What are Green Taxonomies?

April 2, 2024

Clear climate finance taxonomies are like the referee in a football match – they make sure everyone agrees on what constitutes a true "green" investment. These rules are essential for creating a level playing field that attracts investors and helps the climate finance pie grow – and advances progress towards a sustainable future. 


In the beginning, football – or soccer – was a very different sport from today. Rules varied wildly from place to place. In some games, you could use your hands. Some goals didn’t use a crossbar. In one set of regulations, you could push an opponent but you couldn’t pull them.

It wasn't until the mid-19th century that rules were standardized, allowing teams from different regions to compete on even footing. With every decade, the game grew and grew, hand in hand with internationally agreed rules.

Just as football flourished under unified rules, today we need a common rulebook to advance the fight against climate change. The financial sector, like football, does best when everyone plays by the same rules.

That’s why we need clear criteria, which are often called "taxonomies," to classify assets and activities as sustainable, and guide investors and banks in directing trillions toward impactful investments.

Diverse interpretations fragment markets and confuse investors. What seems "green" in one country may appear "brown" elsewhere, stalling environmental progress.

Take passenger vehicles. Certain regions have very high standards to minimize emissions. But car companies can simply decide to move their most polluting production abroad. This disparity undermines global climate goals and worsens local environmental and health crises.

However, it would be unfair to expect everyone to adopt these rules overnight. Different economies have distinct challenges, demands and priorities. For green capital to flow globally, we need to find the middle ground between local circumstances and a universal rulebook.

Initiatives from the International Sustainability Standards Board and G20 are paving the way for common ground in country criteria, impact metrics, and accounting standards, while allowing for adaptability.

A similar effort is being advanced by the Working Group on Sustainable Finance Taxonomies in Latin America and the Caribbean, supported by the International Finance Corporation (IFC) in collaboration with other multilateral institutions.

Without a universal rulebook, climate progress will remain patchy. But unlike football's long evolution, and allowance for extra time, ours is running out.