Comparing the EU and Singapore-Asia Taxonomies: Implications on sustainable finance 

Taxonomy requirements can be overwhelming and complex. But fear not! This guide will break down the key aspects of the Singapore-Asia Taxonomy in an easy-to-understand way. Think of a taxonomy as a giant library that organizes information into categories, just like books are shelved by genre. This makes it much simpler to find and understand things. The Singapore-Asia Taxonomy covers a wide range of topics and applies to a whopping 90% of industries.  

In this guide, we will explore the essential elements, explain how it differs from the EU Taxonomy, and provide practical examples to illustrate its application. By the end, you’ll have a clear understanding of how the Singapore-Asia Taxonomy can simplify and enhance your business processes. 

The Singapore-Asia Taxonomy 

The Singapore-Asia Taxonomy represents a pioneering approach in the world of environmental classification systems. As described by MAS Managing Director Ravi Menon, “This is the first taxonomy in the world to comprehensively define transition activities across eight focus sectors. Most taxonomies define what is green and what is brown, leaving out the bulk of economic activities that are in-between.” Singapore-Asia Taxonomy aims to fill the gaps left by other systems, providing a more inclusive framework for industries at various stages of transition towards sustainability. 

Five key objectives of Singapore-Asia Taxonomy 

Building off of the more established and well developed EU Taxonomy, Green Finance Industry Taskforce’s (GFIT) Taxonomy eventually will seek to address five objectives:  

  1. Climate change mitigation;  
  1. Climate change adaptation;  
  1. Biodiversity protection;  
  1. Promotion of resource resilience and circular economy;
  1. Pollution prevention and control.  

Currently, the Singapore-Asia Taxonomy only addresses climate change mitigation. However, it may be developed to address additional objectives in the future. When we compare the Singapore-Asia Taxonomy and the EU Taxonomy, the Singapore-Asia Taxonomy uniquely defines transition activities across eight sectors, focusing on climate change mitigation with plans to expand. In contrast, the EU Taxonomy covers six objectives, including water and marine resources, with detailed criteria and a strong emphasis on the “Do No Significant Harm” principle. 

Source: OCBC

Key features of the Singapore-Asia Taxonomy 

The Singapore-Asia Taxonomy is designed to provide a comprehensive and practical framework for sustainable finance in the region. It sets itself apart from other taxonomies, particularly the EU Taxonomy, through several distinctive features: 

  1. Guidance referencing published climate science 
    The Taxonomy integrates climate science with actionable guidance for the financial sector, using scientifically based criteria and referencing credible data sources. For example, the guidance for the shipping sector is derived from the EU Taxonomy and aligns with International Maritime Organisation (IMO) standards. Technical screening tables indicate data sources such as the EU Taxonomy, Science-based Targets Initiative, Transition Pathway Initiative, Climate Bonds Initiative, and academic research. 
  2. Globally interoperable Taxonomy 
    To enhance interoperability with global taxonomies, the Monetary Authority of Singapore (MAS) is mapping the Singapore-Asia Taxonomy to the International Platform for Sustainable Finance’s Common Ground Taxonomy (CGT). The CGT includes the EU Taxonomy and the People’s Bank of China’s (PBOC) Green Bond Endorsed Project Catalogue. Once completed, financial institutions and market participants can refer to a common set of definitions under the CGT, increasing taxonomy-aligned financing solutions and facilitating sustainable development in CGT-covered markets. 
  3. Introduction of the “traffic light” system 
    A distinctive feature of the Taxonomy is the introduction of a traffic light classification system to distinguish between green (near net zero), amber (transition), and red (ineligible) activities. This system helps clarify the status of various economic activities and their alignment with sustainability goals, providing clear guidance for financial institutions on where to direct their investments. 

“The Singapore-Asia Taxonomy takes an Asian perspective and offers a measures-based approach to defining transition activities, categorising them as “amber”. This framework aims to help financial institutions optimise their support for the transition of hard-to-abate sectors, particularly in Asia.” 

– Wong Kee Joo, GFIT Chair and HSBC Singapore CEO

Singapore-Asia Taxonomy and the Built Environment 

The Singapore-Asia Taxonomy related to retrofitting and energy efficiency for buildings in Singapore sets specific criteria for sustainable economic activities in the built environment. It focuses on: 

  1. Construction of New Buildings: Encourages the use of sustainable materials and innovative construction methods that minimize environmental impact. 
  1. Renovation of Existing Buildings: Promotes substantial upgrades to increase energy efficiency, such as better insulation, efficient heating and cooling systems, and the integration of renewable energy sources. 
  1. Acquisition or Ownership of Buildings: Targets the purchase or ownership of buildings that meet high energy efficiency standards or have significant retrofitting potential to improve their performance. 

These guidelines emphasize not only the immediate reduction in energy consumption but also long-term sustainability and resilience against climate-related risks. 

Comparison with the EU Taxonomy 

The EU Taxonomy for sustainable activities in the building sector is somewhat similar but more expansive and detailed in comparison to the Singapore-Asia Taxonomy. Key aspects include: 

  • Do No Significant Harm (DNSH) Principle: Both taxonomies incorporate this principle, but the EU version is more explicit in defining activities that must not harm other environmental objectives while contributing to climate mitigation or adaptation. 
  • Technical Screening Criteria: The EU Taxonomy provides very detailed criteria for what constitutes a sustainable economic activity, including specific thresholds for energy efficiency improvements in new and existing buildings that must be met or exceeded. 
  • Scope of Activities: The EU Taxonomy covers a broader range of activities, including specific types of construction and renovation processes, detailed requirements for building materials, and the life cycle emissions of buildings. 

For the built environment, the Singapore-Asia Taxonomy provides criteria for sustainable construction, renovation, and acquisition, emphasizing energy efficiency and long-term sustainability. The EU Taxonomy offers a more detailed framework with explicit requirements and thresholds for energy efficiency improvements. Both guide sustainable building practices, but the EU Taxonomy is more stringent, while Singapore’s is adaptable to regional needs and conditions, reflecting the developmental and environmental priorities specific to Singapore and the broader Asian region. 

Green bonds: differences in approach between the EU and the Singapore-Asia region 

To understand how the EU and Singapore-Asia Taxonomies differ in their approach to green bonds, we need to examine two key aspects: 

  • Green Bond Handling: How each taxonomy defines and regulates the issuance of green bonds, including eligibility criteria and project selection processes. 
  • Building Energy Performance: How each taxonomy sets criteria for identifying and classifying buildings based on their energy efficiency, particularly focusing on the top 15% best-performing assets. 
EU Taxonomy Singapore-Asia Taxonomy 
The EU Taxonomy for sustainable finance defines technical screening criteria to determine whether an economic activity is environmentally sustainable. For the issuance of green bonds: Singapore’s approach, while inspired by the EU Taxonomy, is tailored to regional characteristics and developmental needs. For the issuance of green bonds: 
Best Performance Assets: The building sector under the EU Taxonomy requires that to qualify, new buildings must meet top energy efficiency standards, often aligned with the top 15% of the local market in terms of energy performance. Best Performance Assets: Similar to the EU, Singapore’s taxonomy likely emphasizes investments in buildings that perform within the top tier of energy efficiency. However, specific thresholds might be adjusted to reflect local climatic, economic, and technological contexts. 
DNSH Criteria: Investments need to comply with the Do No Significant Harm criteria across all other environmental objectives .Application to Green Bonds: While the taxonomy sets the groundwork for what might be considered green, detailed application guidelines specifically for green bonds might be less prescriptive than in the EU, focusing more on overall environmental benefits rather than strict technical criteria. 
Transparency and Reporting: Issuers of green bonds must provide detailed reporting on the use of proceeds, demonstrating that funded projects meet the stringent EU criteria for substantial contribution to climate change mitigation and DNSH. Regional Adaptability: The taxonomy is designed to be interoperable with global standards but is adapted to ASEAN market realities, which could influence the criteria for what constitutes the best performing assets. 

Comparative Framework 

When comparing both taxonomies in the context of issuing green bonds based on energy efficiency, there are three distinct differences: 

1. Criteria stringency: The EU’s criteria are likely more stringent and prescriptive, with clear benchmarks and thresholds that need to be met. Singapore’s criteria may offer more flexibility to accommodate a broader range of regional practices and technological solutions. 

2. Market alignment: Both taxonomies aim to align with international standards to facilitate cross-border investments and acceptance. However, the EU taxonomy might have a more rigid application, which could influence international investors more uniformly. 

3. Reporting and disclosure: The EU places a strong emphasis on transparency and detailed reporting for green bonds, which is crucial for investor confidence and compliance. Singapore’s approach, while also prioritizing transparency, might adapt its reporting requirements to better suit local market dynamics and investor familiarity. 

In essence, both the EU and Singapore-Asia Taxonomies provide frameworks for issuing green bonds based on buildings’ energy efficiency, but they differ in their degree of prescriptiveness and adaptability to local conditions. These differences reflect the diverse environmental, economic, and regulatory landscapes in which they operate. For issuers and investors, understanding these nuances is key to navigating the green bond markets effectively in both regions. 

Sustainability tracking and carbon reporting  

The field of sustainable finance, green buildings and sustainable real estate is constantly changing. The Singapore-Asia Taxonomy is designed to provide a roadmap for the Asian context with regards to proactive steps towards the Net Zero goals for 2050 and Singapore Green Building Master Plan, 80-80-80.  

Tracking and reporting on sustainability are key in this process. CFP Green Buildings offers a data-driven solution that empowers financial institutions to effectively report carbon emissions. This approach provides clear insights and tailored plans at scale to help you improve your building’s performance and achieve your net-zero goals. This equips financial institutions with the tools they need to comply with the Singapore-Asia Taxonomy. 

The Green Buildings Tool 

At CFP Green Buildings we have developed a tool that provides simple, large-scale, and specific levels of insight in sustainability. Besides entire portfolios, individual assets can also be analysed. The Green Buildings Tool recognizes the type of property, retrieves the EPC and sustainability or carbon score, identifies the most relevant sustainability measures, and calculates the business case for the entire portfolio and per building or house. 

Green Buildings Tool in Singapore

Sustainability efforts allow businesses to demonstrate their leading role in the sustainability agenda, and the Green Buildings Tool provides a solution for sustainability reporting, as it offers insights into current and potential carbon emissions and energy efficiency. This allows financial institutions to set sustainability targets and help comply with PCAF and other reporting standards, as well as use the Tool alongside CRREM assessments. 

Feel free to reach out for a free demo to see how we can add value to your business and make a global impact. 

Contact Apeldoorn

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+31 (0)55 355 5199

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