Within the framework of the cooperation between the Mexican-German Climate Change Alliance of the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH and the Banking Association of Mexico (ABM), the development of a taxonomy of green finance for Mexican banks is being promoted.

Taxonomies are useful tools for sustainable finance since they provide certainty, clarity and transparency to the investors in the market and reduce the risk of bad practices such as Greenwashing.

For Mexico, a green finance taxonomy with a broad scientific base and support from regulatory entities such as the European taxonomy would be a tool for facilitating a green recovery and increased sustainability in the national economy.

Thus, it is necessary to think of the Mexican taxonomy as something more than a list of green activities; it must be understood as a system composed of various elements:

• Principles
• Criteria
• Methodologies
• Operational and governance mechanisms
• Reporting framework
• Diffusion mechanisms

Although the taxonomic system does not provide economic incentives to disregard investments that are not classified as green, it is a useful tool for investors who want to mitigate and manage financial transition and liability risks related to the climate, through the increase of green assets in their portfolios.

Likewise, environmental risks–particularly climate ones–pose a greater threat to the most vulnerable sectors of society due to their greater exposure to these types of risks. Therefore, by promoting sustainable investments, the green finance taxonomy contributes to a more equitable and fair society.

Finally, establishing a taxonomic system within the Mexican financial system will promote investments that respect the environment, attract investors interested in a portfolio with lower climate risks, stimulate compliance with national public policy objectives and international commitments. It will also make it possible to clearly identify green projects and activities that can attract investment as part of the post-COVID-19 recovery.