The World Federation of Exchanges (“WFE”), the global industry group for exchanges and CCPs, has published key considerations for policymakers designing and implementing taxonomies, underscoring their critical role in strengthening financial market credibility and supporting the global transition to a more sustainable economy.
The WFE assessment consists of two papers. The first, Classifying Capital Part 1: Global taxonomy trends and evolutions, provides an overview of the taxonomy landscape, summarising commonalities, outlining use cases and detailing how taxonomies can support the transition as part of a broader sustainability toolkit. The WFE paper finds that, to be effective, taxonomies must:
- Be science-based and regularly updated to reflect technological and policy developments;
- Balance ambition with usability, providing clear, sector-relevant guidance;
- Promote interoperability across jurisdictions; and
- Be integrated with broader national sustainability strategies to guide capital mobilisation and prevent greenwashing.
Drawing on this analysis and lessons learned to date, the second paper, Classifying Capital Part 2: Taxonomies built to support transition finance, examines transition taxonomies in depth, detailing different global approaches and outlining key strategic considerations for policymakers, exchanges and issuers that are seeking to develop and implement credible and effective transition taxonomies.
The WFE recommends that policymakers:
- Set national-level transition plans and deadlines: Clear, robust national transition plans that form the basis for tightening criteria in transition taxonomies also provide clear signals to industries and support predictability for organisations looking to transition their economic activities.
- Embed sunset clauses and phase-out timelines: These provisions ensure that, as science and technology advances rapidly, transitional activities cannot continue to be classified as supporting the transition indefinitely, preventing the lock-in of technologies that become unsustainable over time.
- Ensure flexibility: Taxonomies are only as credible as their ability to keep pace with science and technology. Policymakers must design taxonomies with regular review cycles, predictable tightening of criteria, and the ability to integrate emerging technologies.
- Progressively expand technical criteria: Policymakers should prioritise closing gaps in technical screening criteria to strengthen credibility, avoid inconsistent application, and guard against greenwashing or lock ins.
- Guard against greenwashing and lock in: To work effectively, taxonomies must be applied consistently across markets and industries, requiring robust supervision and verification of claims, and cost-effective compliance approaches.
Nandini Sukumar, CEO of the World Federation of Exchanges, said, “While transition taxonomies are powerful tools to support sustainable and transitioning economic activities, they must be embedded within a broader, coherent policy framework to be effective. Policymakers developing transition taxonomies should implement these recommendations to ensure they credibly align with long-term goals and drive ambition whilst avoiding the reinforcement of high-emitting pathways and greenwashing.”
Read the full papers here:
Classifying Capital Part 1: Global taxonomy trends and evolutions
Classifying Capital Part 2: Taxonomies built to support transition finance
