- New Policies and Tools Redefine Sustainable Finance Landscape for banks and financial institutions
- Colombia's Pioneering Green Taxonomy laid the foundation for sustainable investment
In April 2022, the Colombian Government launched the first Taxonomy in Latin America and the Caribbean (LAC) with the aim of supporting the mobilisation of capital for sustainability objectives. This milestone not only marks the region's first-ever taxonomy but also positions Colombia as a trailblazer, with a high level of interoperability with the EU Taxonomy. Aligning with international standards and in line with the Paris Agreement's 1.5°C trajectory, it responds to the Nationally Determined Contributions (NDCs) acquired on the Paris Agreement.
The Colombian Green Taxonomy (Taxonomía Verde de Colombia - TVC) establishes how an investment can contribute to climate mitigation and adaptation and five other environmental goals. A taxonomy works like a shopping list, signalling to investors that assets and activities can be financed for a green future. It is the starting point of sustainable finance policies. However, a taxonomy alone will not drive rapid climate action. Public policies and tools must be developed to support the taxonomy implementation.
New guidelines will serve as public policies to simplify the Taxonomy usability
On the 12th of February, the Taxonomy Supervisory Committee, led by the Financial Superintendency (SFC) and the Ministry of Finance (MHCP) of Colombia, introduced two game-changing usability guidelines. Crafted for both general and banking sector users, these guidelines serve as official tools, simplifying the application of TVC in the financial and non-financial sectors. The guidelines are outlined in the official document, published by the SFC, that officialised the adoption of the taxonomy, encourage the use of taxonomy for labelling green bonds, investment portfolios, and voluntary pension funds (External Circular 005 of 2022).
These guidelines were authored by Climate Bonds Initiative, Metrix Finanzas and Ambire Global, in the framework of the project "Greening the Colombian financial system: Implementing local green definitions to enable long-term investment in priority sectors" through support of the UK PACT programme from the Government of the United Kingdom.
Navigating the TVC Landscape: A Comprehensive Overview
The General TVC Implementation Guideline, targeting a diverse audience ranging from private companies to financial consumers, provides a practical roadmap for meeting TVC eligibility criteria at the sector and activity levels, complying with its general and specific requirements and social safeguards. It also provides insight on how to approach and align those activities related to energy efficiency which is not mentioned explicitly in the Colombian Taxonomy. With practical examples, visual graphs, and strategies for analysis and management, this guideline is set to be a game-changer in fostering sustainable finance policies.
Empowering Financial Institutions: TVC Implementation Guideline on Green Credit Management
Specifically designed for banks and financial institutions, TVC Implementation Guideline on Green Credit Management offers strategic, operational, and technical recommendations. It provides a list of recommendations to improve the assessment of social and environmental risks for green credits. This guideline aims to boost investments in green projects and assets, presenting best practices gleaned from the sustainability strategy of banks in the country. These recommendations directly addresses the challenges banks face when evaluating projects for green credits. They stem from assessments conducted on five of Colombia's largest banks through the implementation of pilot projects.
Governments can implement policies to accelerate Taxonomy-aligned investment
Beyond taxonomy guidance, governments and regulators can accelerate 1.5°C-aligned investment through various policy options. The 101 Sustainable Finance Policies for 1.5ºC provides a comprehensive toolkit for policymakers, including subsidies and guarantees to de-risk investments.
Climate Bonds at the Forefront of Global Taxonomy Initiatives
As taxonomies gain prominence globally, Climate Bonds continues to play a pivotal role in their development and implementation. With a robust presence in Latin America and the Caribbean, Climate Bonds has been instrumental in guiding taxonomies in countries such as Colombia, Chile, Mexico, Brazil, Peru, Costa Rica, and Panama.
We are also enabling the uptake of these taxonomies, providing further policy expertise, capacity building, training, and supporting key labelled bond issuers, from sovereigns to development banks.
To learn more about our work with Taxonomies, click here.
The Last Word
Taxonomies play a pivotal role in attracting increased capital for climate solutions, signalling the credibility and longevity of green finance. Climate Bonds is on a global mission to facilitate USD5 trillion in annual green bond issuance by 2025, acknowledging that addressing the impending climate challenges demands a comprehensive transformation of significant sectors of the global economy. To achieve trillions in annual issuance, robust local initiatives are essential. Taxonomies emerge as indispensable tools for nurturing local markets, and Climate Bonds is committed to providing support for these endeavours.
