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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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Preliminary reflections on policy considerations relevant to sustainable finance definitions and taxonomies

This chapter proposes initial policy considerations relevant to the design of sustainable finance taxonomies by policy makers. For instance, taxonomies can deal with economic activities, or with financial products. They can cover a variety of environmental objectives. They can target different “shades of green”, ranging from activities that are already aligned with environmental objectives, to transition activities, even to “dirty” activities at the opposite end of the spectrum. The stringency of criteria, geographical scope, and adaptability to innovation are additional examples of design considerations.

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