The proposed taxonomy for green and transition activities is aligned with increasing global demand for clear and consistent classification of sustainable finance activities.

By Paul Davies and Sabrina Singh

In May 2022, the Green Finance Industry Taskforce — a multi-stakeholder group convened by the Monetary Authority of Singapore to accelerate the development of green finance — released for public consultation a second paper (Consultation Paper) on a Green Taxonomy for Singapore-based financial institutions (Green Taxonomy), with particular relevance to those active across ASEAN. The Consultation Paper follows a first paper on the Green Taxonomy, which was released in January 2021.

Sectors Covered and Objectives

The Consultation Paper proposes that the Green Taxonomy would include activity-level criteria for three sectors — energy, transport, and real estate. These sectors form part of the eight sectors identified as accounting collectively for close to 90% of ASEAN greenhouse gas emissions.[i]

The Consultation Paper covers the climate change mitigation objective, which is only one of the five environmental objectives that may ultimately be included in the Green Taxonomy. The remaining objectives are (i) climate change adaptation, (ii) protection of healthy ecosystems and biodiversity, (iii) promotion of resource resilience and circular economy and (iv) pollution prevention and control. The Consultation Paper states that these other objectives may be added in future developments.

“Traffic Light” for Green Activities

The Green Taxonomy will use a “traffic light” approach, meaning that an economic activity may be classified as green, amber, or red, depending upon the activity’s contribution to climate change mitigation. This also means that not just strictly net zero activities but both net zero and “transition” activities are covered by the Green Taxonomy.

Green activities are defined as those that are environmentally sustainable, meaning that they contribute substantially to climate change mitigation by operating at net zero, or are on a pathway to net zero by 2050.[ii] Generally speaking, any new activities (e.g., new power plants or new buildings) have to meet the green criteria.[iii]

Amber activities are defined as those that are not presently aligned with a net zero pathway, but are either (i) moving towards a green transition pathway within a defined time frame, or (ii) facilitating significant emissions reductions in the short term with a prescribed sunset date.[iv] At the sunset date, the activity should align with green activities or it would be downgraded to red. The amber category does not generally apply to new projects, and is intended to be relevant only for transitioning existing activities.

Finally, red activities are harmful activities that should either (i) be phased out if emissions cannot be reduced or (ii) reduce their emissions to be in line with a green transition pathway.

Alignment with ASEAN and EU Taxonomies

Singapore’s development is consistent with increasing global demand across various jurisdictions to create clear and consistent standards for what is understood as green and sustainable finance.

The Green Taxonomy is designed to enable interoperability with other regional and national taxonomies. The consultation paper cites the EU Taxonomy Regulation (EU Taxonomy) as a key reference document[v] and seeks compatibility with the ASEAN Taxonomy for Sustainable Finance (ASEAN Taxonomy) released in November 2021.[vi] In addition to including technical screening criteria and environmental objectives similar to the EU and ASEAN Taxonomies, the Consultation Paper considers adding the requirement to “do no significant harm,” meaning a requirement to refrain from breaching applicable environmental regulations —similar to the EU and ASEAN Taxonomies.[vii] The core traffic light approach of the Green Taxonomy is also similar to the ASEAN Taxonomy.

In light of a variety of differing and inconsistent approaches to ESG classification and disclosure standards globally, this alignment with other regional and international standards is likely to be welcomed by financial institutions.

What Next?

The stated key purpose of developing the Green Taxonomy — to “encourage the flow of capital to support the low carbon transition” — is a policy agenda broadly gaining traction in the region and worldwide.[viii] Indeed, ASEAN as a regional bloc has made global climate commitments and Singapore itself aims to achieve net-zero emissions by mid-century.[ix]

The Green Finance Industry Taskforce aims to release criteria for the remaining five sectors for public consultation in late 2022 and to finalise the full Green Taxonomy in 2023.

Latham & Watkins will continue to monitor developments in this area.

[i] The other focus sectors are Agriculture and Forestry/Land Use, Industrial, Information and Communications Technology, Waste/Circular Economy, and Carbon Capture and Sequestration. Monetary Authority of Singapore, “Industry Taskforce Consults on Second Version of Green and Transition Taxonomy,” 12 May 2022 (press release), available here:

[ii] Green Finance Industry Taskforce, “Second GFIT Taxonomy Consultation Paper,” 12 May 2022, at para. 82-85, pg. 49-50. Available here:

[iii] Supra n. 2 at para. 85, pg. 50.

[iv] Supra n. 2 at para. 86-90, pg. 50-51.

[v] Supra n. 2 at para 15, pg. 10.

[vi] Supra n. 2 at para. 6, pg. 7.

[vii] Supra n. 2 at para 93-94, pg. 52.

[viii] Supra n. 2 at para. 12, pg 9.

[ix] Supra n. 2 at para. 10, pg. 9. National Climate Change Secretariat, “Singapore Will Raise Climate Ambition to Achieve Net Zero Emissions By or Around Mid Century, and Revises Carbon Tax Levels from 2024,” 18 February 2022 (press release), available here: