustainability officer and assistant managing director (development and international) for MAS, said: “The GFIT taxonomy will drive financing flows to catalyse Asia’s transition to net zero. Adapting international best practices for use in Asia, the taxonomy’s extensive activity and emissions coverage will encourage Singapore-based financial institutions to direct capital flows towards green and transition activities, thereby guiding the region’s transition to a low-carbon future.”

        In addition, the set of sectors that Singapore’s taxonomy covers account for nearly 90% of the region’s emissions.

        In addition, Singapore is one of the region’s leading sources of finance. Historically, the country’s asset management industry has attracted significant pools of global capital, deploying more than 60% of assets under management in the Asia-Pacific in 2019. So, naturally, Singapore’s green taxonomy will set a powerful precedent for the shape, modes and intensity of climate finance in Asia.

        Atharva Deshmukh is Net Zero Investor’s head of research.

        Content Tags: Banking  SE Asia 

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