On May 12, 2022, Singapore’s Green Finance Industry Taskforce (GFIT) published a second consultation paper on its proposed taxonomy for Singapore-based financial institutions (“Singapore Taxonomy”), which aims to provide a common framework for classification of economic activities upon which financial products and services can be built and combat greenwashing by setting out definitive criteria for greenness in Singapore. A key purpose of developing the Singapore Taxonomy is to encourage the flow of capital to support the low carbon transition needed to avoid catastrophic climate change, as well as the environmental objectives of Singapore and the ASEAN nations, which are serviced by Singapore-based financial institutions. The Singapore Taxonomy is drafted to be consistent and compatible with other taxonomies to ensure interoperability, particularly the EU Taxonomy and the ASEAN Taxonomy (which we discussed here). The second consultation paper builds on GFIT’s earlier public consultation on the first version of the Singapore Taxonomy released in January 2021, which we discussed here.
In this second consultation paper, after considering feedback from the consultation process, GFIT proposes activity-level criteria and thresholds for three of the eight focus sectors (Energy, Transport and Buildings) outlined in the original consultation paper and for only one of the environmental objectives (Climate Change Mitigation). These three sectors were determined to have the highest environmental impact in Singapore, which collectively account for around 90% of ASEAN greenhouse gas emissions.
Further, the second consultation paper expands on the “traffic light” approach that was put forward in the original consultation paper, and adds granularity to the application and thresholds for classification, supported by science and data. Under this “traffic light” system, which is similar to the colour coding in the ASEAN Taxonomy, an economic activity can be classified as green, amber, or red, which denotes a different level of contribution to climate change mitigation as follow:
- Green (environmentally sustainable): activities that contribute substantially to climate change mitigation by operating at net zero, or are on a pathway to net zero by 2050.
- Amber (transition): activities that are either transitioning towards green within a certain time frame, or facilitating significant emissions reductions in the short term.
- Red (harmful): harmful activities that are not currently compatible with a net zero trajectory.
GFIT is expected to release the criteria and thresholds for the remaining five focus sectors and the remaining environmental objectives in late 2022, and to finalise the full Singapore Taxonomy in 2023.
The consultation on the second version of the Singapore Taxonomy closes on June 23, 2022.
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