Updated: Oct 24
The LAC Observatory of Taxonomies will be launched during the 2023 Latin America and the Caribbean Climate Week in Panama. Join us live in-person or virtually for the event!
WASHINGTON, D.C. – CCAP and the Climate Finance Group for Latin America and the Caribbean (GFLAC) are thrilled to announce the launch of the Observatory of Taxonomies in Latin America and the Caribbean (LAC) that will officially convene during an Action Hub event held on the opening day of the 2023 LAC Climate Week (LACCW), taking place in Panama City next week.
The Observatory seeks to encourage the design of sustainable finance taxonomies to be compatible at the international, regional and national levels, aligned with sustainable development and promoting regulated adoption based on environmental, social and climate safeguards.
All are welcome to join us in-person or virtually and be a part of this groundbreaking initiative that will form a network of diverse stakeholders who encourage and promote research, advocacy, knowledge sharing and capacity building in the development and implementation of taxonomies in the LAC region. Information about the launch event can be found in the graphic below.
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Learn more about the Launch Event!
The launch event will feature a “Ted-Talk-style” presentation emphasizing the importance of compliance with Article 2.1 C of the Paris Agreement on aligning public and private financial flows with low-carbon and climate-resilient development. This will be followed by a discussion on the need to close the taxonomy knowledge gap and to create an Observatory of Sustainable Finance Taxonomies in Latin America and the Caribbean from a civil society perspective. The audience will have a chance to ask questions and suggest activities to help structure the Observatory’s workplan. The audience will then be able to join by supporting its mission and the activities carried out for the coming months.
“We are very excited to partner with GFLAC to launch the Observatory, as both organizations work closely on aligning financial flows and enhancing climate finance transparency to achieve the goals of the Paris Agreement,” said CCAP Senior Climate Finance Associate Adriana Bazán Fuster.
“The Observatory is an idea that came up during COP27, with the main goal of closely monitoring how taxonomies are being developed and implemented in the LAC region and to provide a platform for civil society, academia, NGOs, associations, local communities and experts to participate in the design, development, piloting, implementation and regulation of taxonomies that are adequate to the regional context," added Bazán Fuster. "Ultimately, this initiative aims to monitor the design and implementation of taxonomies in order to evaluate their efficiency, transparency and effectiveness, thus seeking to improve their impact and relevance in the LAC context."
Countries across the LAC region are increasingly finding themselves at the forefront of the fight against climate change in an environmentally degraded world. As a result of climate change, the region is ever more susceptible to droughts, flooding, wildfires, the loss of biodiversity and more frequent and intensified storms. To make matters worse, developing countries, including those in the LAC region, are disproportionally facing a $4 trillion funding gap to implement their Sustainable Development Goals (SDGs), which puts the goals of the Paris Agreement out of reach.
There is a clear need to align finance and investments into sustainable action by channeling public and private capital towards well-defined and tangible solutions, relevant to countries’ decarbonization pathways, Nationally Determined Contributions (NDCs), SDGs and other relevant sustainable activities. As such, the common usage of sustainable finance taxonomies has become a key regulatory policy tool to align and determine if and to what extent economic activities contribute to global sustainable objectives and national and international commitments.
Given the climate crisis in the LAC region, the growing need to align financial flows and the speed in which investments must meet climate and environmental objectives, the LAC Observatory of Taxonomies will serve as an information system that disseminates and provides knowledge on sustainable finance taxonomies.
The Observatory is comprised of technical specialists and regional stakeholders who wish to advance the dialogue on taxonomies. All are welcome to join the Observatory, as members include academic institutions, civil society organizations (CSOs), sectoral associations, local communities and any individual or organization interested in the mission and vision of the Observatory.
What are Sustainable Finance Taxonomies?
A sustainable finance taxonomy is a classification of a list of economic activities that are considered environmentally sustainable for investment purposes. In general terms, it establishes a framework for enhancing market transparency, reducing uncertainty and incentivizing financing to a low-carbon and climate-resilient economy. Taxonomies support a wide range of financial sector stakeholders, identify truly sustainable finance opportunities and provide them with a transparent and credible list of prospective sustainable investments.
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The use of taxonomies also helps the public sector guide public standards, regulations, fiscal policies, investments, subsidies, support and taxation to promote and achieve sustainable goals, while signaling the market towards a sustainable national pathway. Taxonomies have the potential to establish climate finance disclosures related to understanding how sustainability issues or climate change may affect long-term public and private investment decisions.
Taxonomies bring numerous benefits to both the public and private sectors, such as:
Making it possible to translate commitments (national development plans, Paris Agreement targets, SDGs, biodiversity targets, decarbonization pathways, long-term strategies (LTS) and net-zero strategies) into actionable and easily investable policies by identifying activities that can be considered sustainable.
Making it easier for public and private financial institutions to demonstrate whether they are working towards a low-carbon transition and strengthening their resilience to climate change.
Providing a common language for all stakeholders making investment decisions.
Ensuring the financial flows and capital injection needed to finance sustainable activities, even if it is not yet mandatory, as it provides signals to the market for the coming years.
Challenges LAC Countries Face in Developing and Implementing Taxonomies
LAC countries commonly face knowledge gaps, given the heterogeneity and fragmentation of each market, to design and implement taxonomies. The Observatory aims to address these gaps to bring the LAC region closer towards their implementation. Some of the challenges that LAC governments face when starting the development or implementation of a taxonomy are:
Achieving an articulated understanding of the relevance of developing and implementing taxonomies, to accelerate sustainable investments with the objectives of the Paris Agreement and improving their transparency.
Developing relevant taxonomies to advance the alignment of financial flows (public and private) and to achieve the objectives of the Paris Agreement (Article 2.1C).
Seeking interoperability at regional and international levels.
Creating a common language of sustainable finance, both for market players and financial regulators.
Developing taxonomies with a clear and universal regulatory framework to make their implementation mandatory and not merely voluntary.
Encouraging and promoting capacity building and knowledge in the construction and implementation of taxonomies at the national and local levels.
What Will the Observatory Accomplish?
The Observatory is a solution to close this knowledge gap in LAC countries, as it will work to strengthen capacities and knowledge for the adequate, efficient and transparent design and implementation of regional taxonomies, based on international frameworks and standards, seeking alignment and interoperability with taxonomies at both the regional and international levels.
The Observatory recognizes that the process of building and implementing taxonomies is constantly evolving, so it seeks to:
Monitor the design and implementation of taxonomies to evaluate their efficiency, transparency and effectiveness, seeking to improve their impact.
Promote an adequate development of taxonomies based on scientific evidence.
Document and disseminate the best practices of the creation of the Technical Screening Criteria (TSC), to facilitate compatibility (interoperability) with international markets and with the local context of each jurisdiction.
Share and exchange findings with local experts in the creation of the TSC.
Support local experts in identifying solutions and best practices to close knowledge gaps in the creation of taxonomies—mainly in TSC and environmental, social and climate safeguards.
Encourage and promote the participation of local experts in technical working groups.
Raise awareness among decisionmakers and policymakers about the capacity building and technical assistance needed to develop and implement taxonomies.
Establish a repository of knowledge on the findings of the technical working groups in the LAC region.
Create a collaborative network to foster peer-to-peer knowledge sharing.
What Types of Activities will the Observatory Engage in?
The Observatory will broadly engage in research, knowledge sharing, advocacy, outreach and capacity building in the region through a series of workshops, webinars and other events, in addition to forming collaborative research groups to enhance the discussion of strategic actions. It will continue to identify and document the current landscape of taxonomies in the world and in the region, following the latest trends in their development and implementation, while supporting sectoral experts in each country in designing, developing and implementing taxonomies.
CCAP’s Work in Sustainable Finance Taxonomies
CCAP and GIZ recently published the policy brief, Towards a Common Pathway Across Sustainable Finance Taxonomies, which takes an in-depth look at taxonomies and provides a high-level overview of their relevance, key process principles and practical development steps. Additionally, CCAP performed advisory work on a Climate Finance Tracking Taxonomy for the energy sector in Seychelles. Over the past year, CCAP has been actively disseminating research and information about taxonomies and their trends through its blog series on the topic. Click here to learn more about our Climate Finance Program!
GFLAC was formed by a group of civil society organizations and academic institutions and works on the themes of climate change and transparency, addressing the need to face the fundamental challenges persisting in Latin America and the Caribbean: on one hand, the urgent need to increase the transparency and accountability standards of international climate finance and on the other hand the necessity to reinforce and promote the budget transparency of the national resources allocated in addressing climate change. Furthermore, GFLAC strives to develop and strengthen the capacities of individuals and organizations that are trying to contribute to national as well as international climate finance negotiations.
CCAP’s Road to COP28
Up next, the road to COP28 takes us to Panama for LACCW from October 23-27. There, we will host a trio of Action Hub events that mark the official launch of three new initiatives. Click here to learn more!
CCAP’s mission is to support every step of climate action, from ambition to implementation. A recognized world leader in climate policy and action, CCAP creates innovative, replicable climate solutions, strengthens capacities, and promotes best practices across the local, national, and international levels to accelerate the transition to a net-zero, climate resilient future. CCAP was founded in 1985 and is based in Washington, DC.