Why is it in the News?

The RBI and the Finance Ministry could draw inspiration from the ASEAN region's evolving green taxonomy, continually updated with sectoral insights, to enhance sustainability efforts.

What is Green Taxonomy?

• Green taxonomy is a pivotal framework designed to delineate environmentally sustainable investments, providing clarity on which economic activities and assets qualify as "green" or environmentally sound.
• It plays a crucial role in advancing global sustainability objectives, particularly in the context of combating climate change and transitioning towards a low-carbon economy.

What is Green Taxonomy?

• At its core, green taxonomy serves as a comprehensive tool for classifying economic activities and assets based on their environmental sustainability.
• It is crafted by governments, regulators, and stakeholders with a commitment to achieving net-zero carbon emissions and fostering sustainable development.

Significance of Green Taxonomy:

• The significance of green taxonomy lies in its multifaceted role:
• Preventing Greenwashing: By establishing clear criteria and standards, green taxonomy helps prevent greenwashing, a deceptive practice wherein investments are portrayed as environmentally friendly when they may not be.
• Informing Investment Decisions: Investors are empowered to make informed decisions by utilizing the taxonomy as a guide. It offers transparency and guidance, enabling investors to align their investment strategies with environmental objectives.
• Directing Investments Towards Sustainability: The taxonomy serves as a tool for channeling investments towards sustainable economic activities and assets. By identifying and classifying green investments, it encourages the allocation of capital to projects that contribute positively to environmental goals.

Common Features of Green Taxonomies:

• Green taxonomies typically include objectives related to climate mitigation and adaptation, with some also incorporating additional environmental goals such as biodiversity conservation.
• To qualify as green, an activity must substantially contribute to at least one of these environmental objectives.
• Furthermore, green taxonomies often integrate "do no significant harm" criteria, ensuring that activities considered green do not compromise other environmental objectives.
• Additionally, they emphasize compliance with social safeguards, including human rights considerations.

Nuanced Approaches in Green Taxonomies:

• Some taxonomies adopt a nuanced approach, such as the "traffic light" system utilized by the Indonesian and proposed Singaporean taxonomies.
• Under this approach, economic activities are categorized into different tiers (green, amber, or red) based on their environmental sustainability.
• This system offers a more nuanced understanding of the environmental impact of various activities, allowing for tailored assessments and decision-making.

What Is Greenwashing?

• Greenwashing is the process of conveying a false impression or misleading information about how a company’s products are environmentally sound.
• Greenwashing involves making an unsubstantiated claim to deceive consumers into believing that a company’s products are environmentally friendly or have a greater positive environmental impact than they actually do.
• In addition, greenwashing may occur when a company attempts to emphasize sustainable aspects of a product to overshadow the company’s involvement in environmentally damaging practices.
• Performed through the use of environmental imagery, misleading labels, and hiding tradeoffs, greenwashing is a play on the term “whitewashing,” which means using false information to intentionally hide wrongdoing, error, or an unpleasant situation in an attempt to make it seem less bad than it is.