The momentum of sustainable finance taxonomies

An essay by Nicolas Lippolis

Essential for directing capital towards the climate transition, these systems are multiplying globally

Sustainable finance taxonomies are classification systems created by governments, their regulatory bodies and international organisations to define which economic activities genuinely protect the environment and society and align with climate goals. They thus serve as a compass for investors to direct their resources towards these activities through standardised language and financial data comparisons across sectors and countries, facilitating investment decisions.

Ten years ago, taxonomies were a technical niche restricted to financial regulation specialists, primarily in Europe. Today, more than 50 countries and regions have adopted or are developing their own classification systems. In Brazil, for example, the Ministry of Finance leads the implementation of the Brazilian Sustainable Taxonomy, involving 30 institutions, from the Central Bank to Embrapa. This progress occurs, however, against an adverse backdrop: the retreat of climate multilateralism, the weakening of private alliances around the Net Zero target — the equilibrium point where greenhouse gas emissions released into the atmosphere equal those removed from it — and the reorientation of global economic policy in favour of more nationalist logics.

The initial milestone for sustainable financial taxonomies dates back to 2015, with China’s Green Bond Endorsed Project Catalogue. Since then, the tool has expanded across Europe, Asia, Africa, Latin America and Australia. The European Union played a central role in this process, not only due to the size of its market but also because it established a regulatory framework that became a global benchmark, even if it remains difficult to replicate directly in other jurisdictions.

Even in the face of climate pushback, these tools are gaining geopolitical importance in the race for critical minerals.

In emerging markets, the use of taxonomies has followed a different logic. Whilst Europe sought to redirect domestic investment flows towards sustainable initiatives, developing countries began using them as a tool to attract foreign capital and thus enable their Nationally Determined Contributions (NDCs) defined under the Paris Agreement. Furthermore, taxonomies have been used to lend credibility to green sovereign bond issuances. Multilateral banks played a decisive role, financing capacity-building and regulatory support programmes.

China followed its own path, with continuous evolution leading up to the consolidation, in 2025, of an integrated taxonomy that harmonises criteria across different financial instruments. The United States, on the other hand, chose not to formally adopt a taxonomy; nevertheless, policies like the Inflation Reduction Act perform an analogous function by indirectly defining what qualifies as ‘green’.

However, the proliferation of national taxonomies creates a structural problem: regulatory fragmentation. Investors operating globally face multiple systems with differing criteria and methodologies. Convergence initiatives exist but remain scattered.

The system, therefore, resembles a ‘construction site’: multiple efforts without a clear coordinating centre. The result is a scenario of incremental progress but lacking effective standardisation.

Three tensions defining the limits of taxonomies

Binarity versus complexity: Rigid classifications — green or non-green — tend to be insufficient given the diversity of transition pathways, which has led to the development of gradual models.

Technocracy versus political legitimacy: Excessively technical frameworks, lacking political backing, become vulnerable to revisions and setbacks.

Global standardisation versus local suitability: The more aligned with international standards, the greater the credibility; the more adapted to the domestic context, the greater the internal relevance.

Despite the difficulties and the setback in the climate agenda, the current moment sees a revaluation of taxonomies. Part of the explanation lies in their growing use as a trade policy instrument. In an environment of fragmented global supply chains and reconfigured partnerships, the formal definition of what constitutes a sustainable activity is beginning to influence bilateral agreements, subsidies and market access.

There is also a more diffuse geopolitical component: the pressure not to be left behind. The adoption of taxonomies has become a marker of international credibility and positioning, stimulating a regulatory race between countries, even if this amplifies fragmentation.

This is because the role of taxonomies goes beyond mobilising capital. In a context of increasing politicisation of trade in green goods and the centrality of assets like critical minerals and clean technologies, they begin to define criteria for market access, subsidies and production chains. In this sense, they become instruments of economic power. Countries without taxonomies risk exclusion — both regulatory and financial.

Brazil places its taxonomy within a broader agenda of economic repositioning. The tool incorporates specific social dimensions, such as gender and race, and is linked to a strategy for greater international prominence, including the proposal of a ‘super taxonomy’ in the context of COP30.

For the country, the timing is strategic. With growing prominence in climate negotiations, Brazil has the opportunity to influence the global architecture of these classifications, proposing models that reflect the realities of the Global South — especially now that it has assumed the presidency of the Taxonomy Roadmap Initiative, aimed at promoting taxonomy interoperability. In addition to contributing to the alignment of criteria between different classification systems, the Brazilian presidency will also be able to boost the dissemination of best practices for their implementation in sustainable finance instruments, public spending and financial regulation.

Fragmentation, therefore, does not diminish the relevance of taxonomies but redefines their function. From technical tools, they evolve into instruments of economic sovereignty and geopolitical positioning. The central challenge is no longer their creation, but their operationalisation at scale, with sufficient data, coordination and institutional capacity to make them effective.

Nicolas Lippolis is the founder and executive director of the CEFD (Centre for Energy, Finance and Development).