Overcoming the Babel Tower Challenge

A Taxonomy for Sustainable Finance in the Latin American and Caribbean Region

May 5, 2023Published by WWF

In April 2022, Colombia became the first country in the Americas to publish a green taxonomy and, according to this report from environmental group WWF, it can be used as a blueprint for other countries in the Latin America and Caribbean (LAC) region. The report considers the Colombian process and recommends how other countries can follow its example.

Green taxonomies are important tools that create transparency around what qualifies as a “green” investment, ultimately helping to prevent greenwashing and mitigate market fragmentation. They define technical criteria and minimum benchmarks to identify the information investors need to assess the environmental benefits of an asset.

The authors state that green taxonomies will be beneficial to the LAC region as they support the growth of regional green financial markets, increase the region’s attractiveness to responsible investors, help track investments and possible greenwashing, and identify areas of underinvestment. The report highlights the importance of increasing climate finance to the region because of its status as a biodiversity hotspot containing 60% of global terrestrial biodiversity, making it strategically essential for protecting against nature loss and mitigating climate change.

The authors propose that LAC countries take a two part “adopt and adapt” approach. Firstly, they can adopt the core tenants of the EU’s taxonomy as a “gateway to interoperability”, able to operate across markets and promote international consistency, as well as a way to reduce the time and resources needed to produce a credible taxonomy.

Secondly, taxonomies can be adapted to each country’s specific context by targeting the key emitting sectors. For most countries in the LAC region, these are land use, forestry and agriculture.

The authors note that Colombia showed leadership in this area by developing criteria and strategic objectives around land use sectors that drive the destruction of nature (ie agriculture, forestry and livestock) that were inadequately developed in EU taxonomy. Similarly, in Chile taxonomy developers are leading the way by designing the first comprehensive criteria for the mining sector.

Other key recommendations from the report include: setting clear goals, responsibilities and timelines from the outset that match national objectives; continuously building capacity and understanding at all levels; and consulting with experts in each sector who are familiar with the national context, as well as international advisers with experience in taxonomy creation.

They also recommend adopting ambitious, science-based taxonomies with robust social safeguards which will attract investment. Finally, they suggest that taxonomies are treated as a living document, revising them periodically to ensure they are practical, usable and up to date.

This page was last updated May 5, 2023

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