Many countries, including Canada, Chile, Colombia, Kazakhstan, Indonesia, and the ASEAN region, are developing sustainable finance taxonomies. Most of these countries consider the European Union (EU) taxonomy as a starting point.
For instance, the EU taxonomy is based on a double-conditionality framework, as environmental objectives are interlinked. Hence, the other sustainable finance taxonomies should also leverage the double-conditionality framework to ensure that one objective does not undermine other goals.
Furthermore, the EU taxonomy demonstrates the need to specify clear environmental goals and explain their alignment with international environmental agreements. Consequently, other sustainable finance taxonomies should ensure the environmental goals are transparent so users can calibrate the probable environmental performance of the economic activities covered by the various taxonomies.
In addition, other taxonomies should have international translation between sector classification systems to facilitate their use by all parties. Moreover, to assess whether the environmental performance of an activity is consistent with environmental goals, clear and common measurement metrics are stated in the EU taxonomy. Therefore, other sustainable finance taxonomies should incorporate life-cycle impacts in these metrics.
While some environmental goals are specific to a location, others, such as climate mitigation, are borderless. Therefore, country-specific sustainable finance taxonomies should incorporate both location-specific and international environmental goals. Finally, similar to the EU taxonomy, the other taxonomies should specify whether disclosures are mandatory or voluntary and define the rules for making disclosures.
To conclude, the EU taxonomy is a comprehensive and advanced classification system. It has many universal features, which, when incorporated, could make other sustainable finance taxonomies being built around the world robust.
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