asia

ASEAN Releases Sustainability Taxonomy For Southeast Asia – Environment – Worldwide – Mondaq


On November 10, 2021, the Association of Southeast Asian Nations
(ASEAN) released Version 1 of the ASEAN Taxonomy for Sustainable
Finance
 (the “ASEAN Taxonomy“).
First announced in March 2021, the ASEAN Taxonomy will provide a
common language for sustainable finance among the ten ASEAN
Member States (AMS) that, together, comprise the
fifth largest economy in the world. This is a necessary and timely
development as ASEAN remains highly vulnerable to climate change,
which has had a significant impact on the people, businesses and
governments of ASEAN.

Version 1 is a significant step in ASEAN’s sustainability
journey, as this initial document will provide the framework for
continuing discussions among AMS as the ASEAN Taxonomy develops. In
this Blog Post, we highlight key aspects of Version 1 of the ASEAN
Taxonomy and compare this new framework against the world’s
most prominent sustainability taxonomy, the EU’s Taxonomy Regulation (the “EU
Taxonomy
“).

Guiding Principles

The ASEAN Taxonomy is guided by the following five key
principles:

  1. The ASEAN Taxonomy will be the overarching guide for all ASEAN
    Member States, providing a common language and complementing their
    respective national sustainability initiatives.

  2. The ASEAN Taxonomy will take into consideration widely used
    taxonomies and other relevant taxonomies, as appropriate, and shall
    be contextualised to facilitate an orderly transition towards a
    sustainable ASEAN.

  3. The ASEAN Taxonomy shall be inclusive and beneficial to all
    ASEAN Member States.

  4. The ASEAN Taxonomy shall provide a credible framework,
    including definitions, and where appropriate, be
    science-based.

  5. The ASEAN Taxonomy will be aligned with the sustainability
    initiatives taken by the capital market, banking and insurance
    sectors, or at least not conflict with them.

These principles will orient the ongoing development of the
ASEAN Taxonomy and could inform efforts to develop regional
taxonomies in other partsof the world.

Structure

The ASEAN Taxonomy will incorporate a multi-tiered approach
intended to reflect the varied stages of development, economies and
other circumstances of the ten AMS.

Clearly, industrial development has brought a range of
environmental issues and related challenges to ASEAN. As noted in
the ASEAN Taxonomy, the region is “increasingly a contributor
to, and is becoming a victim of, the global environmental
challenges of climate change.” These growing challenges will
require a more fundamental transition, including a shift in
business models, but also a flexible approach to developing a
regional taxonomy.

Accordingly, the ASEAN Taxonomy includes a common
Foundation Framework” will apply to all
AMS, while a separate “Plus Standard
will provide additional, more detailed guidance and scope for AMS
to further qualify and benchmark eligible green activities and
investments on a sectoral basis.

Foundation Framework

Under the Foundation Framework, economic activities must fulfil
at least one of four environmental objectives to potentially
qualify as “sustainable”:

  1. Climate Change Mitigation (e.g., avoiding
    or reducing greenhouse gas emissions)

  2. Climate Change Adaptation (e.g., building
    resilience to the physical impacts of climate change)

  3. Protection of healthy ecosystem and
    diversity
     (e.g., preventing pollution or
    deforestation)

  4. Promotion of resource resilience and transition to
    circular economy
     (e.g., managing waste)

In addition, all activities must meet two “essential
criteria”: activities must not significantly harm any
environmental objective and efforts must be taken to identify and
mitigate the activity’s potential adverse environmental impacts
(e.g., formal environmental impact assessments may be required for
larger projects). All activities must also be assessed against
relevant environmental laws instituted by AMS as a “minimum
safeguard” to avoid contravention of local 
regulations.

Economic activities will be categorized as either Green, Amber
or Red based on a decision tree incorporating various factors
relevant to each environmental objective. For example, with respect
to the objective of Climate Change Mitigation:

  • Green activities clearly contribute to or
    enable Climate Change Mitigation;

  • Amber activities contribute to
    decarbonisation where mitigation of other harm to environmental
    objectives is necessary; and

  • Red activities do not contribute to or
    enable Climate Change Mitigation and/or fail to meet other
    safeguards.

Plus Standard

The Plus Standard will provide additional, detailed technical
screening criteria for specific economic activities. Initially, the
ASEAN Taxonomy will address activities in six priority sectors
representing 85% of GHG emissions and 55% of Gross Value Added in
ASEAN:

  1. Agriculture, forestry and fishing

  2. Manufacturing

  3. Electricity, gas, steam, and air conditioning supply

  4. Transportation and storage

  5. Construction and real estate activities

  6. Water supply, sewerage, waste management and remediation
    activities

The Plus Standard will identify granular activity-level criteria
and thresholds for economic activities in these sectors to further
determine whether a specific activity is categorized Green, Amber
or Red.

The Plus Standard will also identify “enabling
sectors” that have a significant ability to enable other
sectors to contribute to the environmental objectives. For example,
the information and communication sector has been identified as an
enabling sector for Climate Change Mitigation for its ability to
provide innovative data-driven solutions and the physical
infrastructure, such as data centres, needed to effectively manage
and reduce GHG emissions.

EU Alignment

Multinationals operating in ASEAN will be particularly
interested in the degree to which the ASEAN Taxonomy aligns with
the EU Taxonomy. While the development of the ASEAN Taxonomy
remains at an early stage, two key insights can be drawn from
Version 1:

  • Environmental Objectives Are Largely Aligned:
    The ASEAN Taxonomy identifies four key environmental objectives
    that an activity may contribute to in order to be classified as
    “sustainable”, while the EU Taxonomy identifies six such
    objectives. At first glance, it may seem that the ASEAN Taxonomy is
    more restrictive in this regard. The frameworks, however, are
    largely aligned as the ASEAN Taxonomy has effectively taken four
    specific objectives from the EU Taxonomy and grouped them into two
    broader objectives. EU Taxonomy objectives 3 (sustainable use and
    protection of water and marine resources) and 6 (protection and
    restoration of biodiversity and ecosystems) are reflected in one
    ASEAN Taxonomy objective: Protection of healthy ecosystem and
    diversity. EU Taxonomy objectives 4 (transition to a circular
    economy) and 5 (pollution prevention and control) are also
    reflected in one ASEAN Taxonomy objective: Promotion of resource
    resilience and transition to circular economy.

  • ASEAN Minimum Safeguards Are Strictly
    Environmental
    : In the EU Taxonomy, an economic activity
    must meet certain “minimum safeguards” in order to be
    “sustainable”. According to Article 18 of the EU
    Taxonomy, this requires alignment with the principles of the OECD
    Guidelines for Multinational Enterprises, UN Guiding Principles on
    Business and Human Rights, ILO core conventions and the UN
    International Bill of Human Rights. Together, these principles
    represent international best practices for managing human rights
    impacts. These principles are notably absent from the ASEAN
    Taxonomy, where the only “minimum safeguard” that must be
    assessed is national environmental law.

Future Developments

ASEAN has made clear that Version 1 is the foundation for the
ongoing development of the ASEAN Taxonomy. Market participants can
expect the framework to evolve as the multitude of stakeholders in
ASEAN provide their feedback and detailed technical screening
criteria are developed. Parties are likely to focus on the degree
to which the ASEAN Taxonomy aligns with the EU Taxonomy, as well as
national taxonomies in Singapore and Malaysia and the Common Ground
Taxonomy under development by China and the EU. However the ASEAN
Taxonomy develops, it will play a critical role in helping
businesses and governments align their activities toward a more
sustainable future.

Visit us at
mayerbrown.com

Mayer Brown is a global legal services provider
comprising legal practices that are separate entities (the
“Mayer Brown Practices”). The Mayer Brown Practices are:
Mayer Brown LLP and Mayer Brown Europe – Brussels LLP, both limited
liability partnerships established in Illinois USA; Mayer Brown
International LLP, a limited liability partnership incorporated in
England and Wales (authorized and regulated by the Solicitors
Regulation Authority and registered in England and Wales number OC
303359); Mayer Brown, a SELAS established in France; Mayer Brown
JSM, a Hong Kong partnership and its associated entities in Asia;
and Tauil & Chequer Advogados, a Brazilian law partnership with
which Mayer Brown is associated. “Mayer Brown” and the
Mayer Brown logo are the trademarks of the Mayer Brown Practices in
their respective jurisdictions.

© Copyright 2020. The Mayer Brown Practices. All rights
reserved.

This
Mayer Brown
article provides information and comments on legal
issues and developments of interest. The foregoing is not a
comprehensive treatment of the subject matter covered and is not
intended to provide legal advice. Readers should seek specific
legal advice before taking any action with respect to the matters
discussed herein.



READ SOURCE

Leave a Reply

This website uses cookies. By continuing to use this site, you accept our use of cookies.  Learn more