The ASEAN Taxonomy Board (ATB), representing ASEAN finance sectoral bodies, today took the next step towards meeting the Paris Agreement commitments, with the release of the ASEAN Taxonomy for Sustainable Finance Version 2 (Version 2). While the first version laid out the broad framework of the ASEAN Taxonomy, Version 2 consists of the (a) complete Foundation Framework comprising detailed methodologies for assessing economic activities; and (b) Technical Screening Criteria (TSC) for the first focus sector ie Electricity, Gas, Steam and Air Conditioning Supply sector (Energy sector) under the Plus Standard. TSCs for other focus sectors will be published in the subsequent versions of the ASEAN Taxonomy. Version 2 builds on the conceptual thinking of the multi-tiered framework outlined in Version 1. The multi-tiered framework is intended to facilitate transition of ASEAN Member States (AMS) recognising the diversity in economic development, financial sector, and infrastructure maturity. 

Through the Foundation Framework which adopts a principles-based approach, users are now able to qualitatively assess economic activities using guiding questions, decision trees and use cases for all the four environmental objectives (EOs) and three essential criteria (EC). The environmental objectives and essential criteria, as well as guiding questions that make up the Foundation Framework are designed to be readily applicable to all AMS as well as stakeholders in the financial sector and business enterprises. Using the guiding questions, activities are classified as Green, Amber or Red.

The Plus Standard adopts a more advanced assessment and methodology that is based on specific TSC and science-based thresholds in classifying activities. To further encourage and recognise transition efforts by businesses, the Plus Standard contains Amber Tier 2 and Amber Tier 3 classifications which will be retired over time. This is in addition to the Green tier that is aligned with other relevant international taxonomies and benchmarked to the 1.5⁰C Paris Agreement target. 

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Version 2 also highlights the importance of social aspects in the Taxonomy, by incorporating it as the ASEAN Taxonomy’s third EC, alongside “Do No Significant Harm” (DNSH) and “Remedial Measures to Transition” (RMT).  In combination with other features such as the expansion of the “Do No Significant Harm” criteria, common building blocks are established to enable an orderly and just transition and foster sustainable finance adoption by ASEAN countries. 

In considering ASEAN’s specific circumstances, the Taxonomy recognises efforts to the early retirement of coal-fired power plants. A global first for a regional taxonomy, the ATB has thoroughly considered how and where coal phase-outs (CPOs) can play a role in decarbonisation in support of the Paris Agreement goals and when approached correctly, provides a powerful tool for transition. 

With the release of Version 2, the ATB demonstrates its commitment to providing stakeholders with a common framework that is science-based, while being inclusive and catering to the different development stages of ASEAN Member States (AMS). Following the release of Version 2, the ATB will hold targeted consultations with key stakeholders on the assessment methodology as well as the metrics and TSC for the Energy sector under the Plus Standard.  Following these consultations, the ATB intends to finalise the TSC for the Energy sector in early 2024. TSCs for the remaining five focus sectors[1] covered under the Plus Standard will be released in phases, with TSC for all six focus sectors finalised, by 2025.

The ATB looks forward to engaging further with stakeholders on the Version 2 document and will continue to take steps to achieve the mandate of developing, maintaining and promoting an ASEAN Taxonomy that meaningfully and effectively helps to orientate capital towards a sustainable ASEAN.

The ASEAN Taxonomy Version 2 can be found at the following websites:

• Association of Southeast Asian Nations – https://asean.org/wp-content/uploads/2023/03/ASEAN-Taxonomy-version-2.pdf
• ASEAN Finance Cooperation Web Portal - https://afcwp.asean.org/wp-content/uploads/2023/03/ASEAN-Taxonomy-Version-2.pdf
• ASEAN Capital Markets Forum – https://www.theacmf.org/ (in the Sustainable Finance section)
• Sustainable Finance Institute Asia – https://www.sfinstitute.asia/asean-taxonomy-forsustainable-finance_version-2/
• OJK Sustainable Finance Information Hub: ASEAN-Taxonomy-Version-2.pdf
   

Mr. Khairul Ridzwan

ASEAN Taxonomy Board

(Working Group on Market Facing and Resourcing)

Email: aseantaxo@sfinstitute.asia

Mr. Henry Rialdi atau Mr. Greatman Rajab

Indonesian Financial Services Authority

Department of Surveillance and Integrated Policy for Financial Services Sector 

Email: sektorhijau@ojk.go.id
 

[1] Agriculture, forestry and fishing; manufacturing; transportation and storage; water supply, sewerage and waste management; and construction and real estate