CBI leads work on Rwanda, Australia, Singapore taxonomies

Climate Bonds Initiative (CBI) has taken a leading role in developing upcoming taxonomies for Rwanda, Australia and Singapore.

The sustainable finance think tank was a major contributor to the early development of the pioneering EU and Chinese taxonomies, and has emerged as a partner of choice for other jurisdictions looking to build out domestic equivalents.

In Q2 alone, CBI has published taxonomies commissioned by Thailand and Hong Kong. The frameworks have now been released for public feedback.

Work on the Rwandan taxonomy is expected to be completed first, with a tentative release date slated for later this year. It will be CBI’s first African taxonomy and is being funded by German development agency GIZ.

It will have a strong focus on agriculture and is seen as a potentially useful template for other emerging market economies that are economically reliant on the sector.

CBI senior taxonomy analyst Mikhail Korostikov, who is heading CBI’s project group for the taxonomy, says: “Rwanda is hoping to present the first version by COP28 so we are working very hard to meet their expectations. We think this would be a great opportunity to attract investment into Africa via Rwanda.”

Korostikov also confirms that CBI will play a key role in drafting the Australian taxonomy, which is in an earlier phase of development following the creation of a taxonomy advisory group at the start of July. The scope and deliverables have yet to be formally announced by the Australian Sustainable Finance Institute (ASFI).

Rwanda’s Kigali International Financial Centre (KIFC) and ASFI did not comment on CBI’s role when contacted by Responsible Investor. An update on the Australian taxonomy is expected from ASFI early next week.

CBI is also developing sustainability criteria for seawater desalination for the upcoming Singapore taxonomy, according to Korostikov – an activity which has not been addressed by other existing frameworks.

The city state’s taxonomy, which had initially been expected to be released in June, has now been delayed by the Monetary Authority of Singapore (MAS), which has proposed additional criteria on the managed phase-out of coal-fired power plants.

MAS has been contacted for comment.

Engaging with Thailand and Hong Kong

CBI’s interactions with government agencies for the recently completed Thai and Hong Kong taxonomies have so far been fruitful and constructive, Korostikov tells RI.

“The Thai authorities should be especially proud of their work,” he says. “We had earlier suggested an emissions threshold for the energy sector, which the government then recalculated taking into account their local policies and climate plans, and ended up proposing a figure that was even more stringent.”

He adds: “We also had many discussions to explain why the taxonomy should not include natural gas and hybrid vehicles, and the majority of our arguments were implemented. I can say that this is one of the most science-based taxonomies that we have helped to create.”

Thailand’s transition-focused taxonomy has adopted the EU-aligned overall emissions threshold of 100g CO2e/kWh, which effectively excludes most fossil-generated power, including natural gas.

However, producers of gas-fired power – which makes up 60 percent of the country’s energy mix – will be able to raise taxonomy-aligned financing to retrofit power plants for green hydrogen use.

The difference between markets such as Thailand and those elsewhere, says Korostikov, is that the former have first-hand experience of floods, heatwaves and other climate hazards, and are all too aware of the economic threat posed by climate change.

Separately, the CBI sees the Hong Kong taxonomy as a key puzzle piece to foster global interoperability between different regions. The framework is so far the first attempt to unify the EU and Chinese taxonomies, based on the Common Ground taxonomy developed by the EU’s International Platform on Sustainable Finance.

In contrast with the binary approaches taken by other frameworks, the Hong Kong taxonomy uses decision trees, which set out sustainability criteria based on the specific issuer types and the jurisdictions where an activity takes place. It is viewed as an early prototype with further development planned.

“Trying to align the two biggest taxonomies in the world has been a monumental task because they are built on completely different premises and structures,” says Korostikov. “We are now working with local officials and the business community to further operationalise it, because taxonomies should not only be scientifically accurate but also usable.”

CBI is yet to experience political pushback from the Hong Kong or mainland Chinese governments over its proposals, Korostikov adds.

“We did not have any problems working with the Hong Kong Monetary Authority (HKMA). As a financial hub, they want to build a science-based, interoperable and credible taxonomy to make investing as attractive as possible for climate-conscious investors.

“In this area, Hong Kong has a lot of autonomy to implement something more rigorous, more robust than the mainland so there was no conflict there.”

Work on the Hong Kong taxonomy began at the request of local authorities, while CBI was selected for the Thailand project through a tender process, according to Korostikov.

While neither the Thai or Hong Kong taxonomy considers coal phase-outs as a sustainable activity at this stage, CBI is developing an in-house policy which could be included in future taxonomy projects.

‘There are some things that we are not ready to compromise on.’           

Korostikov says CBI has been inundated with requests for its taxonomy-related services, having already contributed to “almost all” of the sustainable finance taxonomies now in use around the world.

“As a result, the demand for our work far exceeds the capacity that we have.”

But he stresses that CBI will only bring robust green standards to market.

“If we take a job, we adhere to a very strict set of principles,” he says. “We have never seen ourselves as a consulting company, but as an NGO with a clear climate goal to mobilise capital to achieve the goals of the Paris Agreement.

“That’s why there are certain things that we are not ready to compromise on. We are not ready to, for example, recognise any fossil fuels as green fuels, no matter how much we are offered in terms of money and resources. Our reputation is basically all we have.”

The treatment of natural gas has been a recurring theme within CBI taxonomy engagements, says Korostikov, with clients often asking why developing nations should exclude the power source following the EU’s decision to reclassify gas as sustainable under certain conditions.

“First of all, I tell them that the EU’s taxonomy requirements are so strict that it is likely that no new gas installation will ever be able to achieve taxonomy-alignment,” he says. “More importantly, adding fossil fuels will immediately destroy the credibility of your taxonomy. Sure, you don’t have to persuade your domestic lobbyists to support this but at the same time you will lose access to international investors.

“What’s the point of developing a taxonomy if you are going to ruin it instantly? In almost all cases, people do listen.”