Experts from Mexico, Colombia, and Panama participate in a Webinar to present their experiences regarding the construction of climate financing taxonomies in these countries.
At the global level, for three years several international initiatives such as TCFD, SBN-IFC, NGFS,CBI and UNEP -FI have provided recommendations and lines of work to create favorable conditions and advance in the mobilization of public and private financial resources to contribute to the fulfillment of the goals of global agendas regarding climate change. Moreover,this work is directed at including climate risks in financial operations and capital mobilization towards green and low carbon investments in the broader context of environmentally sustainable development.
Before this, countries like China and the European Union have been pioneers in developing taxonomies for climate financing, which allow them to identify if their investments are based on more sustainable projects.
What is a climate financing taxonomy?
A taxonomy is a reference framework (with criteria and indicators) that allows classifying, organizing and evaluating various sub-branches and economic activities according to their contribution to climate and/or sustainable objectives of a country. In brief, it is a classification of what is green and what is not.
Its main objective is to redirect capital flows to other sectors of the economy by supporting issuers and investors in the process of identifying and reporting eligible sustainable projects. Through a reporting framework, a taxonomy can include the elements of sustainability in the operation of a bank and thereby monitor investment flows and report results.
Why is a taxonomy so important and what is it for?
- Taxonomies allow to establish a common language, a shared vision of what is considered “green financing” in the country, so that financial institutions can homogeneously inform financing they grant under these characteristics.
- They create a “level playing field” among banks, setting comparable and reliable standards.
- They help making institutional reports and setting green financing goals.
- They allow regulators to inform transparently.
- They give certainty to investors, attract investors in search of green assets and thus encourage the transition to a sustainable economy .
- They facilitate the identification of investment opportunities and new markets to increase the portfolio of financial products focused on fighting adverse effects of climate change.
- They help avoid greenwashing (affirming without a basis that a product or service is green or sustainable).
- They help to reduce physical and transition risks linked to climate change.
Experiences in the construction of taxonomies in climate financing. The case of Mexico, Colombia and Panama
On October 25th, 2019, the Public Financing working group of the GADeR-ALC sectoral networks, the Mexican-German Climate Change Alliance and FELICITY facilitated a dialogue through a webinar between experts in charge of building the taxonomy of climate financing in Mexico, Colombia and Panama, in order to share and exchange experiences and advances .
The Webinar was attended by around 35 people, who learned about the scope, progress and challenges that these three Latin American countries have had in the construction of their respective taxonomies, as well as their implementation processes and the progress of best practices to achieve sustainable finance in the banking sector.
In Mexico, the design and piloting of a reporting framework for green financing in commercial banks in Mexico is currently being carried out thanks to the technical assistance of the Mexican-German Climate Change Alliance implemented by GIZ.
On the other hand, the work in Colombia is being carried out by the Financial Superintendence, which is proposing the creation of a guide in order to support issuers and investors in decision making, as well as a harmonization or “tropicalization” of the taxonomy, in order to develop a taxonomy of common use for a region, country or state.
In the case of Panama, the Sustainable Finance Working Group of Panama (SFWG) formed by actors from the financial sector and key actors from the governmental and non-governmental sector of Panama, has a taxonomy committee that aims to achieve the development of an Integral Taxonomy in Sustainable Finance for Traditional Actors of the Financial Sector (Banking, Insurance, Securities) or a Referential Taxonomy (or Guideline) in Sustainable Finance for Other Actors of the Financial Sector (finance firms, cooperatives, private sector).