Singapore Finalises Sustainable Finance Taxonomy

The Singapore-Asia Taxonomy now provides a framework to phase-out coal-fired power plants, which MAS says is critical in APAC. 

The Monetary Authority of Singapore (MAS) has launched the Singapore-Asia Taxonomy for Sustainable Finance, which sets out detailed thresholds and criteria for defining green and transition activities that contribute to climate change mitigation across eight focus sectors.

The eight focus sectors are energy, real estate, transportation, agriculture and forestry or land use, industrial, information and communications technology, waste and circular economy, and carbon capture and sequestration – which together make up 90% of APAC’s GHG emissions.

In releasing the Singapore-Asia Taxonomy, MAS highlighted the importance of providing clarity on what constitutes sustainable and transition financing, saying this will help to reduce the risk of green or transition washing, as FIs will be able to identify and disclose how their financed activities and labelled products are aligned with the Taxonomy.

“Transition” category

MAS said the Singapore-Asia Taxonomy is the first taxonomy globally to pioneer the concept of a “transition” category. “This is in recognition of the need to properly contextualise ‘transition’ for the Asian region,” it said.

The Taxonomy defines transition activities through two new approaches:

  • A “traffic light system” that defines green, transition and ineligible activities across the eight focus sectors, where “transition” refers to activities that do not meet the green thresholds now but are on a pathway to net zero or contributing to net zero outcomes
  • A “measures-based approach” that seeks to encourage capital investments into decarbonisation measures or processes that will help reduce the emissions intensity of activities and enable the activities to meet the green criteria over time.

MAS says defining credible transition thresholds is especially pertinent to hard-to-abate sectors, i.e. those that find it challenging to reduce emissions and meet a 1.5°C aligned outcome due to current technological constraints.

For example, in the maritime sector, zero or low-carbon fuels are still in a nascent stage of technological evolution, and it is challenging for vessels to achieve the zero-emissions required to meet “green” thresholds.

As such, the introduction of amber thresholds caters to vessels that are aligned with industry targets under the 2023 International Maritime Organisation Greenhouse Gas Strategy to reach net zero emissions by or around 2050, which sets intermediate targets of reducing emissions by at least 20% and striving for 30% by 2030 compared to 2008 levels.

Coal phase-out

The Taxonomy has now gone through four rounds of public consultations over two years – in January 2021May 2022February 2023, and June 2023. The final version of the taxonomy was supposed to be published in June this year, but MAS decided in May that a fourth consultation was needed to include coal phaseout in the Taxonomy.

As such, the Singapore-Asia Taxonomy now provides a framework to phase-out coal-fired power plants (CFPPs), which MAS says is critical in APAC where coal accounts for almost 60% of power generation.

To ensure credibility of the early coal phase-out process, the Taxonomy sets out both entity and facility-level criteria that are aligned to a 1.5°C scenario. Such criteria include that the electricity generated from the phased-out CFPP must be fully replaced with clean energy within the same electricity grid and the coal plant needs to have a just transition plan.

The Glasgow Financial Alliance for Net Zero (GFANZ) Asia Pacific Network has separately published a finalised guide for financing the early retirement of CFPPs, setting out how financial institutions can assess the credibility and impact of a coal phaseout plan, and establish internal coal policies. It also provides case studies on financing mechanisms.

For CFPP phase-outs to be credible, the guide says the owner of the retiring plant must commit not to procure or invest in new coal plants, the coal plant must not be set up to benefit from the additional financing, and the phaseout plan should take into account socio-economic impacts, such as workforce transition.

Global interoperability

To enhance interoperability with global taxonomies, MAS has commenced an exercise to map the Singapore-Asia Taxonomy to the IPSF’s (International Platform for Sustainable Finance) Common Ground Taxonomy (CGT), which currently covers the EU Taxonomy and China’s Green Bond Endorsed Project Catalogue.

When this mapping is complete, financial institutions and market participants will be able to refer to a common set of definitions under the CGT, which would help increase taxonomy-aligned financing solutions and facilitate sustainable development in markets which the CGT covers, MAS said.

Through the Singapore-China Green Finance Taskforce, MAS is also working with the PBOC (People’s Bank of China) to promote the uptake of financial products that reference the China Green Bond Catalogue and the Singapore-Asia Taxonomy, and eventually the CGT when the mapping is completed.

“These efforts serve to facilitate cross-border financing flows,” MAS said.

Progressive transition

Speaking at COP28 Singapore Pavilion Finance Day on Sunday (3 December), MAS Managing Director Ravi Menon said the Taxonomy will serve as a guide to allocate capital into green and transition activities for the region, drawing extensively on the experience of financial institutions and real economy players engaged in transition activities.

He noted that MAS has also proposed supervisory guidelines for banks, insurers, and asset managers – enjoining them to not only manage their own climate related risks but to also encourage them to act in a climate-positive manner to support an orderly transition.

“We do not want financial institutions to indiscriminately exit from carbon intensive activities just to reduce their financed emissions,” Menon said. “Rather, we want them to support progressive transition efforts in the economy. We want them to walk the decarbonisation journey with their clients.”

The Singapore-Asia Taxonomy, published here, will be reviewed periodically to “keep pace with emerging science and technology improvements”.

The ASEAN Taxonomy Board (ATB) has also announced the completion of targeted stakeholder consultation for Version 2 of the ASEAN Taxonomy for Sustainable Finance, calling the development a “significant milestone” in validating the region’s journey towards sustainability and climate resilience.

Version 2 featured the completed Foundation Framework and offered detailed methodologies for assessing various economic activities. It also provided Technical Screening Criteria (TSC) for the first focus sector, such as electricity, gas, steam and air conditioning supply sector under the Plus Standard, as well as the carbon capture, utilisation and storage (CCUS) enabling sector.

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