A green taxonomy to pave the way for financial markets
In April 2022, Colombia became the first country in the Western Hemisphere to adopt a national green taxonomy. A green taxonomy is a classification tool that allows lenders and borrowers to identify economic activities that contribute to specific environmental goals. The taxonomy will be used to issue green bonds and will play a key role in channeling private sector capital towards its environmental priorities.
Call for sustainability in infrastructure projects
The government is aware of the importance of developing key infrastructure while managing environmental and social risks. Since 2012, it has continued the development of infrastructure through concession projects involving public-private partnerships (PPP). In November 2021, the government published the Guidelines for the Development of Sustainable Transport Infrastructure Projects for the Fifth Generation of Concessions (CONPES 4060 of 2021). The Guidelines integrate Environmental, Social and Governance (ESG) criteria into the structuring, financing, operation and monitoring of projects. THE Fifth generation dealerships The program is expected to implement 14 projects with an investment of COP21.8 billion, encompassing railway, river and airport projects.
ESG integration for the financial sector
In the same spirit, the Financial Superintendence of Colombia (SFC) published ESG and climate risk integration requirements in the investment policy and governance arrangements of pension funds and insurance companies. It also strengthened disclosure requirements for funds with ESG, sustainability and/or green criteria, set ESG and climate risk reporting requirements for listed companies and published prudential expectations for asset management. climate risks for banks.
The World Bank supported Colombia every step of the way
The World Bank Treasury Sustainable finance advice provided technical assistance to the Ministry of Finance and Public Credit, in coordination with the Inter-American Development Bank, to facilitate the structuring and issuance of the sovereign green bond.
The World Bank and IFC jointly supported the development of Colombia’s national green taxonomy. They worked with the Financial Superintendence and the Ministry of Finance and Public Credit to ensure that the taxonomy was adapted to the local context while meeting the highest international environmental sustainability standards such as the European Union Green Taxonomy and the Green Bond Principles of the International Capital Markets Association. In particular, the World Bank contributed to the development of criteria for the land use sector, including forestry, agriculture and livestock, which is responsible for 59 percent of greenhouse gas emissions. greenhouse in Colombia.
“Due to the predominance of small farms in Colombia, the taxonomy classifies land use improvements into three levels of complexity and cost: basic, intermediate and advanced. This allows farms of all sizes to introduce improvements based on their circumstances,” said Farah Imrana Hussain, who led the sovereign green bond and green taxonomy initiatives. The taxonomy takes into account the socio-economic context of Colombia and the associated environmental challenges and objectives (water and soil management, climate mitigation and adaptation, protection of biodiversity and ecosystem services) which have been integrated into its environmental policy and regulatory system.
For each sector, the taxonomy’s eligibility criteria include locally applicable minimum legal requirements, “do no significant harm” measures to protect natural resources, and a set of sustainable practices and technologies that have been tried, tested and deemed feasible in Colombia. Round tables were held in all ministries with Colombian technical experts from the forestry, agriculture and livestock sectors. World Bank agribusiness specialists and environment and climate change specialists contributed to the development of the criteria.
Furthermore, the World Bank has created a national diagnosis on the implementation of ESG criteria and is working with the Ministry of Finance and Public Credit to prepare a methodology to integrate ESG considerations into PPP project guidelines. The methodology takes into account each phase of the project cycle – from structuring to financing, including operation, monitoring and risk assessment. The ESG methodology is consistent with the World Bank’s environmental and social framework and IFC’s sustainability standards.
Colombia has built a solid foundation for sustainable financing
Having made impressive progress in creating a regulatory environment conducive to sustainable finance, Colombia has built a solid foundation to achieve its ambitious goals on climate and biodiversity conservation, as well as to manage exposure of the financial sector to ESG risks.
“We look forward to continuing our partnership with Colombia, which is taking action on multiple fronts to foster inclusive and environmentally sustainable economic growth,” said Peter Siegenthaler.
