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As environmental, social, and governance investing expands rapidly across the globe, the framework for sustainable finance is becoming increasingly localized.

While the EU Green Taxonomy has provided a strong conceptual foundation for the environmental management of financial tools, the global scope of sustainability now demands more tailored regional approaches.

Many emerging markets and developing economies are preparing to attract green capital to support sustainable development. For them, localizing sustainable taxonomies is not only possible but essential.

Climate change is among the greatest global challenges, but its solutions must be grounded in local realities.

Environmental issues and development priorities vary widely by region. For example, Gulf Cooperation Council countries must diversify away from oil while simultaneously tackling acute water scarcity.

Some observers argue that the EU Taxonomy Regulation may not align with ����ֱ��’s Vision 2030 economic diversification strategy, as it excludes key transitional elements such as blue hydrogen and carbon capture technologies.

Similarly, ASEAN countries heavily dependent on coal and vulnerable to climate impacts require sustainability frameworks that balance development with environmental responsibility.

Imposing one-size-fits-all standards — such as adopting the EU taxonomy wholesale — risks weakening national key performance indicators or discouraging investment in vital transitional sectors.

In response, various countries and regions have developed their own taxonomies aligned with local strategies.

China’s Green Bond Endorsed Project Catalogue, updated in 2021, is one of the most advanced systems outside the EU. Notably, it removed “clean coal” from the eligibility list — a move more consistent with global investor expectations and China’s target of carbon neutrality by 2060.

The ASEAN Taxonomy for Sustainable Finance, also introduced in 2021, uses a tiered system to reflect the differing development stages of member states.

A sustainable future will not be created by copy-and-paste regulation. It will be driven by innovation and tailored, context-specific solutions that align with global objectives.

Majed Alqatari

In the Middle East, ����ֱ��’s Public Investment Fund has launched a sustainable finance framework that balances international standards with domestic priorities. The UAE has also issued its Green Bond and Sukuk Framework.

These efforts reflect a broader regional ambition — reinforced at COP28 — to establish the Middle East as a hub for green finance. Local taxonomies are being designed not only to address environmental goals but also to unlock access to capital.

For instance, HSBC reports that green and sustainable bond issuance in the Middle East and North Africa reached $18.7 billion in 2023 — a 42 percent increase from the previous year. Improved regulatory clarity played a significant role.

Localized taxonomies help de-risk sustainable investments by offering issuers certainty and investors credibility.

They provide a shared language through which market players — banks, asset managers, and regulators — can define and apply sustainable finance principles. Well-designed, transparent systems also improve access to international capital markets.

Investor demand for taxonomy-aligned disclosures is on the rise. A 2023 PwC survey found that 79 percent of institutional investors were willing to back companies with high-quality ESG taxonomies.

As a result, countries that implement robust, context-sensitive taxonomical frameworks can attract greater investor confidence and deeper pools of green capital.

Aligning with international frameworks like the International Platform on Sustainable Finance or the Climate Bonds Standard enhances compatibility and reduces the risk of greenwashing — a top concern in global regulation.

Ultimately, the future of sustainable finance lies not only in harmonization but in practical application. While the EU Taxonomy remains influential, the emergence of regional taxonomies is a welcome evolution.

These self-directed systems allow nations to pursue climate goals without hindering economic growth. But for them to succeed, they must be built on best practices and supported by policymakers, multilateral banks, and the private sector.

A sustainable future will not be created by copy-and-paste regulation. It will be driven by innovation and tailored, context-specific solutions that align with global objectives.

• Majed Al-Qatari is a sustainability leader and ecological engineer experienced in advancing environment, social, governance and sustainability goals.