A new version of the Common Ground Taxonomy (CGT), jointly developed by China, the European Union and Singapore, will make its debut at the COP29 climate summit later this month, an expert involved in discussions has revealed.
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This will make the city-state the first jurisdiction outside of China and the EU to be directly involved in the exercise to enhance the interoperability of global taxonomies, which commenced in 2020.
Last updated in 2022, the CGT currently recognises 72 overlapping climate mitigation activities between the China and EU taxonomies. This is set to be expanded in the “Multi-jurisdiction Common Ground Taxonomy” or MCGT, which will be announced on 14 November in Baku, Azerbaijan, said Ma Jun, co-chair of the International Platform on Sustainable Finance working group behind the CGT.
“As of 2022, it was only a China and Europe bilateral collaboration. But starting from last year, I invited Singapore to join in and it said, yes, let’s do it together,” said Ma, who was speaking to journalists in Hong Kong last Tuesday.
“In the future, I can imagine that more countries will join. Ideally, we will have large economies such as Brazil and Indonesia. If they all want to join, it will increasingly become a globally accepted benchmark for taxonomy development,” the former Chinese central bank chief economist added.
Since China and EU released the world’s inaugural green classification frameworks, some 50 countries have come up with their own taxonomies, Ma said. ”In fact, I heard that there are already 400 taxonomies, because many of them are not done officially but by non-governmental organisations, industry associations and so on. There are 400 definitions of green – which one do you want to follow?”
A global benchmark is needed to avoid hindering cross-border green capital flows, said Ma, who sees at least three problems that could arise from the steady proliferation of taxonomies.
Firstly, there will be market fragmentation, where a Chinese green finance product, like a green bond, cannot be sold to the EU as it is not recognised there. Secondly, it adds to the transaction costs from having to do multiple rounds of verification against various national taxonomies, which is “very costly” and “a waste of time”, said Ma.
Thirdly, it increases the risk of greenwashing. “Why? Because there are so many standards for you to choose from. Someone might want to choose a lower standard to label their activity as green,” he said.
International non-profit Climate Bonds Initiative (CBI)’s chief executive Sean Kidney, who will be speaking at the launch of the MCGT, told Eco-Business that in terms of government-to-government discussions, the launch of the new taxonomy will be a “useful development” for the harmonisation of standards.
However, Kidney said that “other ways to fast track” this process should be explored. One example is through CBI’s collaboration with the United Nations Environment Programme Finance Initiative (UNEP FI) and the Principles for Responsible Investment (PRI), announced in June, which aims to develop a guidance for global taxonomy interoperability.
“For a lot of global investors, that will be a quick fix while we are going through the grinding process of agreements between governments, which is going to take years,” he said. “The main barrier – not the only barrier, but the main barrier – is the European Commission. Because it has been so domestically focused, changing stuff for China is not a home run.”
In the meantime, some market participants in Asia have started labelling green financial products as CGT-aligned. In May, Hong Kong’s taxonomy became the first in the world to align with the CGT. Last December, Singapore started mapping its national taxonomy, which pioneered a “transition” category and included a separate criteria for financing early coal phase-outs, to the CGT.
The Monetary Authority of Singapore did not confirm this development, though a spokesperson told Eco-Business via email that “there will be some updates on our sustainable finance work during COP”.
Another much-awaited guidance from the central bank is its transition planning guidelines, which was released for public consultation last October and are expected to be finalised by end-2024.
Eco-Business’ access to the session with Ma Jun, as well as the sponsored trip to Hong Kong was facilitated by Civic Exchange and Global Strategic Communications Council.
