ESG Taxonomy

The ESG taxonomy stipulates whether economic activities meet social and environmental goals and is the basis for ESG information disclosure.

The most widely used ESG taxonomy is the EU taxonomy, which classifies whether economic activities are consistent with six environmental goals, including two goals related to climate change.

History of ESG Taxonomy

The ESG taxonomy originally originated from the Climate Bond Initiative’s 2012 Climate Bond Taxonomy. With the development of sustainable finance, the scope of ESG taxonomy continues to expand, and it include multiple aspects such as environment, society, transition, and sustainable development.

Most taxonomies are usually voluntary, meaning that companies can choose to comply the requirements, which also leads to greenwashing. As regulatory policies tighten, the taxonomies will gradually transition from voluntary compliance to mandatory compliance.

Future of ESG Taxonomy

Whether based on principles, whitelists, or technical screenings, ESG taxonomy will become the foundation of sustainable ecosystems and provide assistance for sustainable information disclosure.

ESG taxonomy will also be integrated with technology. ISSB has launched the IFRS Sustainability Disclosure Taxonomy, which companies can use to label sustainability information in financial reports to help investors search, extract, and compare different information.