MAS Launches World’s First Multi-Sector Transition Taxonomy

The Monetary Authority of Singapore (MAS) has finally published – after four rounds of extensive consultation – a first taxonomy for the assessment of firms, activities, and projects as to their alignment with or contribution to Objective 1 noted in the document: Climate change mitigation (see explanation in the comment box). The Taxonomy thereby establishes technical screening criteria for eight key industrial sectors in Asia which are responsible for nearly 90% of the region’s greenhouse gas emissions, including:
– Energy,
– Transportation,
– Real Estate and Construction,
– Industry,
– Agriculture and Forestry/Land Use,
– Information and Communication Technology,
– Waste/Circular Economy,
– Carbon Capture and Sequestration.
Activities are thereby classified as any of the following three in accordance with the colors of a traffic light:
1. Green (Environmentally Sustainable): Activities that significantly contribute to one or more environmental objectives (in this case climate change) without causing significant harm to the others. To qualify as such, the activities must be in a close region of the maximum 1.5°C global warming limit as set out in the Paris agreement.
2. Amber (Transition): Projects that are in the process of transitioning towards becoming environmentally sustainable and to be within the 1.5°C pathway, but are not there yet. They may be moving towards a green transition pathway within a defined timeframe or facilitate significant emissions reductions in the short-term with a prescribed sunset date.
3. Red (Ineligible): Economic activities that don’t align with the environmental objectives or might cause significant harm to one or more of the other objectives.
The taxonomy is a first step in the implementation of a comprehensive evaluation framework for sustainable and transitional activities. As it evolves, MAS will include a broader range of economic activities related to various environmental objectives beyond just climate change mitigation, providing more comprehensive guidance for sustainable investments. At the end of the document, there are detailed instructions as to how the taxonomy can be used by asset managers and credit institutions to assess investee companies or corporate clients for lending purposes. The taxonomy further outlines how firms may use the taxonomy for non-financial disclosures. In this context, MAS also notes that the taxonomy is closely aligned with the EU taxonomy and the one of China so as to ensure interoperability for multinational firms.