Asian Countries Vary in Classifying Sustainable Finance
Most Asian countries are lagging in classifying sustainable activities.
Singapore has an efficient green financing classification in place.
According to a new study by the Energy Economics and Financial Analysis (IEEFA), Asian economies approach sustainable financing differently.
The world's fastest-growing economies, including Indonesia, Malaysia, and the Philippines, have different green finance taxonomies, which means classification systems for sustainable financing.
The study says that some countries are progressing while others need stricter regulations.
Different Standards
An example of clear and strict guidelines is Singapore regarding what qualifies as sustainable. Meanwhile, the Philippines, Malaysia and Indonesia have looser standards. These differences can baffle businesses and investors when it comes to following green guidelines.
Transition Challeneges
Most Asian countries are still heavily dependent on fossil fuels to generate electricity, and a transition all of a sudden is not possible. The report says the pace of the change needs to match each country's ability to adapt.
Taxonomy Systems
A three-tiered system—green, amber, red—is being followed by some countries to classify businesses based on how environmentally friendly they are. Investors are hesitant to fund amber companies as there is a risk that they might not make enough progress.
Leaders and Laggards
Singapore has stricter guidelines in green classifications, which has earned them international praise. In the meantime, Indonesia is being criticised for classifying coal plant investments as green financing, which violates international standards.
EU's Taxonomies
The classification by the European Union (EU) is a perfect example of mandatory reporting and strict rules surrounding green activities. Asian taxonomies lack this level of accountability as they are often voluntary and less regulated.
For more information, study the full report here.
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Source: IEEFA
