The consultation seeks feedback on its “measures-based approach” to classifying industrial activities, as well as “Do No Significant Harm” criteria.

By Paul A. Davies, Farhana Sharmeen, Michael D. Green, and James Bee

The Green Finance Industry Taskforce (GFIT) was convened by the Monetary Authority of Singapore (MAS) and includes representatives from financial institutions, corporates, and financial industry associations, among other stakeholders. The industry-led group aims to accelerate the development of green finance in Singapore through four initiatives:

  1. Developing a taxonomy
  2. Enhancing environmental risk management practices of financial institutions
  3. Improving disclosures
  4. Fostering green finance solutions

Taxonomy Proposal

In January 2021, GFIT proposed a taxonomy for Singapore-based financial institutions to increase transparency between financial market participants and stakeholders, reduce the risk of greenwashing, and progress Singapore’s net zero ambition.

An initial consultation sought feedback on the taxonomy’s broad approach, including a new “traffic light” classification system. This classification differentiates between activities’ contribution to climate change mitigation:

  • Green (environmentally sustainable) — activities contributing substantially to climate change mitigation
  • Amber (transition) — activities transitioning towards green, or those facilitating significant emissions reductions[1]
  • Red (harmful) — activities currently incompatible with a net zero trajectory

For this phase of work, criteria and thresholds for economic activities are focussed on the contribution to climate change mitigation. However, other environmental objectives may be added in future developments.

The second consultation, conducted in May 2022, expanded on the traffic light approach, adding granularity to the application and thresholds for classification.

Final Consultation

On 15 February 2023, GFIT released a final consultation paper, seeking views on the detailed thresholds and criteria used for classification of green and amber activities across five sectors[2].

A notable proposal of the third consultation is adopting a “measures-based approach” for the industrial sector. This is due to the difficulty in determining science-based metrics and thresholds for the “amber” category as the technological solutions to achieve net zero remain uncertain. The proposed “measures-based approach” requires the production process of industrial raw materials to adopt a range of emissions reduction measures to be considered “amber” activities under the taxonomy.

“Do No Significant Harm” Criteria

The consultation also seeks views on the “Do No Significant Harm” (DNSH) criteria[3]: specifying that activities that contribute to climate change mitigation should not cause significant adverse impact to the other four environmental objectives of the taxonomy: (1) climate change adaption, (2) protection of ecosystems and biodiversity, (3) promoting resilience and circular economy, and (4) pollution prevention and control.

For example, in the energy sector, the installation of photovoltaic panels may meet the threshold to be an environmentally sustainable activity under the objective of climate change mitigation. However, the installation process could pose potential risk to ecosystems and biodiversity if the panels were built in a designated conservation area, which would go against environmental objective (2). The DNSH would require companies to consider and assess the other environmental impacts relevant to the activity (including protection of ecosystems and biodiversity), potentially including an Environmental Impact Assessment and mitigation measures to protect biodiversity.

The DNSH assessment sets out specific activities across eight sectors which the taxonomy covers (including energy, waste, transport, and construction). It also considers the potential additional environmental impacts that firms need to assess. In total, these eight sectors contribute to approximately 90% of greenhouse gas emissions in South East Asia.

Interoperability With Other Taxonomies

GFIT has stated that the Singapore taxonomy is drafted with the intention to be consistent with other taxonomies to ensure interoperability, in particular the EU Taxonomy and ASEAN Taxonomy.

One notable difference between the GFIT taxonomy and its EU counterpart is the “traffic light” system, which is not a feature of the EU Taxonomy (which instead operates in a binary fashion). GFIT hopes that this feature, which is consistent with the ASEAN Taxonomy, will allow for a progressive shift towards a net zero outcome across different sectors.

However, the EU Taxonomy does provide that the European Commission should deliver a report on the possible extension of the Taxonomy past its current binary approach. In 2022, the EU’s technical expert group working on the EU Taxonomy published proposals for such an extension. The proposal included both the concept of “amber” activities as well as additional categories, including activities with a generally low environmental impact and two different types of activities that cause significant harm. At the time of writing, the Commission has not yet formally adopted such proposals.

Next Steps

GFIT will publish the final taxonomy by the end of Q2 2023, taking into account all consultation feedback. Firms can submit feedback on the third consultation through the Association of Banks in Singapore by 15 March 2023[4].

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

This blog post was prepared with the assistance of Samantha Banfield.


[1] This classification does not apply to any new projects or infrastructure, and the transitioning period is not to be used indefinitely — an activity should be following an identified pathway to net zero.

[2] The five relevant sectors are (i) agriculture and forestry / land use; (ii) industrial; (ii) waste and water; (iv) information and communications technology; and (v) carbon capture and sequestration.

[3] DNSH Criteria

[4] Submission of feedback for Third GFIT Consultation