The Association of Southeast Asian Nations’ (Asean’s) taxonomy for sustainable finance must actively educate its members on its multi-tiered classification system even as it introduces technical criteria, according to industry leaders at the Asean Taxonomy Conference held in Bohol, Philippines.
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The Asean Taxonomy Board, which crafts the framework that guides policymakers and financial institutions on classifying what decarbonisation efforts should be prioritised to meet net zero emissions targets, has been “very conscious in its engagements with stakeholders to say that it is not a bad thing to be at the amber tier”, said Najwa Abu Bakar, senior programme director Sustainable Finance Institute Asia.
The Asean Taxonomy uses a tiered system of green, amber and red to classify economic activities based on their alignment with sustainability goals, moving beyond binary green and non-green labels.
The green tier refers to fully sustainable activities, while the amber tier covers transitional activities showing progress towards green and the red label points to those that pose unremediable harm to the environment.
Version 4 of the Asean Taxonomy for Sustainable Finance (ATV4), published in November, introduced stricter thresholds and technical screening criteria (TSC) for projects in the electricity, transport, construction, agriculture, manufacturing, and waste management sectors.
From left: Najwa Abu Bakar of Sustainable Finance Institute Asia, Gerry Magbanua of Alternrgy, Diana Parusheva-Lowery of Asia Securities and Financial Markets Association, Suraya Sani of Bank Negara Malaysi, Thomas Leonard of DNV, and Federico Tancongco of BDO Unibank at the opening panel of the Asean Taxonomy Conference held on 10 February at Bohol, Philippines. Image: Bangko Sentral ng Pilipinas
Speaking to an audience composed of the region’s policymakers and regulators, Abu Bakar noted how early on, financial institutions have come to the taxonomy board to request for a credible guide so that they feel more encouraged to support transition projects.
Now with the Asean taxonomy complete, along with the member states’ national taxonomies, financial institutions have documentation of regulatory support for what constitutes as a green or sustainable activities, and are guided on their decision, she said.
Under the Asean taxonomy, business activities in the amber tier like those retiring coal plants or reducing their operations can also be given safeguards to ensure transitional activities are not transitional indefinitely but advance towards sustainability according over time, she added.
In Southeast Asia, where fossil fuels supply over 70 per cent of electricity generation, decarbonising the energy sector is especially urgent.
Diana Parusheva-Lowery, executive director of public policy and sustainable finance at the Asia Securities and Financial Markets Association, noted that when the taxonomy was introduced in Southeast Asia in 2021, companies were fixated on being classified as “green”.
“Transition and transition activities are the most important. [Companies must recognise] that everybody has their own path to transition instead of constantly looking for recognition and measuring yourself against other paths which are not relevant” said Parusheva-Lowery.
Malaysia’s central bank, which introduced its Climate Change and Principle-Based Taxonomy (CCPT) at the same time when the Asean taxonomy was released, shared a similar view.
Suraya Sani, deputy director of the sustainability unit of Bank Negara Malaysia said it was “impossible” to get all players to move immediately towards the green transition. Doing so would risk “amber-washing”, which refers to the risk of companies misusing the amber tiers to falsely portray high-carbon activities as “sustainable” without genuine remediation plans or timelines.
Federico Tancongco, senior vice-president, chief compliance officer of Philippine-based BDO Unibank emphasised how companies in the power sector must gradually reduce the production and consumption of coal, oil, and natural gas, aiming to lower greenhouse gas emissions over time rather than achieve an immediate halt.
He also called for a clear definition of transition finance for amber tier projects: “We need a definition that’s workable, that’s pliable, but also guides us on what falls within transition, because that’s going to be the area of great debate.”
