In the run-up to COP29 in Baku, Azerbaijan, the conference was framed as a ‘Finance COP’. There were two reasons. First, the world was falling behind on its Paris agreement goals. Second, emerging and developing countries continued to face a substantial shortfall in the finance needed for the transition to a low-carbon economy.
Therefore, COP29 had a dual task: to mobilise more sustainable finance and to ensure that this investment delivered credible results. The size of capital is essential, but the amount invested tells little about its impact. Without reliable and clear criteria, sustainable finance can become a matter of just labelling or greenwashing.
For the financial sector to support the transition to a low-carbon economy, investors must be able to distinguish credible environmental performance from greenwashing. Reliable data, consistent disclosure and clear classification are therefore crucial. Taxonomies help provide that clarity.
From fragmented definitions to comparable frameworks
Taxonomies set out the definition or criteria used to determine whether economic activities align with environmental objectives. As more countries develop their own taxonomies, differences in technical criteria, definitions and reporting requirements make comparison and cross-border investment more challenging.
For investors operating across several markets, differences between taxonomies can affect how they classify investments, meet reporting requirements and assess transition opportunities. For example, 72% of more than 5,300 high net-worth investors surveyed by UBS found sustainable investing terms confusing. This is an area where international co-operation is needed to ensure alignment among different frameworks.
This was the rationale for launching the Taxonomy Roadmap Initiative at COP29 in Baku in November 2024. Led by the Central Bank of Azerbaijan, in partnership with several international institutions, TRI aims to improve the interoperability and comparability of sustainable finance taxonomies through three technical pillars and two additional areas.
From a shared agenda to practical tools
Since its launch in Baku, TRI has organised its work around three areas: collaboration, communication and coordination.
Collaboration brings together international institutions working in the area of sustainable finance frameworks along with the COP host-country institution responsible for the development and implementation of sustainable finance taxonomies. Sharing expertise and tools, as well as aligning approaches, can help these organisations make better use of their resources, improve technical assistance and avoid duplicating work. TRI has also engaged with initiatives such as the G20 Sustainable Finance Working Group and the working group on sustainable finance taxonomies among Brics countries to achieve its core goals.
Communication is equally important. Interoperability is sometimes mistaken for harmonisation, leading to concerns that countries may have to abandon their national priorities. Countries do not need to adopt identical criteria to make their taxonomies more comparable. Explaining fundamental aspects clearly is essential to building confidence in the process. TRI has initiated discussion on this subject across its partner platforms.
Coordination is intended to keep partners’ work aligned and prevent separate initiatives from pursuing overlapping approaches.
COP30 in Belém marked a crucial milestone for TRI. It published its first annual Progress Report and its Principles for Taxonomy Interoperability, and launched the Sustainable Finance Taxonomy Mapper, and a dedicated website. The Progress Report, the Principles and the Mapper resources enable policy-makers, financial institutions and investors to compare frameworks, identify areas of alignment and understand where differences exist.
The next frontier: implementation and impact
Achievements so far have been impressive. However, comparability is not the end goal. A taxonomy does not attract investment simply by being published. Also, classifying an activity as sustainable does not guarantee emissions reductions.
The key point is whether taxonomies become part of daily investment and lending decisions. Taxonomies must also be supported by effective public policies, sectoral decarbonisation plans, financial incentives and viable and bankable investment projects. In addition, data infrastructure provided as a public good and available assurance mechanisms are prerequisites for the use of taxonomies. Financing the transition means looking beyond green activities to cover emissions-intensive sectors. Financial sector regulators and supervisors must build capacity to oversee the use of taxonomies.
Taxonomies cannot substitute for sound policies and other key necessary elements discussed above. Successful implementation requires a whole-of-government approach.
COP31 in Antalya: from frameworks to impact
At London Climate Action Week in June, TRI partners discussed the progress and defined priorities for COP31. COP31 will be a good platform to advance the taxonomy agenda. The priority should be to establish how taxonomies are being used, whether they influence investment decisions and what their impact is.
Türkiye is planning to introduce a mandatory taxonomy reporting framework in early 2027, which is very relevant to the current taxonomy agenda. Together with policy-makers, central banks, supervisors, financial institutions, investors and development finance institutions, TRI should promote the sharing of successful use cases, the identification of implementation barriers and the development of solutions, as well as practical tools for measuring progress.
Another important avenue is to provide effective technical support to developing countries. Those countries often face limited data and a lack of institutional capacity, which increases the cost of compliance. Discussion should focus on effective and innovative mechanisms for taxonomies to work in those countries.
Current trends in sustainable finance, including TRI’s renewed priorities, indicate that COP31 can play an important role in enhancing sustainable finance architecture to help investors identify credible opportunities and give businesses workable criteria for demonstrating their alignment with taxonomies.
COP29 in Baku put taxonomy interoperability on the international agenda. COP30 in Belém introduced practical guidance and comparison tools. The discussion at COP31 in Antalya should turn to how these frameworks are used.
Matias Rebello Cardomingo is Undersecretary for Sustainable Economic Development, Secretariat for Economic Policy, Ministry of Finance of Brazil, and Chair of the Taxonomy Roadmap Initiative. Rustam Tahirov is a Sustainable Finance Expert and former Head of the Secretariat for Taxonomy Roadmap Initiative.
This article is a shortened version of a longer paper, available here.
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