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A previous Briefing Note covered the EU Taxonomy, but it is important to be aware what Taxonomies are and that Taxonomies are proliferating.
Taxonomy is the science of naming, describing and classifying all plants, animals and microorganisms of the world. A taxonomy is used to categorise organisms (often in a hierarchy) to promote standardised communication. The EU Taxonomy (and others of its ilk) are classification tools for green or sustainable financial investments that define and set environmental standards that must be met to be considered sustainable.
Canada is about to release its own Taxonomy for transition to a carbon neutral economy by 2050 designed to facilitate the growth of the sustainable finance market. Canada’s taxonomy will be voluntary but based on the principle of ‘best in class’ to avoid vulnerability to scrutiny and to promote idealism.
One should note that the UK has not committed to abiding by the EU Taxonomy after 1st January 2021, but has already committed to being carbon neutral by 2050 and is likely to implement its own standards.
Such is the global importance of carbon neutral transitions in finance and the burgeoning activity in this area, other countries, too, such as Colombia, China, South Africa and Malaysia are developing their own transition Taxonomies and researchers from Japan have produced a guide to transition finance (https://www.researchgate.net/publication/344456378_Transition_Finance_Guidance_Final_version_httprief-jporgbook107163) and the OECD has produced its own guide (https://www.oecd.org/environment/developing-sustainable-finance-definitions-and-taxonomies-134a2dbe-en.htm).
The development and proliferation of regulations (Taxonomies) for sustainable finance are a necessary part of the governance structure, but there is no guarantee of meaningful collinearity between national taxonomies (commonalties in standards) nor enforced compliance. This is clearly a developing area to continue to watch.
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