Greenwashing is another challenge. To prevent it, issuers must be transparent, and establish internal processes for green project selection and decision-making. They must collect the relevant data to make a quantifiable assessment, and establish transparent reporting and disclosure.
The EU Green Taxonomy determines whether an activity can be considered sustainable or not, how to measure it, and what KPIs can be used universally.
There are 25 countries adopting their own green finance taxonomies, which creates a challenge as harmonisation is needed between national frameworks.
While there are initiatives from the EU Commission and the Chinese Government to create a common ground taxonomy for the world, there will always be national discrepancies.
Meanwhile, there are other frameworks, such as the International Sustainability Standards Board and the Task Force on Climate-Related Financial Disclosures. It is important to ensure all these different frameworks communicate with each other to create interoperability.
Euroclear, MFEX and Greenomy are meeting this challenge. Stevens comments: "We are offering a solution to match different taxonomies and create interoperability across frameworks. This marks a way of avoiding differences and of capturing ESG data, making sure the asset manager in Ireland that’s investing in a Brazilian company, for example, can do it under its own framework. Once again, legislation is helping reduce discrepancies to ensure we all speak the same language. Technology can also help to enable the flow of ESG data and create interoperable reporting frameworks."
