COP29: Singapore joins EU and China in expanded taxonomy on green financing

Singapore green bond issuers could have easier access to European Union and Chinese investors if their debt instruments are aligned with a recently updated taxonomy spanning these three jurisdictions.

Launched on Thursday (Nov 14) at the COP29 climate summit in Baku, Azerbaijan, the expansion of the taxonomy to include Singapore would enable capital market participants to assess what economic activities could be considered green in the three jurisdictions.

Known as the Multi-Jurisdiction Common Ground Taxonomy (M-CGT), it contains 110 economic activities across eight sectors – taken from the EU, China and Singapore taxonomies – which could be eligible for green financing.

This is an expansion of the 2022 version of the bilateral CGT between the EU and China, which identified 72 activities across seven sectors that are green.

The EU and China, the two biggest green finance markets globally, saw the need in 2020 to develop commonalities across both taxonomies so that the definition of green economic activities are comparable.

The M-CGT builds on these earlier efforts, and the mapping of Singapore’s national taxonomy onto the CGT – a year after its release at last year’s COP28 in Dubai – further enhances its interoperability.

A joint statement by the People’s Bank of China, the European Commission and the Monetary Authority of Singapore (MAS) said: “While the M-CGT is not legally binding, green bonds and funds that align with the M-CGT criteria can be considered by cross-border investors whose markets reference the taxonomies mapped to M-CGT, subject to applicable laws and regulations of each jurisdiction.”

The lack of taxonomy alignment has been an issue in sustainable financing in the last few years, with many investors and financial institutions saying that the varying standards across different markets have stymied the cross-border flow of green capital.

While the M-CGT is mapped across only three taxonomies, it can also serve as a reference for other jurisdictions that are developing their domestic green taxonomies, and has been designed to accommodate the comparison of more jurisdictions’ taxonomies in the future, the statement said.

This will increase the number of taxonomies that are interoperable and facilitate cross-border green capital flows, it added.

Dr Ma Jun, chairman of the China Green Finance Committee, called the development of the M-CGT a “milestone in increasing the interoperability of different taxonomies in different markets”.

He expects more jurisdictions to join the M-CGT. Speaking at its launch at the Singapore Pavilion at COP29, he noted that Indonesia and Brazil have already expressed their interest, and that the second round of talks with them is ongoing.

MAS chief sustainability officer Gillian Tan said that having a common standard that defines green activity is also essential in improving investor confidence surrounding greenwashing risks.

“Multiple standards mean fragmentation, and it’s just higher cost, so we absolutely need to do away with that,” she said.

While having a comparable set of economic activities in the M-CGT can boost green financing volumes, she said there was also a need for more use cases.

Dr Ma said the most common use case for the CGT was its green labelling among major Chinese banks issuing international green bonds.

These issuers no longer use China’s taxonomy when issuing their green bonds, as they realise it can lower the cost of selling these bonds to international investors in the EU.

The mapping exercise identified eligible activities that should be included in the M-CGT, and assigned scenarios based on their commonalities across the three taxonomies. It also facilitated the comparison of activities which do not have interoperable metrics, so that more of them can be included in the expanded taxonomy, said the statement.

For economic activities with similar interoperable metrics, such as those in the energy sector, the most stringent threshold was adopted for the M-CGT in these scenarios. This means that only activities that meet the M-CGT criteria would be credibly accepted by investors in all the jurisdictions in scope.

For activities with different metrics, such as those that rely on local certification schemes, standards or regulations, commonalities in the requirements of the taxonomies’ criteria were identified.

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