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【TEJ Dictionary】What is green finance? “Green Finance Action Plan 2.0 “promotes sustainable development in Taiwan!

Environmental awareness is rising, and I’m sure you’ve heard the words “green building "and “green energy “a lot. However, “green finance “may be relatively unknown; What is the relationship between the financial industry and “green “or “environmental protection “?

green finance

Preface

The rise of environmental protection awareness, coupled with the increasing global focus on the issue of climate change, led the Financial Supervisory Commission (FSC) to launch the “Green Finance Action Plan 1.0 “in 2017. The FSC has developed a series of regulations and measures to promote the financial industry’s support for green energy to reduce pollution, combat climate change, and protect ecology. The promotion and advancement of sustainable development have expanded from “environment and climate “to a more comprehensive “sustainable development.” To keep up with the times, the FSC has promoted the “Green Finance Action Plan 2.0 “. In addition to promoting sustainable development more comprehensively, there are many new initiatives to make green finance work better.

Highlights

📍 What is Green Finance?
📍 What are green finance products?
📍 What are the challenges in implementing green finance?
📍 “Green Finance Action Plan 2.0 “? How is it different from 1.0?

What is Green Finance?

Green finance is the financial industry’s action to be “eco-friendly “or to introduce financial products for “sustainable development. “I believe that when it comes to “friendly environment,” everyone will intuitively think of energy saving, carbon reduction, and pollution reduction. The manufacturing or energy industry reduces environmental damage through the process or energy search, but how does the financial sector join the ranks of environmental protection?

Although it is difficult for the financial industry to achieve significant carbon reduction or pollution reduction in corporate governance, the financial sector is the driving force behind the development of the economy and many industries! Supporting these green actions from the financial side will significantly contribute to sustainable development.

Green finance can be divided into three main parts:

  • Responsible Credit
    In granting credit, banks need to consider the environmental impact and the Bank 5P. Banks also need to continue to track the use of funds and monitor the disclosure of relevant information after the release of funds. Many financial institutions have also adopted the Equator Principles (EPs) to enforce responsible credit following international standards.
  • Responsible Investment
    According to the “Principles for Responsible Investment (PRI) “proposed by the United Nations, financial institutions should consider the environment when making investments — investing in green energy, green power (solar, offshore wind), or companies that do implement ESG. Such as the Dow Jones Sustainability Indices (DJSI) is a typical example.
  • Green finance products
    The financial sector has launched its products with the theme of environmental protection, such as green insurance, green credit cards, and carbon trading. These products are designed for customers to implement sustainable development. Both companies and people can implement sustainable development together through green finance products.

What are green finance products?

Green finance products are diverse, but the ideas are generally the same. Different financial institutions often have other products, and this article lists just a few typical green finance products.

  1. Green Bond
    The funds raised by the Issuer through the issuance of the Bonds must be invested in the Green Investment Program. Green bonds usually have low-interest rates, encouraging issuers to invest in sustainable development. In addition to attracting public investment through the theme of “green,” it can also fulfill its social responsibility. In recent years, Social Bond and Sustainability Bond have been added to the portfolio, and after the consolidation of the Taipei Exchange, they are commonly known as “永續發展專項資金債券.”
  2. Green Index and its derivative development of green ETFs and other funds
    Financial institutions have been setting up green indices and issuing ETFs by tracking green indices. There are also many derivative ETFs, often with a “green power “or “ESG “theme, and these ETFs, which incorporate sustainability issues, are often considered by the public.
  3. Green Credit Card
    Banks have launched many green spending credit cards to encourage people to engage in green spending. Through credit card rebates, promoting green products in the market, or public transportation, so that people from the daily implementation of carbon reduction.
  4. Green Insurance
    It is mainly used to bear the liability for environmental pollution, also known as Environmental Pollution Liability Insurance. Some industries must have mandatory insurance to ensure that companies can compensate and restore the environment after causing damage.
TEJ Database_TSE/OTC Adjusted price (Daily)
▲TEJ Database_TSE/OTC Adjusted price (Daily)

What are the challenges in implementing green finance?

Green finance has been promoted internationally for many years and has been well developed in many countries. Taiwan is also working hard to promote sustainable development and enhance its global competitiveness. However, there are still many challenges to implementing green finance in Taiwan!

There is no clear definition of terms like “green” and “sustainable” in Taiwan policy. In 2020, the World Bank published its “Developing a National Green Taxonomy” as a reference for countries; however, the definitions and norms for whether economic activities and assets are “green” or “sustainable” are not comprehensive enough for companies to follow.

Then again, the disclosure of sustainability data is not clear enough. The Sustainability Accounting Standards Board (SASB) has guidelines for what companies should disclose about ESG information (SASB guidelines). However, the current policy only requires companies of a specific size to make disclosures and submit sustainability reports; Besides, the information in sustainability reports lacks verification by third-party organizations, and the manner of disclosure is not yet rigorous enough.

Lastly, companies and the public are still not paying enough attention to ESG. Compared to the international community, most companies and investors in Taiwan still underestimate the elements of ESG. Companies are ignoring the environmental impact, and many financial institutions have not incorporated climate change considerations into their risk management and development strategies. If the ESG issue is underestimated, Taiwan will lose its competitiveness.

“Green Finance Action Plan 2.0 “? How is it different from 1.0?

In 2017, the FSC prepared the “Green Finance Action Plan 1.0 “to promote green finance. The Green Finance Action Plan 1.0 was to promote the development of green energy and power, encourage the financial industry to pursue sustainable development, and help the development of green energy through the financial market.

Three years after its implementation, in 2020, the FSC drafted the “Green Finance Action Plan 2.0 “, expanding from the original “green” to “ESG.” The Green Finance Action Plan 2.0 adds new social responsibility and corporate governance elements, hoping to promote sustainable development through financial institutions rather than focusing on “green” only. The plan includes eight major areas: credit, investment, capital market financing, talent cultivation, information disclosure, promotion of green financial products or services development, prudential supervision, international linkage and incentive mechanisms, and 21 new measures, for a total of 38 measures.

To address the difficulties encountered in implementing green finance in Taiwan, the “Green Finance Action Plan 2.0 “strengthens the disclosure and examination of ESG-related information and the promotion of ESG by expanding the cultivation of green and sustainable talents.

  • Companies preparing sustainability reports or annual reports by SASB guidelines also plan to include climate-related information from the Task Force on Climate-related Financial Disclosures (TCFD) in their reports. Companies can also better follow the international standard of comprehensive disclosure standards. In the future, the government expects to set up an ESG-related information integration platform to enhance information transparency; it also hopes that a third-party organization will be able to examine the information provided by enterprises to check the accuracy of the information.
  • The government has strengthened the training of ESG-related talents through courses and seminars. The promotion starts with education so that companies themselves can be aware of the importance of ESG, and we hope to strengthen the ESG mindset of the public. Ultimately, we hope that private investors can also play a supervisory role and jointly review the sustainable development of enterprises.

Please look forward to the new product launch soon!

TEJ will soon add “TESG Sustainability Dataset” to its database, which will consolidate ESG-related information disclosed by various companies in the market, allowing investors to obtain more information to analyze according to your investing needs.

  1. The most comprehensive coverage in Taiwan
    We cover all enterprises above the public offering and a wide range of public information sources.
  2. Diversity of data types
    Regarding the SASB, there are over 40 sub-categories containing over 600 subjects.
  3. Analytic Data
    Derivative and additive statistics are performed for different data orientations to facilitate peer analysis and comparison.
  4. As regulations evolve with the times
    Local manufacturers keep pace with Taiwan’s regulations.

If you have questions about this article or want further access to the TEJ Database, feel free to leave a comment or email us.

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TEJ 台灣經濟新報

TEJ 台灣經濟新報

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TEJ 為台灣本土第一大財經資訊公司,成立於 1990 年,提供金融市場基本分析所需資訊,以及信用風險、法遵科技、資產評價、量化分析及 ESG 等解決方案及顧問服務。鑒於財務金融領域日趨多元與複雜,TEJ 結合實務與學術界的精英人才,致力於開發機器學習、人工智慧 AI 及自然語言處理 NLP 等新技術,持續提供創新服務