summary:
As the challenge of global climate change grows more severe, global attention to environmental protection and sustainable development is growing, and this focus is increasingly felt across various industries. Green finance applications are emerging, playing a key role in helping businesses achieve net-zero goals. They are creating tools and opportunities for governments, businesses, and investors to jointly achieve environmental sustainability. However, compared to large enterprises, small and medium-sized enterprises (SMEs) face significant shortages in resources and support. Consequently, the government needs to help cultivate more relevant talent, lower the barriers to net-zero transition for SMEs, and provide them with targeted green financial services to address the impact of climate change and pave the way towards achieving the 2050 net-zero emissions target.
I. Background:
As the challenge of global climate change grows more severe, countries around the world are increasingly concerned about environmental protection and sustainable development. Furthermore, the growing importance of sustainability across various industries has spawned the emergence of green finance tools, which are playing a key role in helping companies achieve their net-zero goals, further enabling them to balance environmental protection with operational development. Furthermore, a growing number of investors are paying attention to companies' ESG (Environmental, Social, and Governance) performance, seeking to invest in companies with a strong sense of environmental sustainability. Therefore, the development of green finance provides governments, businesses, and investors with tools and opportunities to collaboratively achieve environmental sustainability.
According to the United Nations Environment Programme (UNEP), green finance refers to any financial product or service created for environmental protection (including loans, financing, bonds, insurance, and investments). This helps direct funds from the public, private, and non-profit sectors to sustainability-related causes and increases corporate investment in ESG transformation initiatives. Therefore, green finance is also known as "sustainable finance." The International Monetary Fund (IMF) (2019) defines "sustainable finance" as the integration of ESG principles into operational decisions, economic development, and investment strategies. The World Economic Forum (WEF) defines "green finance" as a solution that can simultaneously address both capitalism and environmental protection, and estimates that the global green bond market value will exceed US$2.3 trillion (approximately NT$65 trillion) by 2023.
In summary, the international definition and connotation of "green finance" can be distinguished from the concepts of low carbon, climate, green, environmental, and sustainable development. This encourages governments to use financial policies and tools to assist businesses in achieving sustainable development plans and goals. However, business development often requires optimal resource allocation between operations and environmental protection. Therefore, the role and assistance played by green finance will be key to businesses achieving net-zero transformation. To this end, the Taiwanese government released the "2050 Net-Zero Emissions Pathway" in March 2022, including green finance among its twelve key strategies. This aims to ensure that while businesses achieve their net-zero emissions goals, they can also achieve sustainable development that balances both operational and environmental performance through the use of green financial tools.
II. Current Status:
1. International Trends
Green finance instruments will play a key role in actively moving toward the goals and vision of environmental sustainability. According to a 2022 study by the Climate Policy Initiative (CPI), cumulative climate finance commitments between 2011 and 2020 reached approximately $4.8 trillion, with an average annual growth rate of approximately 7%. However, this current growth rate may not be sufficient to meet the global warming and 1.5°C temperature rise scenarios. Therefore, the CPI further stated that achieving the Paris Agreement's climate goals will require at least $4.3 trillion annually by 2030. Furthermore, while private sector investment is increasing annually, it has not yet reached the scale and speed required for a net-zero transition, with an average annual growth rate (4.8%) lower than that of the public sector (9.1%). Consequently, governments around the world have been actively promoting green finance mechanisms in recent years to help accelerate private sector green investment.
To achieve net-zero emissions targets and manage climate risks, the United Nations Framework Convention on Climate Change (UNFCCC) established the Glasgow Financial Alliance for Net Zero (GFANZ) at COP26. This initiative urges countries and financial institutions to pledge support and provide the necessary financing for the net-zero transition. In response, the European Union proposed in 2018 the official release of the EU Taxonomy Regulation in 2020 to enhance corporate ESG transparency and help achieve the EU's 2050 climate goals. This regulation has become a reference point for many countries, encouraging investment in truly sustainable sectors and contributing meaningfully to carbon reduction.
To enhance the transparency of ESG-related information, the International Sustainability Standards Board (ISSB), established in November 2021 by the International Financial Reporting Standards Foundation (IFRS), is also committed to promoting the disclosure and integration of sustainability information. To this end, the ISSB has developed a set of globally applicable disclosure standards and released two drafts: "IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information" and "IFRS S2 Climate-related Disclosures." These drafts are based on the four dimensions of the Task Force on Climate-related Financial Disclosures (TCFD): governance, strategy, risk management, and metrics and targets, to facilitate financial markets' assessment of climate-related risks and impacts.
Furthermore, to accelerate the achievement of sustainable development goals through green finance instruments, in addition to increasing financial market transparency, public-private sector collaboration is also crucial. For example, the Monetary Authority of Singapore (MAS) convened representatives from financial institutions, businesses, and non-governmental organizations to establish the Green Finance Industry Taskforce (GFIT). In May 2021, the Taskforce announced three principles: a framework for green trade finance and working capital, guidelines for climate and environmental disclosure, and sustainable infrastructure investment. These principles aim to strengthen financial institutions' environmental risk management practices through a taxonomy, improve information disclosure, and enhance green finance solutions, further accelerating the development and formulation of green finance mechanisms. Furthermore, Japan's Ministry of Economy, Trade, and Industry (METI) formulated the Climate Innovation Finance Strategy 2020 in 2020 to promote industrial transformation and the research, development, implementation, and financing of innovative and advanced technologies. In 2021, the Financial Services Agency (FSA), the Ministry of Economy, Trade and Industry (METI) and the Ministry of the Environment (MOE) jointly convened the "Taskforce on Preparation of the Environment for Transition Finance" and invited 16 representatives from industry, academia and research to jointly study and formulate basic guidelines for climate transition finance.
Consequently, in recent years, major countries around the world have been leveraging green finance tools to assist businesses in achieving net-zero transitions and sustainable development goals, further strengthening sustainable action and net-zero awareness among businesses and investors. Furthermore, in response to the increasing disclosure and data collection of ESG-related information in financial markets and companies, this initiative provides solutions to current information and data gaps and serves as a reference for future green finance development.
2. my country's Green Finance Policy
To guide the financial industry and businesses in addressing climate change and sustainable development, the Financial Supervisory Commission (FSC) of Taiwan, taking into account international developments, has established a framework to promote net-zero transition and the effective operation of financial markets. These frameworks include enhancing the quality and transparency of ESG disclosures, establishing sustainability classification standards, and guiding financial institutions' investment and financing in low-carbon industries. These frameworks aim to promote and support the net-zero transition of Taiwanese businesses and strengthen their resilience to climate change risks. To this end, the FSC launched the "Green Finance Action Plan 1.0" in 2017, focusing on encouraging financial institutions to invest in and finance the green energy industry. In August 2020, the FSC further strengthened the Green Finance Plan by incorporating ESG considerations into the "Green Finance Action Plan 2.0." This aims to leverage financial mechanisms to encourage businesses to implement ESG-related practices and further build a comprehensive sustainable financial ecosystem.
Source: Financial Supervisory Commission, "Green Finance Action Plan 3.0," 2022
Figure 1: Improvement Directions of the "Green Finance Action Plan 3.0"
The Financial Supervisory Commission is attempting to move "green finance" towards "sustainable finance" and promote it in practice. In September 2022, it launched the "Green Finance Action Plan 3.0". Its core concept is to build a financial ecosystem (including financial institutions, enterprises, government agencies, non-governmental organizations and other stakeholders) through the integration of financial resources, thereby driving various industries towards net zero transformation.
Source: Financial Supervisory Commission, “Green Finance Action Plan 3.0”, 2022
Figure 2: “Green Finance Action Plan 3.0” Promotion Framework
To incorporate green and sustainable development elements into financing instruments and increase the integration of ESG considerations into investment decisions by investors and asset managers, the Financial Supervisory Commission (FSC) has strengthened annual report disclosure and ESG disclosure for investment trust funds, requiring companies to disclose their performance and strategies on ESG issues related to their operations. Furthermore, to address the issue of "greenwashing," which has led to the flooding of inappropriate financial products in the market, Taiwan developed a "Sustainability Taxonomy" in 2021, modeled after the EU Sustainability Taxonomy. This taxonomy sets out sustainability metrics for key domestic industries. Furthermore, climate change risks and financial stability mechanisms are incorporated into regulatory policies.
In addition to financing options like green project financing and credit guarantee funds, Taiwan's current green finance offerings also include the issuance of green bonds. As of the end of March 2013, a total of 152 perpetual bonds had been issued, totaling approximately NT$421.3 billion. To promote the development of green and sustainable financial products and services in Taiwan, the government will continue to encourage financial institutions to promote green financial products such as green credit cards, green funds, and green insurance, empowering the government, businesses, and the public to jointly achieve net-zero emissions goals and the vision of sustainable development.
III. Future Development
To achieve Taiwan's 2050 net-zero emissions target, the Financial Supervisory Commission (FSC) has been promoting the "Green Finance Action Plan 3.0," drawing on the practices and developments of major countries internationally. This initiative aims to help businesses secure the funding they need to implement low-carbon technology research and development and carbon reduction plans. However, compared to large enterprises, small and medium-sized enterprises (SMEs) face significant shortages in resources and support. Therefore, the government needs to help cultivate more relevant talent to lower the barrier to net-zero transition for SMEs. The Green Finance Action Plan also provides SMEs with specialized financial services to address the impact of climate change on SMEs and pave the way for achieving the 2050 net-zero emissions target.
Organizer: Ministry of Economic Affairs, SME Administration
Executing Unit: Plastics Industry Technology Development Center
