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.

As finance is making further forays in the areas of sustainable investing and more recently in green recovery stimulus packages, investors have been seeking more clarity on how sustainable investments is defined. The report argues that some benefits can be brought to the market, including increasing investor confidence and market integrity, by having clearer definitions of sustainable finance. It also points to some elements of good practice in designing such definitions, including the necessity to be consistent with national climate objectives and pathways, and taking a system view in the design of principles, metrics and thresholds for identifying sustainable investments.

Developed by the Secretariat for the Working Party on Climate Investment and Development of the Environmental Policy Committee, the report has benefitted from the observer role of the OECD in the Technical Expert Group on Sustainable Finance of the European Commission. The group worked for two years on developing the detailed screening criteria for sustainable economic activities that were proposed to the Commission as a basis of the Delegated Act of the EU Taxonomy regulation, adopted in June 2020. The Environment Directorate of the OECD was pleased to be able to contribute its environmental expertise to the work of this group. Going forward, the OECD sits as an observer in the Platforms established by the EU to pursue the domestic development and international dialogue on taxonomies.

Dialogue across governments, and between public and private finance institutions, including multilateral organisations, is of paramount importance to facilitate the emergence of definitions of sustainable finance that will give the market the confidence that it requires to invest more and to invest better. Several OECD member and non-member countries have developed or are considering developing taxonomies of sustainable finance. Taxonomies link into the work of major international governmental platforms such as the Central Bank’s Network for Greening the Financial System, or the Coalition of Finance Ministers for Climate Action, with the OECD being an observer on both platforms.

At the cross roads between environment and finance, sustainable finance taxonomies can be part of the policy toolkit for better investment for better lives. The present report proposes initial policy considerations in relation to definitions of sustainable finance. The OECD stands ready to assist governments and international dialogue in their taxonomy related work.

Rodolfo Lacy, Director, Environment Directorate.


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