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Firms looking to invest in climate-related, clean energy
projects in the EU and China now have a roadmap that shows where
green taxonomies overlap and where they diverge.
Released 4 November at the sidelines of the UN COP 26 conference
by the 18-member International Platform on Sustainable Finance
(IPSF) and spearheaded by the People's Bank of China (PBoC) and the
EU, the Common Ground Taxonomy-Climate
Mitigation report attempts to clarify the definitions of green
investment based on an analysis of EU and Chinese classification
systems.
The report's release coincides with the EU's discussions among its members
about including natural gas and nuclear power as green investments
that some see as antithetical to the Paris Agreement.
The purpose of the Common Good report is to shore up
cross-border climate financing through greater transparency and
clarity about the green taxonomies that the EU and China have
independently developed for doing business in their
jurisdictions.
Based on a two-year analysis of the two schemes, the report
analyzed 80 economic activities across six industrial sectors,
homing in on those as priority areas that contribute most to carbon
emissions reduction or sequestration.
Within these six sectors—agriculture, forestry, and fishing;
water supply; sewage, waste management, and remediation activities;
electricity, gas, steam, and air conditioning supply; construction;
and transportation and storage—the report homes in on
activities where there is clear or identifiable overlap between the
jurisdictions, where one jurisdiction is more stringent than the
other, and where it is unclear.
Evolving Document
The IPSF said it will seek comment until 4 January on the
activities that it has listed in the Common Ground Taxonomy Table,
adding that this document will continue to evolve.
For instance, the common ground table identifies China as having
more stringent criteria for investments in electricity generation
using solar photovoltaic technology than does Europe. Conversely,
the same table shows the EU as having more stringent criteria for
steel and iron manufacture.
Both EU and China are seen as having clear overlaps in
generating electricity from wind power and ocean-based energy and
identifiable overlaps in the manufacture of green ships and use of
low-carbon technologies on vessels, as well as the use of
agricultural and forest waste to generate power and manufacture
biofuels.
Strong international coordination
There were still some areas like buildings where it was unclear
how the taxonomies would translate.
"Strong international coordination is crucial for facilitating
sustainable finance flows at a global level," PBoC Governor Yi Gang
told COP26 participants a day before the report's launch on climate
finance day.
He said such a report was sought in the G20 Sustainable Finance Roadmap
that also outlined actions to support coordination on disclosure,
risk management, and transition finance. The G20 report was
developed by a working group co-chaired by China and released in
early October.
E3G, a European climate change think tank, said the report
establishes an international framework for defining green
investments across two of the world's largest GHG emitters, and
guiding financial flows towards sustainable projects.
Prevents greenwashing
Given the high demand for green projects and investment, this is
a really important first set of principles to guard against
"greenwashing", Tsvetelina Kuzmanova, policy advisor on EU
sustainable finance for E3G, a European climate change think tank,
told Net-Zero Business Daily 5 November.
"If an investor or a company really wants to show their
portfolio is green, then this is a very good first step to show you
are really green," she added.
China's taxonomy applies to green bonds, while EU's taxonomy
would apply across the board to banks, and large corporations.
More importantly, Kuzmanova said the Common Ground report
approach and methodology, though not legally binding, can used as a
"solid basis" by other countries that are looking to harmonize
their green taxonomies on the global stage.
IHS Markit Climate and CleanTech Research Director Conway Irwin
said the report can function as "rough guidelines for what
constitutes 'green.'"
"But in jurisdictions where climate risk reporting is likely to
be mandatory, standards will have to be both specific and clear as
guidance for meeting disclosure requirements," she added.
The EU launched the IPSF in October on the sidelines of the
International Monetary Fund and World Bank Group meetings to
compare, identify, and develop barriers and opportunities to scale
up environmentally sustainable financing and enhance international
coordination where needed on issues. The IPSF's 18 members are
responsible for 55% of the world's GDP, 55% of global population,
and represent half the world's population, including China and
India, but not the US.
Posted 05 November 2021 by Amena Saiyid, Senior Climate and Energy Research Analyst
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