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Asia advances sustainability-related finance taxonomies, disclosure rules & public-private partnerships in ESG

Yixiang Zeng  Southeast Asia correspondent / Thomson Reuters Regulatory Intelligence

· 5 minute read

Yixiang Zeng  Southeast Asia correspondent / Thomson Reuters Regulatory Intelligence

· 5 minute read

Major developments in environmental, social & governance (ESG) policies at the national and international levels in Asia indicate that ongoing progress in sustainability will continue in 2024

In Asia, new initiatives on green taxonomies, blended finance, and disclosure rules set the stage for increased activity at both the national and regional levels on sustainability-related finance.

The new year ushers in a more refined version of the Association of Southeast Asian Nations’ (ASEAN) Taxonomy for Sustainable Finance, which is comparable in ambition to similar initiatives by Western peers. The latest taxonomy, which takes effect in the first quarter of 2024, will showcase the region’s growing emphasis on interoperability by advancing the taxonomy’s Plus Standard feature after gaining broad approval from stakeholders. The tiered feature aligns with the European Union’s Taxonomy and captures the coal phase-out criteria. As such, it aims to encourage decarbonization and raise ASEAN’s position in global sustainability efforts.

At the national level, the Monetary Authority of Singapore (MAS) has launched the Singapore-Asia Taxonomy for Sustainable Finance, which establishes detailed thresholds and criteria for defining green and transition activities that mitigate climate change across eight focus sectors.

To enhance interoperability with global taxonomies, MAS has commenced an exercise to map the Singapore-Asia Taxonomy to the International Platform for Sustainable Finance’s Common Ground Taxonomy, which currently covers the EU Taxonomy and People’s Bank of China’s Green Bond Endorsed Project Catalogue.

Formal blended finance is a major development

A major theme at COP28 in December 2023 was the need for increased public-private partnerships and innovative solutions to provide financing to poorer countries in the southern hemisphere. Against this backdrop, Allied Climate Partners (ACP), International Finance Corporation (IFC), MAS, and Temasek announced the intent to establish a green investments partnership to address climate finance gaps and increase the bankability of green and sustainable projects in Asia, with an initial focus on Southeast Asia.

Developing Asia requires $1.7 trillion annually in infrastructure investments until 2030 to maintain growth momentum while meeting climate goals. Many green infrastructure projects are only marginally bankable and often are unable to attract commercial financing on their own merits. These gaps are most acute in the project development and construction phases.

As such, ACP, IFC, MAS and Temasek signed a memorandum of understanding to bridge gaps in the region’s sustainable infrastructure financing needs through the deployment of blended finance, bringing in both concessional capital from the philanthropic and public sectors, as well as private capital towards such projects. MAS will convene its networks across Singapore’s international financial center, as well as Singapore’s strong infrastructure and sustainable finance and professional services ecosystem. Temasek will leverage its network of portfolio companies and partners, including Pentagreen Capital, a joint venture with HSBC, for origination and investment opportunities.

In addition, more small- and medium-sized firms (SMEs) are expected to adopt better ESG disclosures in 2024, as regulators push for enhanced awareness and green certification of SMEs within ASEAN and beyond. For example, Malaysia’s Simplified ESG Disclosure Guide, launched by Capital Markets Malaysia (CMM), seeks to align the sector to global standards and address SMEs’ disclosure challenges. The guide offers clear, straightforward, and structured guidance on the ESG disclosures required of SMEs within their supply chains. CMM also intends to launch specialized sectoral disclosure guidance in early 2024.

Sustainability disclosures take shape in Hong Kong

The Green and Sustainable Finance Cross-Agency Steering Group, established by Hong Kong’s Securities and Futures Commission (SFC) and the Hong Kong Monetary Authority in May 2020, welcomed the International Sustainability Standards Board’s (ISSB) publication of the International Financial Reporting Standards Sustainability Disclosure Standards. “These standards aim at becoming the global baseline for corporate disclosure of climate and sustainability-related information,” the SFC stated.

The Steering Group also welcomed the options built into the ISSB standards that allow jurisdictions to scale and phase-in the requirements. Authorities in Hong Kong will consider alignment of the local requirements with this global baseline in a proportionate approach, the SFC explained. “The ISSB standards aim to serve as a global framework for investor-focused corporate sustainability disclosures,” the SFC noted. “IOSCO’s [International Organization of Securities Commissions’] endorsement signals to its 130-member securities regulators to adopt, apply, or make reference to the standards in addressing sustainability-related risks and opportunities.”

The SFC plans to work with relevant government bureaus, other financial regulators, and the Stock Exchange of Hong Kong (SEHK) to develop a comprehensive roadmap for the adoption of the ISSB standards in Hong Kong, the SFC stated.

As an initial move in this direction, the SEHK’s proposed disclosure requirements for listed companies referenced the ISSB’s exposure draft for climate-related disclosures and its further deliberations. The final SEHK requirements will take account of the consultation responses and the final ISSB standards.

Looking ahead to Q2 2024 and beyond, the recent advancements in ESG policies across Asia, particularly through the implementation of green taxonomies, blended finance, and enhanced disclosure rules, lay a strong foundation for the continued progress and escalation of sustainability-focused finance activities at both national and regional levels in 2024.

Thomson Reuters Regulatory Intelligence’s Nathan Lynch in Perth and Rowena Valeria Carpio in Manila contributed to this article.

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