EU and China to co-chair international taskforce on sustainable finance taxonomies

EU-led International sustainable finance group aims to issue ‘Common Ground’ taxonomy by mid-2021

The EU-convened International Platform on Sustainable Finance (IPSF) has appointed China to oversee efforts to harmonise the sustainable finance taxonomies currently in use by member countries. The Platform aims to issue a “Common Ground” taxonomy setting out the “commonalities” of existing taxonomies by mid-2021.

The use of broad-based sustainable finance taxonomies, which identify eligible green and socially sustainable economic activities and/or projects for investment, was pioneered by the EU, which developed the first one as part of its Sustainable Finance Action Plan.

The EU will be the other co-chair of the IPSF’s newly-formed taskforce on taxonomies.

Among the Platform’s member countries, China, the EU and India have green taxonomies in place, while Canada, New Zealand and Singapore are either developing or considering similar approaches. Outside of IPSF’s membership, Malaysia and Thailand have both introduced taxonomies.

The announcement is the first piece of output from the IPSF since it was launched last year by the European Commission to support and influence the development of a common approach to sustainable finance globally.

Commenting on the news, Kristalina Georgieva, Managing Director of the International Monetary Fund, said that “financial infrastructure”, such as green taxonomies, were a “foundational element for expanding private sector investment”.

China’s involvement would move standardisation and transparency for sustainable investments “even further”, she said.

The IMF is one of the eight observers on the platform, which also include the Organisation for Economic Co-operation and the Network of Central Banks and Supervisors for Greening the Financial System. The platform’s membership has risen to 14 countries over the past year with the addition of the New Zealand, Norway, Senegal, Singapore and Swiss governments.

The appointment of China to lead the IPSF’s taxonomies programme was first hinted at by prominent Chinese green finance leader Dr Ma Jun during a keynote at RI’s Digifest earlier this year.

Despite the EU’s hope that its Sustainable Finance Action Plan would become the basis of a global regulatory approach, it has received opposition from some corners – especially where economies remain dependent on polluting industries, such as Japan and Canada. Taxonomies are being developed to offer a more “pragmatic” approach to climate transition than the EU is offering in its framework. 

Last week, a Japanese trade body previously identified by InfluenceMap as “the most oppositional industry association of any origin (EU or otherwise) to an ambitious EU taxonomy”, called on the government to create a “transition finance system” in collaboration with the likes of Malaysia, Canada and the International Capital Market Association. The government should also join the IPSF to “present Japan's ideas, approaches and best practices”, the body said.

The European Central Bank has previously criticised efforts undertaken by other countries to develop national strategies on sustainable finance. The ensuing “regulatory competition” could result in “races to the bottom” and greenwashing, it said at the time