What is Green Taxonomy?

About Green Taxonomy:

• A green taxonomy is a framework for defining what can be called environmentally sustainable investments.
  • It is a classification system that defines which economic activities and assets are “green” or environmentally sustainable.
• It is a useful instrument and has several complementary purposes:
  • help prevent greenwashing;
  • help investors make informed investment decisions; and
  • channel investment toward sustainable or green economic activities and assets.
• Structurally, all taxonomies are similar. So far, they all include the goals of climate mitigation and adaptation and some also include other environmental objectives such as biodiversity conservation, for example.
• To be considered green, an activity must substantially contribute to at least one of the environmental objectives.
• Often, taxonomies also include “do no significant harm” criteria (i.e., an activity that substantially contributes to one environmental objective should not harm another environmental objective) and social safeguards (i.e., compliance with human rights). 
• Some taxonomies only define what is green and others, such as the recently launched Indonesian taxonomy or the proposed Singaporean taxonomy, use a “traffic light” approach, where the economic activities are split into different categories (i.e. green, amber, or red) to classify their environmental sustainability.

What is Greenwashing?

• It is the process of conveying a false impression or misleading information about how a company’s products are environmentally sound.
• It involves making an unsubstantiated claim to deceive consumers into believing that a company’s products are environmentally friendly or have a greater positive environmental impact than they actually do.
• In addition, greenwashing may occur when a company attempts to emphasize sustainable aspects of a product to overshadow its involvement in environmentally damaging practices. 
• Companies can also greenwash initiatives with vague claims that don't provide real data or scientific validation for the claims.