SPECIAL REPORT
Developed for the Green Bond Issuance Promotion Platform – Japan

Growing green bond markets: The development oftaxonomies to identify green assets
Green bond guidelines are being implemented across the globe to support issuers andinvestors in selecting and reporting on suitable projects. However, a gap of adoption of green
definitions remains, suggesting the need to develop consistent approaches that can increase
the capability of issuers and investors to identify eligible green and sustainable assets.
A taxonomy for green bonds
The green bond market has seen exponential growth over the
past 5 years as an increasing number of investors have sought
environmentally sustainable investments without having tosacrifice financial returns. However, one of the main hurdles forfurther growth has been a consistent and robust approach toidentifying what is considered ‘green’.
The systematic classification and definition of qualifying items istermed a ‘taxonomy’, and in the case of classifying and defining
green assets and projects, it can be termed ‘climate-aligned’ or‘green’ or ‘sustainable finance’ taxonomy, whether it is identifying
assets that address climate change only, broader environmental
benefits or both social and environmental impacts. A taxonomy
provides a list of eligible assets with thresholds and metrics asnecessary. Harmonising eligible assets and metrics across themarket is the more important aspect of taxonomy development,
as the taxonomy will provide guidance to both issuers andinvestors in the relevant jurisdiction.

Definitions for green assets are key to safeguarding the market
from the risk of ‘greenwashing’,1 supporting governments intargeting their actions against climate change and enabling
financial market players to know which investments to focus on if
they are to get into the sustainable finance playing field.
The challenge is to develop definitions that are scientifically robust
but also practical, i.e. usable by issuers and give confidence toinvestors. Data availability can be an issue for several reasons,either because it is not collected, or because it is collected but notdisclosed to financial institutions.
For example, in the United Kingdom, the energy efficiency
performance of residential properties only became publicly
available in 2017, allowing willing financial institutions to match
green buildings with mortgage in their portfolios, as well as set up
green mortgages at a discount for purchases of energy-efficient
properties.2
Different approaches may also be in place in different jurisdictions(such as building standards), which need to be assessed against an
overarching benchmark to provide confidence to investors fromother countries.
In general, taxonomies for low-carbon and climate-resilient assets
are a support tool for financial market players to develop green
finance instruments and enable them to identify sustainable
investments for risk management and strategic purposes.
Depending on the complexity of sectors and their connections toother environmental impacts, a taxonomy can provide different
levels of guidance, from light to dark green investments, leavingsome degree of flexibility to its users and catering for different
preferences from the investor community.

A taxonomy that classifies and defines green assets and projects
can be used in the context of direct investments, in assessing thegreenness of companies, or to identify dedicated financial
instruments, such as green bonds.

Taxonomy in practice: green bond guidelines

How a taxonomy can support the developmentof green financeOver the past few years regulators, stock exchanges and market
associations have stepped in to provide some guidance to market
participants for the green debt issuance process.

One of the main barriers to increasing the supply of green debt
instruments is the identification of green assets and projects, due
to the lack of awareness around what these are and how to
identify them (e.g. green mortgages or low-carbon transport) andoften the lack of enough green projects on the ground.

The green bond market developed as a voluntary market, withissuers disclosing information to investors following international
best practice or their own practices.

The map below provides a snapshot of the availability of nationaland regional green bond guidance, in the form of regulation,
guidelines and listing requirements.

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Implementing comprehensive green bond guidance, targeted atsteering capital towards investments in climate-aligned assets canhelp governments to:1.

Meet their climate and infrastructure goals.

2.

Maintain market integrity, ensuring investors remain
engaged and sustain the supply of green bonds.

3.

Implement policies that target at investments in all eligible
low-carbon sectors.

4.

Achieve scale through a liquid market that can tap intolarge pools of capital from institutional investors to
support the low-carbon economy.

In analysing the guidance in place some common trends emerge:•

All guidance developed so far recognises the international
good practice provided by the Green Bond Principles(GBP), coordinated by the International Capital Market
Association (ICMA), and the Climate Bonds Standard (CBS),
coordinated by the Climate Bonds Initiative (CBI) and buildfrom this international guidance.

•

Eligibility of assets and projects is typically indicatedthrough broad categories, signalling a lack of taxonomies,or robust and consistent definitions for ‘green’ assets.

•

External reviews are increasingly becoming mandatory
across jurisdictions and certainly for most green bond andsustainability segments on exchanges. Requirements arebeing put in place for local verifiers and other external
reviewers.

•

Reporting is compulsory, at least annually until proceeds
are fully allocated, with both quantitative and qualitative
impacts where possible.

Regulators and policymakers across the globe in the Association ofSoutheast Asian Nations (ASEAN), Malaysia, India, China, Morocco

and Japan have included in their guidance with lists of eligible
assets and projects of varying level detail: for example, the ASEAN
Capital Markets Forum’s guidelines include broad categories ofprojects and specify the exclusion of fossil fuels, the People Bankof China’s guidelines refer to a Green Bond Endorsed Project
Catalogue, providing a list of eligible projects. and the MOEJ
guidelines list specify eligible sectors.3 (see Annex I)
More recently, the European Commission has embarked on theprocess of developing a classification for sustainable finance toinclude clear definitions, metrics and thresholds where needed,
for investments with environmental and social benefits. It is thefirst attempt by a policymaker to develop such a comprehensiveclassification.
The International Standards Organisation has also convened aworking group to develop the ISO 14030, Green bonds –Environmental performance of nominated projects and assets.

ISO 14030, Green bonds – Environmental
performance of nominated projects and assets
The International Organisation for Standardisation (ISO) is working
on developing an international standard for green bonds todeliver consistent eligibility rules and definitions of green to themarket. Building on its experience on the ISO 14001 forenvironmental management systems, the ISO is developing thenext generation of environmental management standards,
focusing on merging economic and environmental management,
including the ISO 14030 for green bonds.
The standard will build from the foundations provided by theGreen Bond Principles, the Climate Bond Standard and otherexisting taxonomies for green bonds. The standard is expected tobe published in 2020. As several working group members are also
involved in the European Commission’s TEG, the outcomes of the
ISO and EU TEG process are expected to be mostly aligned.

Source: Climate Bonds Initiative 2018

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SPECIAL REPORT
Developed for the Green Bond Issuance Promotion Platform – JapanThe EU Taxonomy for Sustainable Finance
The European Commission, the European Union (EU) legislative
body, announced a comprehensive Action Plan: Financing
Sustainable Growth in March 2018, following a year-longconsultation with a select high-level expert group of sustainablefinance experts and the public. The plan was driven by the
momentum provided by the growth of the global green bondmarket, the progress on climate-related financial disclosure andthe political appetite for sustainable and inclusive growth.

Source: European Commission (2019): EU Strategy on Sustainable Finance and the Role of the Expert Group
Action 1 in the Action Plan clearly states the Commission’s
intention to establish an EU classification system for sustainable
activities. The European Commission recognised that to encouragesustainable growth, industry, investors and governments need aclear understanding of which economic activities areenvironmentally sustainable.
This is currently not comprehensively offered in the market. Some
organisations do it in-house, which is costly and fragmented. The
Commission intends to build on these existing market-led andmember-state-based initiatives to develop a consistent andbroadly accepted EU Taxonomy.4 The Taxonomy will be developed
for the EU, with the objective of being internationally relevant.
To support this action, the Commission presented a legislative
proposal aimed at establishing the progressive development of an
EU Taxonomy for Sustainable Finance, which is currently being
discussed by the European Parliament and Member States. The
proposed regulation sets out:
1.

six environmental objectives for environmentally sustainableeconomic activities:a.

climate change mitigation,b.

climate change adaptation,c.

sustainable use and protection of water and marine
resources,d.

transition to a circular economy, waste prevention andrecycling,e.

pollution prevention and control,f.

protection of healthy ecosystems.

Environmentally sustainable activities are defined as thosethat have a significant impact towards achieving one of thesix objectives, without significantly harming the other five.
2.

minimum safeguards compliance, and3.

technical screening criteria, which will be introduced
subsequently, as they are developed.

The Regulation proposal also establishes the creation of a
Platform on Sustainable Finance to advise on the Taxonomy andreview the technical screening criteria over time.
Once the framework is adopted by the EU Parliament andMember States, the Commission will introduce delegated acts
containing the Taxonomy of the environmentally friendly activities
and relevant technical screening criteria. A Technical Expert Group(TEG) on Sustainable Finance, composed of 35 experts fromindustry and civil society, has been tasked with developing
proposals for the EU taxonomy for sustainable economic activities.
The TEG is also working on other aspects of the Action Plandelivery, including an EU green bond label, low-carbon indices andclimate-related disclosure. The final report of the TEG on climaterelated disclosure was published in January 2019.
With the regards to the Taxonomy, the TEG is tasked withdelivering climate change mitigation and adaptation activities byJune 2019, with other environmental targets and social
considerations to be integrated in a second phase.
In the first few months of work, the TEG Taxonomy groupprioritised sectors and activities to focus on over the group’s 12month mandate. Sectors were prioritised based on their emissions
impact in the EU economy, based on data from the European

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SPECIAL REPORT
Developed for the Green Bond Issuance Promotion Platform – Japan
Environmental Agency, which resulted in the following sectors
being identified:
•
•
•
•
•
•
•
•

Electricity generation
Manufacturing
Agriculture, forestry and fishingTransportation and storage
Water supply, waste management
Mining and quarrying
Wholesale and retail trade
Construction

And enabling sectors:••

Professional, scientific and technical activities
Information and communication

The next step included gathering existing information anddefinitions to compile a first round of activities, in particularwhere guidance and criteria was already available and used bymarkets. These include mitigation activities for:•Transportation: passenger and freight interurban
transport, urban passenger land transport, passenger andfreight transport by road.

The TEG has published a public call for feedback on this first roundof mitigation activities. In its second phase of work, the TEG has
identified additional sectors to work from the initial priority list
and the need for additional expertise. Further work will be carriedout with sector-specific experts outside the TEG in 2019. The
second phase of mitigation activities will explore:
•
•
•
•
•
•
•
•

Agricultural activities
Mining and quarrying
Manufacturing of ferrous and non-ferrous metals, cement
and chemicals
Transmission and distribution of electricity
Water, sewerage and waste management
Water and air transport
Digital/Information Communication Technologies
Adaptation•

Forestry: afforestation, reforestation, existing forest
management;

A methodology has been developed to build the list of adaptation
activities. Adaptation activities will need to:•

Buildings: construction of new buildings, renovation ofexisting buildings;•

Manufacturing: energy and resource efficiency inmanufacturing, manufacture of renewable energy
equipment, low carbon transport vehicles, energy
efficiency equipment and other low carbon technologies

•
•
•

•

Renewable energy production: solar photovoltaic, wind,concentrated solar power, ocean geothermal andhydropower electricity generation•

Address material physical climate risks
Avoid maladaptation
Have a monitoring system in place aimed at measuring
progress towards adaptation results
Be part of a wider strategy

A list of activities for these additional sectors can expected to be
developed by June 2019.

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Annex I: Current definitions of ‘green’
International Definitions
Green Bond Principles

International Climate Bonds Taxonomy and the Climate Bonds Standard

Developed in 2010 and annually reviewed by
the Green Bonds Working Group through thecoordination of the International CapitalMarkets Association, the GBP explicitly
recognise broad categories of eligibility forgreen projects which contribute to several
environmental objectives, including:

The Climate Bonds Taxonomy has been developed based on the latest climate science
including research from the Intergovernmental Panel on Climate Change (IPCC) and theInternational Energy Agency (IEA), and has benefited from the input of hundreds oftechnical experts from around the world. The Taxonomy identifies the assets andprojects needed to deliver a low carbon economy and gives GHG emissions screening
criteria consistent with the 2-degree global warming target set by the Paris Agreement.
First released in 2013, it is regularly updated based on the latest climate science, theemergence of new technologies and sector criteria under the Climate Bonds Standard.

1.
2.
3.
4.

climate change mitigation andadaptation,
natural resource conservation,
biodiversity conservation, andpollution prevention and control.

The Taxonomy is the basis of the Climate Bonds Standard and Certification Scheme. The
sector criteria used for certification of green bonds are developed through extensive
consultations with technical expert, industry practitioners and investor groups, finallyvetted through a public consultation process. The chart below summarises the criteria
available for certification, criteria in development and planned.

MDB-IDFC Common Principles for
Climate Mitigation Finance Tacking
The Multilateral Development Banks (MDBs)
and the International Development FinanceClub (IDFC) have developed a common
approach to track finance towards climatechange mitigation and adaptation which canoffer some guidance, especially to lending
institutions, around which loans can beconsidered green. Activities eligible forclimate mitigation finance include:
1.
2.
3.
4.
5.
6.
7.
8.
9.

Renewable energy
Lower-carbon and efficient energy
generation
Energy efficiency
Agriculture, forestry and land-use
Non-energy GHG reductions
Waste and wastewaterTransport
Low-carbon technologies
Cross-cutting issues such as policy
support and financing instruments

Source: Climate Bonds Initiative, 2018 (https://www.climatebonds.net/standard/sector-criteria)

Sustainable Development Investments
Developed by Dutch asset manager PGGM and APG, the SDI taxonomy identifies
investments aligned with the Sustainable Development Goals (SDGs). The SDI consist of abroad list of activities consistent with the SDG goals and sub-goals and a decision tree toassess in a simple way whether an investment is aligned or not.

National and regional definitions
ASEAN Green Bond Standards

China Green Bond Project Endorsed Catalogue

The ASEAN Capital Markets Forum – a forum
comprising capital market regulators fromASEAN countries to promote greater
integration and connectivity of regional capital
markets – has developed ASEAN Green Bond
Standards based on the international Green
Bond Principles. The eligible projects aredefined by the GBP’s broad categories withthe addition of specifically excluding fossil fuelpower generation projects. This is in line with
the Climate Bonds Taxonomy.

Released in 2015 together with the People’s Bank of First official Guidelines for green
bonds, the Catalogue offers detailed guidance on eligible projects to be financed
through green bonds. Eligible categories include:
1.
2.
3.
4.
5.
6.
7.

Clean energy
Energy saving
Resource conservation and recycling
Clean transport
Ecological protection and climate change adaptation
Pollution prevention and control
General corporate purposes (up to 50% of proceeds)

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Ministry of Environment Japan (MOEJ) green bond guidelines & taxonomy
The MOEJ green bond guidelines are in line with international best practices. In terms of green definitions, the guidelines state the proceedsof green bonds should be allocated to green projects with clear environmental benefits and include an exemplary list of projects based on
the GBP categories, such as:
1.

2.
3.

4.
5.
6.
7.
8.
9.

Renewable energy: solar, wind, small and medium hydropower, biomass and geothermal power generation; projects to install,
manage and maintain transmission lines; batteries; manufacturing of relevant appliances and projects; projects to use renewable
heat sources
Energy efficiency: projects for highly energy efficient buildings; projects to renovate offices, plants and houses to gain high-energy
performance certificates (e.g. LEED, CASBEE, BELS); projects for smart grid-related appliances
Pollution prevention and control: projects that contribute to the realisation of a circular economy; projects to control the release of
toxic chemicals; projects to prevent the release of fluorocarbons; projects to build facilities for the advanced treatment and recyclingof wastewater
Sustainable management of living natural resources: projects to acquire sustainable fishery and aquaculture certifications (MSC andASC) and sustainable forestry certifications (FSC); afforestation projects
Biodiversity conservation: projects for the conservation of wetlands and coral reefs, of satoyama and satoumi; projects for thetransformation of river walls
Clean transportation: low-emission electric and hydrogen vehicles manufacturing; projects to enhance the efficiency of logistics
systems
Sustainable water management: projects to conserve the water circulation cycle, projects to develop and improve flood prevention
facilities; projects for seawater desalination
Climate change adaptation: projects to reinforce the weather-related disaster prevention functions of infrastructure
Eco-efficient products and production technologies: projects to manufacture products that meet requirements of environmental
certifications; projects for research, development and introduction of technologies that reduce the amount of GHGs

Endnotes: 1. The term ‘greenwashing’ refers to making misleading claims about the environmental profile of the assets backing the green bond. 2. See
Barclay’s Green Home Mortgages: https://www.barclays.co.uk/mortgages/green-home-mortgage/ 3. For a comparison of green bond guidance in emerging
markets see the IFC-CBI Creating Green Bond markets report: https://www.climatebonds.net/resources/reports/creating-green-bond-markets-insightsinnovations-and-tools-emerging-markets. 4. https://ec.europa.eu/info/sites/info/files/180730-teg-statement_en.pdf© Climate Bonds Initiative, January 2019www.climatebonds.net

Disclaimer: The information contained in this communication does not constitute investment advice in any form and the Climate Bonds Initiative is not an investment
adviser. Any reference to a financial organisation or debt instrument or investment product is for information purposes only. Links to external websites are for
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The development of taxonomies to identify green assets Climate Bonds Initiative, December 20186