Sustainable finance taxonomies play a crucial role in guiding investments toward environmentally and socially responsible activities. Though at different stages of development, Singapore (SG) and the European Union (EU) have both developed taxonomies to support transparency on the sustainability of different economic activities and facilitate sustainable investment decisions.
The most significant distinction between the two taxonomies lies in Singapore’s adoption of a traffic light system. The SG Taxonomy uses a color-coded classification to categorize economic activities based on their alignment with environmental objectives. Green Category means activities or companies that fall into this category are clearly aligned with the taxonomy’s environmental objectives.
Amber Category means transition activities or companies that are not fully aligned with the taxonomy’s objectives but are working towards it. Red Category means activities or companies in the red category are inconsistent with the taxonomy’s objectives and need improvement or phasing out to be considered environmentally sustainable.
The EU taxonomy, on the other hand, focuses mainly on identifying activities that are already environmentally sustainable, without adopting a color classification system. Also, the Singapore Taxonomy specifically targets eight focus sectors that have the highest environmental impact in the country. These sectors align with those that the EU Taxonomy focuses on, reflecting their similarity in scope. They include: energy, transportation and fuel, construction/real estate, agriculture and forestry/land use, industrial, information and communications technology, waste and water, and carbon capture and sequestration.
Currently, the criteria and thresholds for economic activities in the Singapore Taxonomy are only available for contribution to climate change mitigation. The technical screening criteria within the Singapore Taxonomy are similar to those within the EU Taxonomy for many activities. However, there are differences in thresholds based on the specific activity. Yet, despite some differences in criteria and thresholds, the overall approach and objectives of both taxonomies are aligned with promoting sustainable practices and supporting the transition towards a greener future.
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