MAS unveils multi-sector transition taxonomy

This is the first taxonomy globally to pioneer the concept of a “transition” category.

The Monetary Authority of Singapore (MAS) has launched a sustainable finance taxonomy for climate change mitigation.

The Singapore-Asia Taxonomy for Sustainable Finance sets out detailed thresholds and criteria for defining green and transition activities that contribute to climate change mitigation across eight focus sectors: Energy, Real Estate, Transportation, Agriculture and Forestry/Land Use, Industrial, Information and Communication Technology, Waste/Circular Economy, Carbon Capture and Sequestration. 

MAS touts it as the first taxonomy globally to pioneer the concept of a “transition” category. This is in recognition of the need to properly contextualise “transition” for the Asian region.

Transition activities are particularly defined through two new approaches: a traffic light system, and a measures-based approach.

The traffic light system defines green, transition and ineligible activities across the eight focus sectors. The taxonomy defines “transition” as activities that do not meet the green thresholds now but are on a pathway to net zero or contributing to net zero outcomes.  

To signal the importance of progression towards a 1.5 degree Celsius (1.5°C) aligned outcome, transition thresholds do not last indefinitely and have a sunset date. 

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Meanwhile, the measures-based approach seeks to encourage capital investments into decarbonisation measures or processes, which in turn is expected to help reduce the emissions intensity of activities and enable the activities to meet the green criteria over time. 

“Defining transition is particularly salient in Asia, where the progressive shift towards a  net zero economy is taking place alongside economic development, population growth, and  rising energy demands,” MAS said in a statement, adding that providing clarity on what constitutes sustainable and transition financing will help to reduce the risk of green or transition washing. 

The taxonomy is also expected to help financial institutions better identify and disclose how their financed activities and labelled products are aligned with the taxonomy. 

Framework for phase-out of coal plants
Notably, the taxonomy provides a credible framework to phase-out coal-fired power plants (CFPPs), which is a critical part of the energy transition in the Asia-Pacific region where coal accounts for almost 60% of power generation, MAS said.

To ensure credibility of the early coal phase-out process, the taxonomy sets out both entity and facility-level criteria that are aligned to a 1.5°C scenario, it added. 

In particular, it states that the electricity generated from the phased-out CFPP has to be fully replaced with clean energy within the same electricity grid, and the coal plant needs to have a just transition plan.  

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

When this mapping is complete, MAS says that the financial institutions and market participants will be able to refer to a common set of definitions under the CGT. It expects that it would help increase taxonomy-aligned financing solutions and facilitate sustainable development in markets which the CGT covers. 

Through the Singapore-China Green Finance Taskforce, MAS is also working with the PBOC to promote the uptake of financial products that reference the China Green Bond Catalogue and the Singapore-Asia Taxonomy, and eventually the CGT when the mapping is completed.