Overview of the Green Finance Action Plan 3.0 of Taiwan’s FSC (2024)

The Financial Supervisory Commission (hereinafter, the “FSC”) launched the Green Finance Action Plan 1.0 in 2017 to encourage the financial industry to invest in, and extend credit to, the green energy industry. The Green Finance Action Plan 2.0 launched in 2020 expanded its scope to include environmental, social, and governance (ESG) aspects, promoting the development of sustainable finance talent, enhancing ESG information disclosure, and strengthening climate risk management. According to a survey conducted by the Center for Corporate Sustainability at National Taipei University, Taiwan’s sustainable investment assets and proportion have continued to grow.^[1] In September 2022, the FSC rolled out the Green Finance Action Plan 3.0 (hereinafter, the “Plan”)^[2] aiming to further promote the understanding of greenhouse gas emissions (hereinafter, the “carbon emissions”) by the financial industry and the targets it invests in and extends credit to, in support of the 2050 Net-zero Emissions policy.

This Plan has five major aspects, each with key promotion measures:

This article merely introduces the concrete measures in aspects of “deployment” and “funding,” and attention may be paid to the related newsletter of the FSC for the rest of the aspects.

I. The deployment aspect – disclosure of carbon emissions and adaptation to climate-related risks

Given the requirement of international financial organizations for the financial industry to investigate and disclose carbon emissions, the financial sector should not only examine its own direct carbon emissions (Scope 1) and indirect carbon emissions (Scope 2), but also understand the carbon emissions of the targets it invests in and extends credit to (Scope 3). The financial industry is also required to submit a “comprehensive climate risk management analysis report” and undergo “climate change stress testing” to encourage the financial industry to adjust its operating methods, engage the targets it invests in and extends credit to, and develop carbon reduction strategies to promote overall industry decarbonization.

II. The funding aspect – incorporation of the Guidelines for the Determination of Sustainable Economic Activities into investment and financing assessment

The FSC, the Ministry of Economic Affairs, the Ministry of Transportation and Communications, and the Ministry of the Interior jointly promulgated the Guidelines for the Determination of Sustainable Economic Activities^[4] (hereinafter, the “Guidelines”) in December 2022, encouraging the financial industry to refer to the Guidelines for investment and financing assessments and assisting businesses in their transition towards sustainable decarbonization.

The Guidelines categorize sustainable economic activities into two types: “general economic activities” and “forward-looking economic activities.” It should be noted that the Guidelines do not cover all industries and economic activities in the country. Therefore, the absence of an economic activity in the Guidelines does not necessarily mean that it is not considered a “sustainable economic activity.” Furthermore, the determination criteria for the “sustainable economic activities” defined in the Guidelines due to differences in local technologies, information, and regulatory requirements that may vary from those in Taiwan may not necessarily apply to economic activities conducted overseas by businesses.

(1) General economic activities

The methods for determining “compliant” sustainable economic activities will be set regarding the industries and economic activities to which the Guidelines “apply,” and currently target a total of 16 general economic activities of part of the manufacturing industry, the construction and real estate industry, the transportation and warehousing industry, which receive relatively more investment and financing from the financial industry:

The aforementioned determination methods can be divided into three conditions, as follows:

1. Substantive contributions to climate change mitigation

The Guidelines specifically list six major environmental objectives, such as “climate change mitigation,” “climate change adaptation,” “sustainable use and protection of water and marine resources,” “transition to a circular economy,” “pollution prevention and control,” and “protection and recovery of biodiversity and ecosystem.”

Given that “climate change mitigation” is the core of the Guidelines, activities contradicting this objective are certainly not sustainable economic activities. As for the term “substantive contributions,” it refers to meeting relevant technological screening criteria.^[5] Therefore, business is required to engage in economic activities that meet the technical thresholds for climate change mitigation to meet this condition.

2. No significant harm to other environmental objectives

If a business’s economic activity violates “other environmental objectives” and faces any significant sanctions imposed by the competent authority for specified business pursuant to relevant laws and regulations, such economic activity is deemed to be “causing significant harm.”

3. No significant harm to social security

If a company’s economic activities violate “social security” and are subject to significant sanctions imposed by the competent authority for specified business under relevant laws and regulations, such economic activities are deemed to be “causing significant harm.”

(2) Forward-looking economic activities

To accommodate the key technical areas involved in the 2050 Net-zero Emissions policy, the Guidelines identifies 13 “forward-looking economic activities” including the research and development, equipment deployment, and related applications concerning renewable energy, hydrogen energy, smart grids and energy storage, high-efficiency equipment, low-carbon transportation, carbon capture, utilization, and sequestration, and other technologies. These activities can be directly regarded as making substantive contributions to “climate change mitigation.”

If such forward-looking economic activities also meet the criteria of “no significant harm to other environmental objectives” and “no significant harm to social security,” they are regarded as sustainable economic activities under the Guidelines.

(3) The sustainability of economic activities

Businesses can categorize the sustainability of their economic activities into five types, namely, “compliant,” “endeavoring,” “improving,” “non-compliant,” and “not applicable,” based on the extent by which the Guidelines “apply” to such economic activities and such economic activities “comply” with the aforementioned three conditions, as well as whether the businesses have specific improvement or transition plans.

(4) Disclosure and utilization: promotion by encouragement to reduce resistance

1. Corporate disclosure

(Non-listed) and listed companies are encouraged to refer to the Guidelines when examining the “primary economic activities in their business” and “specific project items” with funding needs, and voluntarily disclose information such as the revenue proportion and sustainability level (compliant/endeavoring/improving/noncompliant/inapplicable) of the economic activities which the Guidlines “apply” to and”comply” with the Guidelines on corporate websites, annual reports, and sustainability reports for the reference of investors and the financial institutions they deal with.

2. Application in the financial industry

The financial industry is encouraged to invest in and extend credit to a corporate that expresses the concepts of “green,” “ESG,” or “sustainability” in their business and to refer to the Guidelines when making investment and credit extension decisions and engaging with a corporate.

III. Internal summary

Regarding the above-mentioned “deployment” aspect, according to the FSC’s timeline,^[6] the banking industry, the securities and futures industry, and the insurance industry are required to complete carbon inventory and verification by stages between 2023 and 2028 (Scope 1 and Scope 2), based on the authorized capital, the authorized capital of the parent company, the size of assets under management, etc.

Regarding the above-mentioned “funding” aspect, the FSC plans to expand the scope of industries with “general economic activities” to which the Guidelines apply to include the following 4 industries: the manufacturing industry (including chemical industry, steel manufacturing, textile manufacturing, semiconductor, panel, computer and peripheral equipment manufacturing for a total of 7 items), the waste disposal and resource recovery industry, the financial and insurance industry, and the agriculture and forestry industry.^[7] The FSC will also establish quantitative technical screening criteria for 5 environmental objectives other than the “climate change mitigation” in the Guidelines. In addition, the FSC is currently developing a disclosure framework for a business to facilitate the disclosure of “application” to and “compliance” withthe Guidelines. The FSC is also planning a questionnaire to enable businesses to provide relevant information to the financial industry in a standard format.

“Green Finance” is one of the 12 key strategies^[8] for achieving the “2050 Net-zero Emissions” target and is also included as a focus in the financial inspections for 2023.^[9] The implementation period for this Plan is from 2022 to 2025. The FSC will continue to introduce various measures in the five major aspects (i.e., deployment, funding, data, empowerment, and ecosystem) of this Plan to deepen the sustainability of overall industries by utilizing the power of the financial market. It is worthcontinuing attention of the financial industry and all industries.