MAS launches world’s first multi-sector transition taxonomy

19 December 2023

On 3 December 2023, the Monetary Authority of Singapore (“MAS”) launched the Singapore-Asia Taxonomy for Sustainable Finance (“Singapore-Asia Taxonomy”) which sets out detailed thresholds and criteria for defining green and transition activities that contribute to climate change mitigation across eight focus sectors.

Credible definitions for transition activities

The Singapore-Asia Taxonomy is the first taxonomy globally to pioneer the concept of a “transition” category. This is in recognition of the need to properly contextualise “transition” for the Asian region. MAS explains that transition activities are comprehensively defined through two new approaches:

  • Traffic light system: The traffic light system defines green, transition, and ineligible activities across the eight focus sectors. “Transition” refers to activities that do not meet the green thresholds now but are on a pathway to net zero or contributing to net zero outcomes. To signal the importance of progression towards a 1.5°C-aligned outcome, transition thresholds do not last indefinitely and have a sunset date.
  • Measures-based approach: The “measures-based approach” encourages capital investments into decarbonisation measures or processes that will help reduce the emissions intensity of activities and enable the activities to meet green criteria over time.

Hard-to-abate sectors

MAS explains that defining credible transition thresholds is pertinent to sectors that find it challenging to reduce emissions and meet a 1.5°C-aligned outcome due to current technological constraints. The maritime sector would be an example where zero or low-carbon fuels are still in a nascent stage of technological evolution and it is challenging for vessels to achieve the zero emissions required to meet green thresholds. The introduction of amber thresholds caters to vessels that are aligned with industry targets under the 2023 International Maritime Organisation Greenhouse Gas Strategy to reach net-zero emissions by or around 2050.

Early phase-out of coal-fired power plants

The Singapore-Asia Taxonomy provides a credible framework to phase-out coal-fired power plants (“CFPPs”), which is a critical part of the energy transition in the Asia-Pacific region where coal accounts for almost 60% of power generation. To ensure credibility of the early coal phase-out process, the Taxonomy sets out both entity and facility-level criteria that are aligned to a 1.5°C scenario. Such criteria include a requirement that the electricity generated from the phased-out CFPP be fully replaced with clean energy within the same electricity grid and that the coal plant needs to have a just transition plan.

Interoperability with global taxonomies

To enhance interoperability with global taxonomies, MAS has commenced an exercise to map the Singapore-Asia Taxonomy to the International Platform for Sustainable Finance’s Common Ground Taxonomy (“CGT”), which currently covers the EU Taxonomy and People Bank of China’s (“PBOC”) Green Bond Endorsed Project Catalogue. After the completion of the mapping exercise, financial institutions and market participants will be able to refer to a common set of definitions under the CGT, which would help increase taxonomy-aligned financing solutions and facilitate sustainable development in markets which the CGT covers. Through the Singapore-China Green Finance Taskforce, MAS is also working with the PBOC to promote the uptake of financial products that reference the China Green Bond Catalogue and the Singapore-Asia Taxonomy, and eventually the CGT when the mapping is completed.

MAS states that it will review the Singapore-Asia Taxonomy periodically to keep pace with emerging science and technology improvements.

Reference materials

The following materials are available on the MAS website www.mas.gov.sg: