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New version of ASEAN taxonomy hoped to help with coal phase-out

The Association of Southeast Asian Nations (ASEAN) has recently launched the second version of its taxonomy for sustainable finance, expected to help the region unlock financing for coal phase-outs.

In November 2021, the bloc rolled out the first version of the ASEAN Taxonomy, which aims to guide capital toward sustainable activities in the region. The ASEAN financial bodies then revamped the framework with the second version, whose updates put a strong emphasis on the phasing out of coal-powered plants.

ASEAN claims that the coal phase-out criteria laid out in the framework are the global first for a regional taxonomy.

The ASEAN Taxonomy’s second version has accommodated the needs for energy transition for countries like Indonesia, which is not only building new and renewable energy but also working on retiring coal-powered plants, Indonesian Finance Minister Sri Mulyani told a hybrid press conference on ASEAN’s transition finance held on March 30 on the sidelines of the ASEAN Finance Ministers’ and Central Bank Governors’ Meeting in Bali.

The taxonomy adopts a colour-coded system (green, amber, and red) based on the contribution or lack thereof an economic activity makes to the environmental objectives of the taxonomy. The environmental objectives include climate change mitigation and adaptation, biodiversity protection, resource resilience, and circular economy transition.

As the colours suggest, green indicates economic activities that support the taxonomy’s environmental objectives. Activity will be classified as amber if it meets green classification but may cause harm to other objectives although they already must have remedial measures. Red activities are economic activities that fail to meet environmental objectives.

According to the second version of the ASEAN Taxonomy, coal phase-outs may be classified as green or amber activities.

These classification will provide certainty for the financial institutions to look at projects that can be considered for financing, Minister Sri Mulyani said./.