ASEAN needs a sustainable finance taxonomy

ASEAN, a group of 10 Southeast Asian countries with a joint population of more than 685 million (as of Jan 2023), represents a significant global trading bloc with a combined GDP of 3.36 trillion. The development of a common Environmental, Social, and Governance (ESG) taxonomy in the Association of Southeast Asian Nations (ASEAN) region has been an ongoing process in recent years. This is due to the increasing importance of sustainability and biodiversity in the global economy, as well as the growing recognition of the need for consistent and comparable data on ESG performance in the ASEAN region. To enable this the ASEAN Taxonomy version 1 was created and discussed during COP27 in Glasgow in 2021. The ASEAN Taxonomy Board (ATB) was also established and endorsed on 30 March 2021 to facilitate an orderly transition towards sustainability for all member states.

There are several reasons why taxonomy in sustainable finance is important for the interests of ASEAN. The creation of a common taxonomy will encourage:

1. Consistency and Comparability: A common taxonomy would provide consistency in the way companies report their sustainability and biodiversity performance, allowing for more accurate and comparable data. This would make it easier for investors, consumers, and other stakeholders to understand and evaluate the ESG performance of companies operating in the ASEAN region.

1. Greater Transparency: A common taxonomy would increase transparency in the way companies report their ESG performance, helping to build trust between companies and their stakeholders. This would also make it easier for regulators to monitor and enforce compliance with sustainability and biodiversity regulations.

1. Improved Decision-Making: With consistent and comparable data, investors and other stakeholders would be able to make more informed decisions about the companies they invest in or do business with. This would help to promote sustainable and responsible business practices in the ASEAN region.

1. Attracting Investment: The availability of a regional taxonomy would make it easier for companies in the region to attract investment from socially responsible investors. This would help to promote sustainable business practices and support the development of sustainable and biodiversity-friendly projects in the region. It will provide investors the ability to create a portfolio of investment in ASEAN countries with less effort and greater certainty.

1. Better Regulation: The shift towards regional taxonomy would make it easier for regulators to monitor and enforce compliance with sustainability and biodiversity regulations. This would help to ensure that companies operating in the ASEAN region are meeting their environmental and social obligations, and would help to promote sustainable and responsible business practices in the region. This will also create opportunities for ASEAN regulators to converge with greater ease create better interoperability and information/intelligence sharing.

1. Helping to Achieve Sustainable Development Goals (SDGs): A shared taxonomy would help to promote sustainable business practices in the region, which would in turn help to support the achievement of the United Nations Sustainable Development Goals (SDGs). This would help to promote sustainable economic growth, reduce poverty, and support the protection of biodiversity in the region. Even in an global environment seeking rationality in growth trajectories, common taxonomy will help countries make better decisions towards natural resource utilization with greater responsibility/knowledge.

The continued development of a taxonomy for sustainable finance in ASEAN is important for various reasons. The ASEAN region has a diverse set of countries with different cultures, languages, values and regulations. Having a common taxonomy will make it easier for companies to report their ESG performance, investors and stakeholders to evaluate the performance, and regulators to monitor and enforce compliance. This will also make it easier for ASEAN companies to attract investment from socially responsible investors who are looking for companies that meet certain ESG criteria. This builds greater trust in the region to enable investment flows, ideas and innovation to occur.

Furthermore, with the increasing emphasis of sustainability and biodiversity with the push towards net zero; having a common taxonomy in ASEAN will help promote sustainable business practices and support the development of sustainable and biodiversity-friendly projects in the region. This will also help to support the achievement of the United Nations Sustainable Development Goals (SDGs) which will promote sustainable economic growth, reduce poverty, and support the protection of biodiversity in the region. I believe that forward momentum towards harmonisation of ESG data and taxonomy within ASEAN will help the region create more opportunities and pivot towards sustainability and biodiversity protection in an orderly and accelerated manner. There is a promising future ahead for ASEAN.

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