Summary
This document aims to: (a) provide an overview of climate change and its impact on businesses and households as well as the broader economy; (b) introduce a principle-based taxonomy for FIs to assess and categorise economic activities according to the extent to which the activities meet climate objectives and promote the transition to a low-carbon economy. The taxonomy also incorporates the consideration of broader environmental outcomes through the principle of no significant harm, with specific regard to how business operations affect pollution, biodiversity and resource efficiency. In supporting an orderly transition, the taxonomy recognises remediation measures and introduces a progressive system of transition categories to acknowledge concrete efforts and commitments by businesses to adopt sustainable practices; and (c) facilitate standardised classification and reporting of climate-related exposures to support risk assessments at the institution and systemic levels, strengthen accountability and market transparency, and encourage financial flows towards supporting climate objectives. FIs can also leverage on the taxonomy in the design and structuring of green finance solutions and services to accelerate development of green sectors and activities, and decarbonisation efforts.