In recent decades, the challenges of a rapidly warming planet and other aspects of environmental degradation have motivated a call for all actors in society, including the financial sector, to take responsibility for environmental sustainability. While global financing needs for environmentally sustainable growth have not, to date, been systematically estimated, the Global Commission on the Economy and Climate reckons that the world will need to invest approximately US$90 trillion in sustainable infrastructure assets over the next 15 years.2 Financing is also needed to support sustainable agriculture and avoid deforestation, among other priorities. The funding will have to come from both the public and private sectors, leveraging all asset classes, including bank credits, bonds, and secured assets, and involving a wide range of actors, including international financial institutions, central banks and financial regulators, banks, and institutional investors. In 2016, the G20 Study Group launched under China’s presidency identified a lack of clarity in definitions as one of many obstacles to scaling up green financing.3 This World Bank guide, Developing a National Green Taxonomy, addresses the need among financial market participants for clarity and transparency in what is understood and what qualifies as green. Applying its experience in shaping the debate on sustainable finance and its understanding of the very diverse national contexts of emerging economies, the World Bank Group recommends the principles and methodology for developing a taxonomy of environmentally sustainable activities. Although green finance definitions are very complex, efforts to understand green finance are now converging on the financing of activities that can address climate change and other environmental challenges, such as natural resource conservation, biodiversity conservation, and pollution prevention and control. While recognizing that many practitioners take a broad perspective, integrating social, governance, and other dimensions in shaping the concept of green, this guide adopts the narrower focus. The definition of green finance used in the guide is in line with the definitions developed by the G20 Green Finance Study Group and the International Capital Markets Association (ICMA)’s Sustainable Finance Committee.4 A well-defined and structured taxonomy can support better-informed and more efficient decision making and response to investment opportunities that contribute to achieving national environmental objectives. In the absence of formally agreed-upon definitions, market actors tend to introduce their own; the result is a lack of comparability, reliability, accountability, and higher transaction costs. A national green taxonomy is useful to provide guidance to the overall financial market.

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