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Developing Sustainable Finance Definitions and Taxonomies

image of Developing Sustainable Finance Definitions and Taxonomies

A number of countries have created official definitions of sustainable finance as well as more comprehensive classification systems, referred to as sustainable finance taxonomies. This report maps sustainable finance definitions and taxonomies in five jurisdictions: the European Union, People’s Republic of China, Japan, France and the Netherlands. Taxonomies answer a need for greater certainty on the environmental sustainability of different types of investments. When appropriately designed, they can improve market clarity, bring confidence and assurance to investors, and facilitate the measurement and tracking of sustainable finance flows. The report lays out preliminary considerations for good design of taxonomies, which can support policy makers to develop and grow sustainable finance markets to help achieve environmental and sustainable development goals. It also identifies differences among the taxonomies in scope as well as commonalities. These commonalities could provide a basis for creating comparable frameworks that facilitate international investment while also reflecting differing national circumstances.

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Foreword

This report aims to provide policy makers with information and preliminary policy considerations in the emerging field of official definitions of sustainable finance. It examines the recently adopted EU Regulation on the establishment of a framework to facilitate sustainable investment (the “EU taxonomy”), as well as official definitions of sustainable finance in Japan, China, France and the Netherlands. It maps similarities in the coverage of certain economic sectors, such as renewable energy. It also identifies differences, in sector coverage but also in terms of approaches in principle to defining what it sustainable. [For instance, the EU regulation stands out in its combined approach of several environmental objectives, with a substantial contribution to one objective such as climate mitigation joined with a no significant harm requirement for other environmental objectives such as adaptation and other natural capital objectives]. It provides details of the frameworks that each of the above jurisdictions adopted in terms of official definitions of sustainable finance.

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