Philippines regulators table green finance taxonomy

The proposed framework has taken cues from the ASEAN regional taxonomy, including coal phase-outs.

Financial regulators in the Philippines have published proposals for a principles-based green taxonomy, due to become one of just a handful currently in use.

Nearly all other taxonomies in the region and elsewhere use explicit environmental screening criteria to determine whether an activity can be considered environmentally sustainable – usually limited to 100 gCO2e/kWh for lifecycle emissions and other activity-specific criteria.

In contrast, a principles-based taxonomy allows issuers to use their own judgement to assess whether an activity is compliant with a set of high-level objectives or intended regulatory outcomes.

These will be aligned to the twin environmental objectives of climate mitigation and adaptation for now, according to the draft framework, although there are plans to add biodiversity, circular economy and social objectives in future iterations.

Activities that avoid or help drive down carbon emissions are considered aligned to the climate mitigation objective, while adaptation covers activities that reduce the impact of physical climate risks.

Alignment with the taxonomy will also be subject to issuers meeting hurdle requirements on social performance as set out by relevant local laws on human rights, labour laws and international conventions. This includes safeguarding the rights of Indigenous communities.

At the same time, issuers will have to ensure that taxonomy-aligned activities do not harm any other environmental objectives. An exception can be made in cases where remediation action is introduced that will effectively remove all significant harm within five years.

Taxonomy-aligned activities that have remedial measures in place as required will be classified as “amber”, while those which do not will be considered “red” or not aligned. Fully compliant activities will be marked as “green”.

The taxonomy framework was developed by the Financial Sector Forum, a cross-industry regulatory body comprising the Philippine central bank (BSP), the Insurance Commission and the Securities and Exchange Commission.

It said that a principles-based approach was selected due to “the readiness of the financial sector and the limited availability of data”.

“Generally the process of developing a taxonomy takes around two years and involves extensive involvement of public and private participants. However, principles-based taxonomies can be developed more rapidly as detailed criteria are not developed,” it added.

Within the region, principles-based taxonomies are only used in Malaysia and in the ASEAN taxonomy as a “starter” route to compliance with its overall framework. The Philippines’ proposals has adopted some features of the ASEAN taxonomy, including the traffic-light system and a coal phase-out provision for plants that commit to early retirement.

The forum is also seeking feedback on any environmentally harmful activities that should be excluded from the taxonomy.

A consultation on the draft taxonomy will close on 6 October.