SINGAPORE: In a move towards a sustainable financial future, on Sunday, Dec 3, the Monetary Authority of Singapore (MAS) unveiled the Singapore-Asia Taxonomy for Sustainable Finance.

This taxonomy, a global first, establishes detailed criteria and thresholds to define green and transition activities contributing to climate change mitigation across eight focus sectors in energy, real estate, transportation, agriculture and forestry/land use, industrial, information and communication technology, waste/circular economy, carbon capture, and sequestration.

The progressive shift towards a net-zero economy in Asia, accompanied by economic development and rising energy demands, necessitates clarity on sustainable and transition financing. The Singapore-Asia Taxonomy addresses this need by introducing the innovative concept of a “transition” category, a move crucial for the Asian region.

Transition activities are outlined through a traffic light system, distinguishing between green, transition, and ineligible activities across the eight focus sectors. The “transition” label applies to activities not meeting green thresholds but progressing towards net-zero outcomes. To emphasise the importance of achieving a 1.5-degree Celsius-aligned outcome, transition thresholds come with a sunset date.

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The “measures-based approach” encourages capital investments in decarbonisation measures or processes to reduce emissions intensity and meet green criteria over time.

Sectors facing challenges in emissions reduction, such as the maritime sector, find credible transition thresholds crucial. The introduction of amber thresholds caters to vessels aligned with industry targets to reach net-zero emissions by 2050. This includes intermediate goals of a 20% reduction by 2030 and a striving for 30%, compared to 2008 levels.

Addressing the pressing need to phase out coal-fired power plants (CFPPs), the Singapore-Asia Taxonomy outlines a credible framework. With coal constituting nearly 60% of power generation in the Asia-Pacific region, the taxonomy sets criteria for the entity and facility levels. This includes a just transition plan and the full replacement of electricity from phased-out CFPPs with clean energy within the same grid.

To enhance global interoperability, MAS is mapping the Singapore-Asia Taxonomy to the International Platform for Sustainable Finance’s Common Ground Taxonomy (CGT). This includes the EU Taxonomy and the People’s Bank of China’s (PBOC) Green Bond Endorsed Project Catalogue. The mapping will facilitate common definitions, increasing taxonomy-aligned financing solutions and promoting sustainable development across covered markets.

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MAS Managing Director, Mr Ravi Menon, highlighted the taxonomy’s significance as the first globally to define transition activities credibly. He stated, “The Singapore-Asia Taxonomy is a significant milestone for several reasons. First, it is the first taxonomy globally that sets out credible definitions for transition activities. In most cases, we cannot go directly from brown to green. We need to go through a transition phase but we need to make sure this transition is credible. Second, this taxonomy has extensive coverage – it covers sectors making up 90% of the region’s greenhouse gas emissions. It will serve as a guide to allocate capital into green and transition activities for the region. Third, this taxonomy is industry-led. It draws extensively on the experience of financial institutions and real economy players engaged in transition activities in the region. It has gone through four rounds of public consultations.”

Chair of Green Finance Industry Taskforce (GFIT) and HSBC Singapore CEO, Mr Wong Kee Joo, acknowledged the taxonomy’s impact on optimising support for hard-to-abate sectors. He said, “The Singapore-Asia Taxonomy takes an Asian perspective and offers a measures-based approach to defining transition activities, categorising them as “amber”. This framework aims to help financial institutions optimise their support for the transition of hard-to-abate sectors, particularly in Asia. Its impact has been felt with the adoption of the proposed traffic-light approach by the ASEAN Taxonomy and other taxonomies in the region, further strengthening Singapore’s position as a leader in sustainable finance.”

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The Singapore-Asia Taxonomy will undergo periodic reviews to align with emerging science and technology improvements. For more information on Singapore-Asia Taxonomy, check the Singapore-Asia Taxonomy for Sustainable Finance 2023 Edition. /TISG