The World Bank has published a guide outlining the processes that financial regulators can use to develop a green taxonomy in order to scale up green finance.
The publication Developing a National Green Taxonomy: A World Bank Guide will help regulators in emerging economies who seek to ‘green’ their countries’ financial systems.
According to the bank, the lack of clarity about which activities and assets can be defined as green has long posed a barrier to scaling up green finance. A green taxonomy identifies the activities or investments that deliver on environmental objectives, helping drive capital more efficiently toward priority environmentally sustainable projects.
The guide can help banks and other financial institutions originate and structure green banking products (e.g. loans, credits, and guarantees). It can also help investors identify opportunities that comply with sustainability criteria for impact investments.
“As a pioneering issuer of green bonds, the World Bank has played a key role in developing sustainable capital markets and facilitating innovative transactions,” said Anshula Kant, Managing Director and World Bank Group Chief Financial Officer.
“We are delighted to share this guide that financial regulators could use to support their efforts to scale up green finance. We hope that the methodology and recommended approach will benefit emerging markets as they seek pathways to build a more environmentally sustainable future,” Kant added.
Given the diverse needs and contexts of emerging economies, this guide avoids one-size-fits-all definitions and standards. Instead, it presents ways to develop a taxonomy based on the environmental objectives relevant to a country’s sustainable development priorities and agenda.
Scaling up green finance
A key recommendation is for regulators to provide a technically sound justification for the activities and investments considered green.
This guide was prepared by the World Bank in response to a request by the Malaysian central bank, Bank Negara Malaysia, to develop a common language on environmental issues by the financial sector and to support decisions related to climate risk in fundraising, lending, and investment activities.
“Bank Negara Malaysia is glad to partner with the World Bank to facilitate global knowledge-sharing on green and sustainable finance through the World Bank Group Inclusive Growth and Sustainable Finance Hub in Malaysia,” said Datuk Nor Shamsiah Mohd Yunus, Governor of Bank Negara Malaysia.
Yunus continued: “Central banks and supervisors have an important role to play in scaling up green finance. We hope this guide developed by World Bank experts will encourage central banks and supervisors to develop a taxonomy of activities that will help green the financial system.”
The recommended approach is based on the World Bank Group’s experience in supporting similar initiatives in several countries, including Colombia, Malaysia, Mongolia, and South Africa.
To help countries understand and learn from the varied approaches already being taken, the guide also includes an overview of existing green taxonomies, including those developed by Bangladesh, China, Mongolia, the European Union, and the Climate Bonds Initiative.
Read the full Developing a National Green Taxonomy: A World Bank Guide.