Latest Version of EU and China’s Common Ground Taxonomy

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    Stockholm (NordSIP) – Enormous systemic changes are needed for the global economy to shift towards mitigating and adapting to the climate crisis.  One key element greasing the wheels of this transition is the creation and adoption of a common taxonomy to accurately identify environmentally sustainable investments.  Given the potential fragmentation presented by distinct initiatives being launched around the world, the European Union (EU) took the initiative in 2019 to launch the International Platform on Sustainable Finance (IPSF) in collaboration with Asian, American, and African authorities.  The IPSF now comprises 18 jurisdictions representing over half the world’s total Greenhouse Gas Emissions (GHG).  In July 2020, the EU and China set up an IPSF working group dedicated to assessing the commonalities and differences between both jurisdictions’ taxonomies, with a view to identifying a “Common Ground Taxonomy” (CGT).  The latest version of the CGT, covering 72 jointly recognised climate mitigation activities, was published on June 3rd, 2022.

    The two parties involved are keen to point out that the CGT is not an effort to create a common standard that could be legally imposed on IPSF members.  The objective is rather to build up a methodology to improve the comparability and interoperability of taxonomies across jurisdictions, thus helping to smooth international economic activities while considering national and regional specificities.  Other parties are also encouraged to refer to the CGT when developing their own taxonomies to help maintain the common ground.

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    This latest update focuses on an analysis of overlaps in the European and Chinese standards, within the economic activities identified as most relevant to climate change mitigation in the first phase of the project.  The report highlights areas of common ground and whether either parties’ criteria are more stringent or detailed.  It also identifies activities where there is unclear or very limited overlap.  Certain key industries such as forestry, manufacturing, energy, waste treatment, construction and transportation have been given priority, but the work is expected to continue with further examination of sectors like services or Information and Communications Technology (ICT).  In some cases, there is too much difference in metrics, standards and implementation to be able to identify commonality.  Notable conflicts between the EU Taxonomy for Sustainable Activities and China Green Finance Taxonomy include the concepts of Do No Significant Harm (DNSH) and the Minimum Safeguard (MS), which are approached so differently that they could not be included so far.

    It is hoped that the CGT will be referred to by green bond issuers, banks, asset managers, standard-setting bodies, academia, and other stakeholders.  So far, the working group has only addressed climate mitigation, but the aim is to progressively integrate other environmental objectives.  The IPSF working produces its reports with the input of IPSF members as well as external parties such as the Climate Bonds Initiative (CBI), whose CEO Sean Kidney was interviewed on this topic in NordSIP’s ESG Integration Case Book 2022 published last month.

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    Richard Tyszkiewicz
    Richard Tyszkiewicz
    Richard has over 30 years’ experience in the international investment industry. He has worked closely with major Nordic investors on consultancy projects, focusing on the evaluation of external asset managers. While doing so, Richard built up a strong practical understanding of the challenges faced by institutional investors seeking to integrate ESG into their portfolios. Richard has an MA degree in Management and Spanish from St Andrews University, and sustainability qualifications from Cambridge University, PRI and the CFA Institute.
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