Sustainable Finance Taxonomies – Designed to Support the Transition to a Net-Zero Economy?

Abstract

A growing number of sustainable finance taxonomies aim to redirect capital towards climate change mitigation. Yet achieving net zero requires not only financing green economic activities but also transitional economic activities – hence activities that currently lack viable low-carbon alternatives but are required for a low carbon economy. Using comparative policy analysis, this article seeks to understand how this is addressed across 45 taxonomies worldwide based on a systematic review across five criteria: policy embeddedness, sectoral emission coverage, screening approach, target group, as well as disclosure and reporting obligations. The results show that many taxonomies are well embedded in national and international environmental and sustainability policies. Sectoral emissions coverage varies considerably, but taxonomies are often introduced in phases, with additional sectors added later. Regarding the screening approach, most taxonomies define only green economic activities rather than endorsing transition activities. In some cases where transitional activities are included, technical screening criteria lack clear pathways to net zero. Taxonomies differ significantly in their target groups and in whether they are mandatory or voluntary. Most serve as voluntary guidance for a broad range of stakeholders. The majority of frameworks do not imply disclosure and reporting requirements. Though taxonomies are now a widespread policy instrument, they are not yet designed to fully support the transition to net zero. The results provide important insights for policy makers developing new taxonomies, integrating transitional aspects, or improving interoperability.