Constructing an eco-classification system for the Gulf region
The Gulf region is considering establishing a regional taxonomy for sustainable finance, inspired by the success of Asean's framework. This ambitious initiative aims to attract green investment, support the transition to sustainable economic models, and enhance the Gulf's position in the climate finance arena.
The proposed taxonomy, if implemented, would be the most comprehensive and far-reaching in the region to date. With a long-term orientation and technical precision, it would offer a flexible but robust classification system, rooted in national transition plans and capable of evolving over time.
The Gulf taxonomy would accommodate the region's diversity in market maturity, energy dependence, economic composition, and national climate targets. For instance, a traffic light classification system could acknowledge existing energy sources while planning for decarbonisation, paired with specific sectoral guidance and sunset clauses.
A phased approach would be adopted, starting with a high-level, principles-based framework and evolving into more technical criteria. This approach would allow for policy learning and capacity-building across jurisdictions, ensuring a smooth transition towards a more sustainable financial system.
The Gulf taxonomy would aim to enhance credibility, reduce greenwashing concerns, and provide a reliable foundation for scaling up sustainable and sharia-compliant bond issuance across the region. It would also direct financial resources towards sustainable activities, increase market transparency, and help governments integrate climate targets into financial regulation.
Malaysia's SRI Sukuk Framework could serve as a relevant example for a Gulf taxonomy. This framework allows issuers to reference a national taxonomy and international standards like the International Capital Market Association's Green Bond Principles.
The proposed Gulf taxonomy would align with widely accepted standards and draw on international models, ensuring interoperability with other taxonomies around the world. The multi-jurisdiction common ground taxonomy, involving China, Singapore, and the EU, provides a valuable example of how shared definitions and criteria can address investor concerns over greenwashing and support consistency across jurisdictions.
It's worth noting that the EU's omnibus package is currently under consideration, with significant implications for the bloc's green taxonomy. The Gulf taxonomy would need to stay abreast of these developments to ensure its relevance and effectiveness.
The Gulf taxonomy, if successful, could become a powerful driver of sustainable finance, attracting both regional and international investors, supporting national transition plans, and enhancing the Gulf's position in the climate finance arena. The region has an opportunity to shape the next wave of sustainable finance tools in a way that reflects regional values and global expectations.
As of July 9, 2025, the establishment of a Gulf taxonomy is still in the planning stages. However, the benefits it could bring to the region are clear, and the potential for a more sustainable and resilient financial system is within reach. Establishing a regional taxonomy for the Gulf could be a significant step towards a greener and more prosperous future for the region.
