Sustainable Finance Taxonomy

A green or sustainable finance taxonomy is a standardised framework for classifying economic activities according to their environmental performance. This classification system allows investors to identify and invest in green activities while avoiding those that cause significant harm to the environment.

It helps to align investment decisions with environmental objectives and to avoid assets that are not aligned with the goals of the Paris Agreement. It can also direct capital flows towards new green technologies and increase the overall transparency of the financial sector through more transparent reporting.

An Aotearoa New Zealand Sustainable Finance Taxonomy (NZ Taxonomy) provides recognisable definitions that can be used by investors and capital providers looking to make investments into the global transition to a low emissions economy. 

Over 40 jurisdictions are developing taxonomies. NZ’s approach is to closely align to the Australian Taxonomy, adapting international definitions to fit our business, legal and policy environment. Being an importer of capital, these definitions need to be recognisable, credible and relevant to investors, while being applicable and suitable in the NZ context. 

A common language and approach is preferable to individual organisations creating their own definitions. The standardisation will reduce friction and accelerate the pace and scale of capital flow towards better outcomes. 

While taxonomies don’t provide a complete solution, they are vital tools that financial institutions and Government can use to direct capital towards more sustainable outcomes. 

Taxonomies offer broader benefits – they help prevent greenwashing, guide Government incentives, attract international green capital, and align with key trading partners’ regulations/standards. 

The NZ Taxonomy prioritises interoperability and harmonisation with global standards. It will be closely aligned to the Australian approach, which also follows the principle of ensuring credibility and harmonisation.

CSF is a taxonomy development partner and will coordinate the process, technical delivery and stakeholder engagement for the taxonomy. CSF is not the decision-maker on the various aspects e.g. technical screening criteria, do no significant harm criteria, and minimum social safeguards.

The role of the Government is to provide legitimacy to the process and to provide a predictable source of funding to guarantee a stable environment for the development of the NZ Taxonomy.

Importantly, the Government does not drive the development of the NZ Taxonomy. Instead, it either accepts or declines to endorse the process, rather than evaluating the quality of criteria developed by the TEG and TAGs. CSF is the liaison between all groups and care is taken to ensure that industry and political influences do not hinder the independence of the body developing the technical screening criteria.

The ITAG that made key design recommendations to the Government recommended a priority focus on Agriculture and Forestry.

When undertaking its sector prioritisation the ITAG considered factors such as GHG emissions, materiality to NZ’s low-emissions transition, dependence on nature, importance to the Māori economy, contribution to exports, share of bank lending.

Importantly, while some jurisdictions are developing criteria for Agriculture and Forestry, these sectors are not as thoroughly covered as others in existing taxonomies. This presents an opportunity for NZ to take a leading role in shaping global standards for sustainable practices in these sectors, aligning with our national strengths and economic priorities.

Taxonomies prioritise climate change mitigation for several reasons:

• Measurability: It’s generally easier to determine and quantify substantial contributions that economic activities make to mitigation efforts.

• Established frameworks: There are already well-established best practices, criteria, and thresholds in the area of climate change mitigation, providing a solid foundation for our work.

Adaptation and resilience are crucial for NZ, however there is currently a lack of international consensus on what constitutes a substantial contribution in these areas, largely because these factors are often highly localised. This makes it difficult to establish standardised criteria that are both globally relevant and locally applicable.

Our approach is to focus on mitigation as an immediate priority, with adaptation and resilience developed at the same time, to the full degree possible, while taxonomies develop internationally. This strategy allows us to move quickly while aligning with the Australian adaptation and resilience criteria for agriculture and land use, as global standards evolve.

In line with the recommendations developed by the ITAG, the NZ Taxonomy development and Governance will include Māori experts and perspectives.

The selection of TEG and Agriculture/Forestry TAG members was conducted through an open Expression of Interest (EoI) process. This approach ensures a comprehensive and fair selection, aiming to create diverse groups that effectively represent both the financial services sector and the broader financial ecosystem.

Key aspects of the TEG selection process include:

• Assessing individual skills, experience, expertise, and networks, as well as potential contributions from the candidate’s organisations.

• Ensuring a balanced mix of expertise across sustainable finance, climate and environmental science and policy, circular economy, human rights, and indigenous perspectives.

• Evaluating candidates’ understanding of global and NZ sustainable finance landscapes.

• Considering ability to commit required time, manage potential conflicts of interest, and collaborate effectively.

• Prioritising diverse perspectives, including indigenous knowledge and expertise.

For the Agriculture/Forestry TAG, we sought experts from policy, academia, finance, industry, civil society, and iwi/Māori organisations with sector-specific knowledge. These candidates should be able to provide technical insights for developing climate mitigation, adaptation and resilience criteria in the Agriculture and Forestry sector.

CSF made the final selections in consultation with the lead agency, Ministry for the Environment.

Drawing on international experience, financial sector representatives have an important role in ensuring the NZ Taxonomy’s usability, practicality, and impact at the design stage. This input is vital to create a fit-for-purpose NZ Taxonomy that will be widely adopted and achieve its intended impact.

Typically, recommendations are made by a technical group comprised of relevant experts to an oversight group, which also considers usability and application in the market and determines whether to accept the technical recommendations. From here, the Government has a role in endorsing (or not) the process taken and ultimately in endorsing the taxonomy.

CSF has recommended that integrity safeguards are put in place to protect the process from undue industry or political influence.

Yes, there are three ways to engage: 

1. Public consultation: Opens from April 2025 to May 2025. Sign up here for reminders.

2. Join public webinars and/or stakeholder discussion sessions to stay in formed at key phases of the development.

3. Stay informed: Subscribe below for NZ Taxonomy-related updates.