Jakarta. ASEAN is seeking to align its sustainable finance taxonomy with the European Union, according to the Southeast Asian bloc’s chair Indonesia.

The 10-member grouping earlier this year under Indonesia’s chairmanship upgraded its ASEAN Taxonomy. This is a document aimed to classify economic activities as sustainable or not. The taxonomy serves as a guide for investors to make sure what they are investing in aligns with climate objectives. The ASEAN Taxonomy Version 2 introduces technical screening criteria for coal phase-outs.

“The next challenge is on how to build the interoperability of the ASEAN Taxonomy with others such as the EU Taxonomy,” Indonesia’s Fiscal Policy Agency head Febrio Kacaribu said in Jakarta on Wednesday.

“To mobilize private investment, there is a need to establish a framework approach to identify and label transition activities. This is to ensure that the private sector’s participation would not be seen as ‘greenwashing’. … ASEAN Taxonomy Version 2 is an example of how to enable an orderly transition and foster sustainable finance,” Febrio said.

The revised ASEAN Taxonomy adopts a traffic-light system: green, amber, and red. 

A coal phase-out project may be classified as a “green” activity if it aligns with the 1.5 degrees climate threshold outcome. It, however, must be consistent with the International Energy Agency's net zero emissions pathway for the power sector to reach net zero by 2050. It has to meet specific conditions, among others, a coal phase-out by 2040. 

“Amber tier 2” are less ambitious than green activities. It indicates a project that aligns with the 1.5 degrees outcome for coal phase-out that is derived from regional or country-specific pathways that are consistent with science-based pathways. Some conditions for an “amber tier 2” activity include a coal phase-out by 2050.

Similarly, the EU Taxonomy allows companies to share a common definition of economic activities that can be considered environmentally sustainable. The EU officially adopted its taxonomy in July 2020.

According to Febrio, ASEAN to this day has not made any formal dialogues with the EU–particularly in bilateral settings– to discuss the possibility of interoperating the two taxonomies. ASEAN is eyeing the EU as the European bloc had already launched the taxonomy earlier.

“And I would say the ASEAN Taxonomy is the first of its kind to come from developing economies,” Febrio claimed.

He added that the ASEAN Taxonomy Version 2 gained positive responses during the G7 Summit in Japan earlier this year. The G7 encompasses Canada, France, Germany, Italy, Japan, the UK, and the US. The EU is a "non-enumerated member" of the G7.

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