Release of Supplementary Document to ASEAN Taxonomy for Sustainable Finance to Guide SMEs in Agriculture and Renewable Energy Sectors

12 August 2024

On 9 August 2024, the ASEAN Taxonomy Board (“ATB“) released the ASEAN Taxonomy for Sustainable Finance, Supplementary Document: Foundation Framework Use Cases (“Supplementary Document“). The Supplementary Document is specifically designed to provide practical use cases for small to medium sized enterprises (“SMEs“) in the agriculture and renewable energy sectors to apply the Foundation Framework of the ASEAN Taxonomy for Sustainable Finance (“ASEAN Taxonomy“).

By way of background, the ASEAN Taxonomy seeks to enable a just transition towards sustainable finance adoption by ASEAN member states (“AMS“) by providing a common and credible framework for AMS and their stakeholders to assess and classify sustainable economic activities. To be classified under the ASEAN Taxonomy, an activity must first contribute to at least one of the four environmental objectives (“EOs“) – climate change mitigation, climate change adaptation, protection of healthy ecosystems and biodiversity; and resource resilience and the transition to a circular economy. Next, the activity must fulfil all three essential criteria (“ECs“) – do no significant harm; remedial measures to transition; and social aspects.

The ASEAN Taxonomy offers two assessment approaches to assess and classify sustainable activities: (i) the principles-based Foundation Framework, which is the focus of this Supplementary Document; and (ii) the threshold-based Plus Standard.

The use cases in the Supplementary Document illustrates how users may navigate the Foundation Framework decision trees, as elaborated in the ASEAN Taxonomy main document, by using a stepwise assessment process where at each stage, an interim evaluation is obtained leading to the next assessment stage, eventually reaching a final classification. When applying the use cases, users should adjust to fit their specific circumstances, such as their respective countries’ applicable regulations.

Use Case One illustrates a hypothetical assessment by a Malaysian small to medium enterprise (“SME“) involved in palm oil cultivation and plantation, in seeking term financing for the purchase of agriculture land and additional working capital for expansion and cultivation. The first stage involves determining the user entry point by accounting for the various sustainability efforts undertaken or in plans for the new plantation, such as conducting an Environmental Impact Assessment, implementing organic farming practices, and seeking compliance with relevant certification, e.g. Malaysian Sustainable Palm Oil certification. In this stage, the relevant EOs are considered before EO3 (Protection of Healthy Ecosystems and Biodiversity) is narrowed down as the primary EO based on alignment with the company’s strategic focus. Next, the activity is (i) assessed against specific criteria for EO3; (ii) assessed for whether the activity satisfies the ECs of do no significant harm and remedial measures to transition assessment; and (iii) if the company satisfies the EC of social aspect.

Use Case Two undertakes the same guided exercise but in respect of an Indonesian company that provides mini-hydropower plants in rural areas for supply to the State Electricity Company, in seeking new project financing to increase the capacity of the mini hydropower plant and expand operations to other villages.

Currently, the ASEAN Taxonomy main document contains use cases that guide larger companies operating across multiple jurisdictions. This Supplementary Document thus provides much welcome guidance for SMEs that play a major role in the region’s economy. It should be noted that the Supplementary Document includes only use cases that attain green classification throughout the assessment process. Companies with a different sustainability profile may refer to these as a compass while also looking forward to future guidance, as ATB has indicated that more use cases will be issued in due course.

Click on the following links for more information:

Available on the ATB website at www.theacmf.org:

Rajah & Tann Publications:

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