Taxonomy 101

The document outlines a comprehensive framework for creating and managing sustainable finance taxonomies, structured around four phases: governance, design, implementation, and expansion/revision. It emphasizes the use of the International Standard Industrial Classification (ISIC) for sector structures to ensure cross-border comparability and recommends 'pass/fail' technical screening criteria aligned with science-based pathways. The guide details a 'traffic light' approach for transition activities, including 'green', 'transition/amber', and 'excluded' categories, and provides a three-level aggregation methodology (Activity, Entity, Portfolio) for assessing taxonomy alignment. It also addresses the specific needs of SMEs through simplified compliance and the use of grandfathering clauses to provide investment certainty during criteria updates.

• Effective taxonomy governance is structured into three tiers: Tier 1 for executive decision-making and oversight (Taxonomy Board), Tier 2 for administration and coordination (Secretariat), and Tier 3 for technical advisory and work (Technical Working Group and consultants).
• To ensure interoperability, taxonomies should be based on a common set of environmental objectives, with a global consensus emerging around six core goals: climate change mitigation, climate change adaptation, biodiversity protection, water and marine resource protection, pollution control, and circular economy.
• The International Standard Industrial Classification (ISIC) is recommended as the primary basis for sector structures to facilitate the easiest mapping and comparison of taxonomies across different borders.
• Pass/fail technical screening criteria (TSC) are the recommended option for determining activity alignment because they provide binary outcomes that reduce subjectivity and facilitate comparison across jurisdictions.
• The 'traffic light' archetype for transition activities categorizes activities as 'Green' (near-zero or 1.5°C aligned), 'Transition/amber' (making progress toward a sunset date), or 'Excluded' (no viable transition pathway or hindering the transition).
• Taxonomy alignment is assessed at three aggregation levels: Level 1 (Activity) for direct assessment of specific projects or use-of-proceeds debt; Level 2 (Entity) for company-level alignment based on revenue, CapEx, or OpEx; and Level 3 (Portfolio) for holding companies or financial portfolios using weighted averages.
• To support SMEs, the guide suggests simplifying compliance through alternative disclosure forms, materiality thresholds (typically 5% to 10% of turnover/expenditure), and the provision of financial grants to offset external verification costs.
• Taxonomies should be updated every three to five years to reflect scientific and technological developments, utilizing 'grandfathering' clauses—often spanning five to seven years—to allow assets aligned with old criteria to maintain their status for a limited period.

APA

Climate Bonds Initiative (n.d.). Taxonomy 101. https://www.climatebonds.net/files/documents/publications/Taxonomy-101_English_2026.pdf

Chicago

Climate Bonds Initiative. Taxonomy 101. n.d. https://www.climatebonds.net/files/documents/publications/Taxonomy-101_English_2026.pdf.

Wikipedia

{{cite report |author=Climate Bonds Initiative |title=Taxonomy 101 |url=https://www.climatebonds.net/files/documents/publications/Taxonomy-101_English_2026.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{climatebondsinitiativendtaxonomy, author = {{Climate Bonds Initiative}}, title = {{Taxonomy 101}}, institution = {Climate Bonds Initiative}, url = {https://www.climatebonds.net/files/documents/publications/Taxonomy-101_English_2026.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }