Jakarta. ASEAN has recently launched the second version of its taxonomy for sustainable finance, and the 10-member grouping expects the framework to help the region unlock financing for coal phase-outs.

In November 2021, the bloc rolled out the first version of the ASEAN Taxonomy, which aims to guide capital toward sustainable activities in the region. The ASEAN finance sectoral bodies then revamped the framework with a second version with its updates putting a strong emphasis on the phasing out of coal-powered plants. ASEAN claims that the coal phaseout criteria laid out in the framework are a global first for a regional taxonomy. 

“The ASEAN Taxonomy, which has just released its second version, has accommodated the needs for energy transition for countries like Indonesia, which is not just building new and renewable energy, but also [working on] retiring coal-powered plants,” Finance Minister Sri Mulyani told a hybrid press conference on the ASEAN’s transition finance in Bali on Thursday.

The ASEAN Taxonomy adopts a color-coded system: green, amber, and red based on the contribution or lack thereof an economic activity makes to the environmental objectives of the taxonomy. The environmental objectives include climate change mitigation and adaptation, biodiversity protection, resource resilience, and circular economy transition.

As the colors suggest, green indicates economic activities that support the taxonomy’s environmental objectives. Activity will be classified as amber if it meets green classification but may cause harm to other objectives although they already must have remedial measures. Red activities are economic activities that fail to meet environmental objectives.

According to the second version of the ASEAN Taxonomy, coal phase-outs may be classified as green or amber activities.

“These green and amber categories provide a very clear classification. [...] It will provide certainty for the financial institutions to look at projects that can be considered for financing,” Sri Mulyani said.

Mahendra Siregar, the chairman of the Indonesian Financial Authority (OJK) board of commissioners, said that the ASEAN taxonomy was expected to attract investment into the region’s sustainable development. According to Mahendra, financial companies in Indonesia, ASEAN, and even Europe and the US have shown interest in providing sustainable finance in the Southeast Asian bloc’s projects.

“Early retirement and phase out of coal-powered plants are certainly one of the main interests,” Mahendra said.

Read More: Regional Payment Connectivity Must Not Stop at ASEAN-5: Indonesia