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The World Bank on Monday published a guide outlining the processes that financial regulators in emerging economies can use to develop a green taxonomy to help scale up green financing. A green taxonomy can boost private sector investment in green or sustainable projects by identifying the financial assets and economic activities that deliver substantial positive impact on the climate and the environment.

The publication, called Developing a National Green Taxonomy: A World Bank Guide, can enable banks and other financial institutions to originate and structure green banking products (e.g., loans, credits, and guarantees), according a statement released by the multilateral bank yesterday.

Incorporating the International Capital Market Association’s (ICMA) definition, the World Bank said a green taxonomy is "a classification system for identifying activities or investments that will move a country toward meeting specific targets related to priority environmental objectives." Such a system can help financial actors – including international financial institutions, central banks and financial regulators, banks, and institutional investors – determine which investments can be labeled “green” for their jurisdictions.

Given the rapid warming of the planet partly caused by a rise in environmental degradation, various actors in society have responded to the responsibility for environmental sustainability. The World Bank said the guide addresses the need among financial market participants for clarity and transparency as to what asset classes, including bank credits, bonds, and secured assets, qualify as green.

According to the bank, a well-defined and structured taxonomy can support better-informed and more efficient decision-making and response to investment opportunities that contribute to achieving national environmental objectives.

Speaking on the guide, Anshula Kant, Managing Director and World Bank Group Chief Financial Officer, said, “We are delighted to share this guide that financial regulators could use to support their efforts to scale up green finance. We hope that the methodology and recommended approach will benefit emerging markets as they seek pathways to build a more environmentally sustainable future.”

During a webinar last month, Oscar Onyema, CEO of the Nigerian Stock Exchange (NSE), said the bourse has been working with stakeholders to create green bonds in support of projects with strong climate credentials. In 2017, Nigeria successfully listed a N10.69 billion climate bond on the NSE, becoming the first African country to issue a green bond and the world’s fourth sovereign issuer of green bonds.

The country subsequently issued a N15 billion Series II Green Bond in 2019. Earlier in February 2020, the government said it was ready to commence the third tranche of its sovereign green bond programme worth N25 billion.
 
Last year, Access Bank issued a N15 billion green bond, considered to be the first-ever corporate green bond in Africa to be “Climate Bonds Certified,” a certification provided by the Climate Bonds Initiative (CBI).

The World Bank said the guide on developing a national green taxonomy was prepared in response to a request by the Malaysian central bank, Bank Negara Malaysia (BNM) to develop a common language on environmental issues by the financial sector and to support decisions related to climate risk in fundraising, lending, and investment activities.

Datuk Nor Shamsiah Mohd Yunus, Governor of BNM, said, “Central banks and supervisors have an important role to play in scaling up green finance. We hope this guide developed by World Bank experts will encourage central banks and supervisors to develop a taxonomy of activities that will help green the financial system.”

According to the World Bank, the guide is organized into four parts: 1) Green Taxonomy: Definition and Uses; 2) Guidelines: How to Develop a Green Taxonomy; 3) Overview of Existing Green Taxonomies; and 4) Conclusions and Recommendations.