[GEF2023] Taxonomy for sustainable economic activities: Overview and recommendations

Reflecting on the insightful discussions at GEF2023, the panel “Taxonomy for sustainable economic activities” stands out as a focal point for nuanced exploration into the complexities of constructing a robust taxonomy framework. Our distinguished panelists, who offered profound insights and perspectives, included:??

• Moderator: Ms. Xinying Tok, Green Finance Lead, Southeast Asia, Carbon Trust.?
• Thuan Nguyen, CEO, FiinGroup.? Megan Lawson, Country Manager, ERM Vietnam?
• Mr. Nguyen Anh Duong, Director - Department for General Economic Issues and Integration Studies, CIEM – MPI?
• Prof. BUI THI MAI HOAI, Ph.D, Dean of Sustainable Finance Institute, University of Economics Ho Chi Minh City?
• Marc Stuart, Founding Managing Director, Allotrope Partners?

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A green taxonomy serves as a standardized classification system, distinguishing sustainable investment options from those that fall short in environmental considerations. In the context of Vietnam, as of August 2022, a Draft Decision by the Prime Minister outlines regulations on environmental criteria and verification for projects eligible for green credit and green bonds. This regulatory effort aims to provide clarity, transparency, and authenticity in sustainable finance, thereby mitigating the risks of greenwashing practices. Nevertheless, the GEF panels have provided some key recommendations in strengthening the taxonomy frameworks to reinforce the credibility of green investments, as follows:?

1. Vietnam should consider adoption of available frameworks from other mature markets, such as the EU taxonomy for sustainable activities, in force from 12 July 2020. The taxonomy framework sets comprehensive criteria for sectors which are responsible for almost 80% of direct greenhouse gas emissions in Europe to ensure that projects make a substantial contribution to at least one of the six environmental objectives, does no significant harm to any of the other objectives, complies with minimum social safeguards, and meets technical screening criteria. ? ?

1. Harmonize taxonomy frameworks across the globe to account for differences in maturity, details and uptake between developing countries and developed countries, in alignment with market-based taxonomies by independent institutions such as Climate Bonds Initiative, Multilateral Development Banks and the International Development Finance Club.?

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1. Reference best techniques to fast-track the publication of taxonomies. Some suggestions include the application of criteria-based and principles-based, rather than detailed specifications for key sectors; designing broad definitions to allow for flexibility and employing the “negative list” approach – specifying what is not clean.??

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1. Data collection needs to be transparent and credible, while also focusing on establishing the correct baseline for accurate analysis. Consequently, establishing an accessible reporting system for local and foreign investors.?

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1. Run experimental sandbox/pilots to extract data for a fully developed taxonomy to avoid overspecificity or generalizations. ? ?

1. Offer small incentives for first movers in the private sector to establish standards for regulators to reference.?

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Reference: FAQ: What is the EU Taxonomy and how will it work in practice? (europa.eu)?