MAS-backed association releases extra guidance on how banks can use Singapore’s taxonomy
Guidance published by the Singapore Sustainable Finance Association also lays out what lenders can do when there is a lack of data on transition activities with a forward-looking screening criteria
[SINGAPORE] A sustainable finance industry association backed by the Monetary Authority of Singapore has released additional guidance on how financial institutions can make use of the Singapore-Asia taxonomy to structure green and transition financing. There are guidelines on how financiers and corporates can reference the taxonomy for business activities that are not fully aligned with the taxonomy. This includes situations where the non-alignment is due to reasons beyond the borrower’s control; or where the assets enabling and value-chain activities supporting green and transition efforts are not set out in the taxonomy.
In such cases, the guidance states that the financier can still consider funding such assets and projects within their green or transition financing frameworks, if they can be green by the sunset date, or if they will enable significant greenhouse gas emissions in the short term.
Sunset dates refer to pre-determined deadlines or time limits set on activities that are transitioning to be greener. Transition activities, which are categorised as amber in the taxonomy, have sunset dates among one of their criteria. These dates are used to ensure that the financing is temporary as the activity eventually becomes green.
Traffic-light system
In a move similar to its South-east Asian neighbours, Singapore’s sustainable finance taxonomy has adopted the use of a traffic-light system, with the introduction of an amber category to represent transition activities.
A green category refers to businesses that are environmentally sustainable, while a red category consists of activities that are harmful to the climate.
The Singapore-Asia taxonomy was finalised in December 2023 after four rounds of consultations, and is said to be the first globally to lay out criteria for transition activities.
Sustainable finance taxonomies set criteria and thresholds for a range of economic activities that would be considered eligible for sustainable and transition financing.
Green financing is typically used for economic activities or companies that are already green, while transition financing is for carbon-intensive businesses that are looking to decarbonise.
The guidance, which is published by the Singapore Sustainable Finance Association (SSFA), also lays out what banks can do when there is a lack of data on transition activities with a forward-looking screening criteria.
SEE ALSO
“Through this publication, SSFA seeks to encourage wider adoption of the Singapore-Asia Taxonomy and strengthen sustainable finance practices in the region, supporting capital mobilisation towards a more inclusive, resilient and net-zero future,” it said in a statement.
Decoding Asia newsletter: your guide to navigating Asia in a new global order. Sign up here to get Decoding Asia newsletter. Delivered to your inbox. Free.
Copyright SPH Media. All rights reserved.
