Five keys to develop a Green Taxonomy Framework: The case of the Dominican Republic

The fight against climate change requires significant investments and partnerships between the public and private sectors to create greener economies. The recent approval of the Green Taxonomy of the Dominican Republic marks a turning point in the country’s efforts to accelerate climate financing and promote climate action. The recent approval of the Green Taxonomy of the Dominican Republic marks a turning point in the country’s efforts to accelerate climate financing and promote climate action.

Aligned with the United Nations Sustainable Development Goals for 2030 and the Paris Agreement, the Dominican Republic's Taxonomy aims to engage the financial sector in promoting environmentally responsible economic activities, encouraging sustainable investments and the development of new products and services that meet sustainability criteria.

The Green Taxonomy is more than just a classification system, it establishes a common framework that enhances transparency and facilitates decision-making based on sustainable criteria, including a gender perspective. This framework paves the way for a transition to a low-carbon economy, a crucial step in our collective fight against climate change.

At the request of the Government of the Dominican Republic, IFC provided advisory services to develop the Green Taxonomy Framework. Five key factors contributed to the successful development of the Green Taxonomy, which was approved on June 4th, 2024:

1. Ensuring political commitment and leadership. The Green Taxonomy benefited from strong political support and government and private sector leadership. The Monitoring Committee, led by the Superintendence of the Stock Market and supported by sectoral experts, showcased the government's commitment to the project. Also, there was a strong buy-in and participation from the private sector involving financial institutions, key participants from the capital markets, and industrial associations.
2. Defining clear objectives. The Green Taxonomy's development started with clear climate and environmental objectives. These objectives guided the selection of sectors with significant environmental and economic impact. Setting clear objectives ensured the taxonomy's relevance and effectiveness. These objectives included the sustainable use and protection of water and coastal-marine resources, such as rivers, basins, coastal wetlands, and seagrass meadows. The inclusion of these "blue" activities generated strong interest and support, contributing to the project's acceptance.
   
3. Convening international and local experts. The technical assistance that IFC provided was instrumental in developing the taxonomy. International consultants brought valuable expertise gained from previously developing similar taxonomies in Colombia and Mexico, while local experts added critical insights and ensured the taxonomy's relevance to the Dominican Republic. The participation of an intersectoral advisor, seven sector leaders, and over 200 technical experts from academia, NGOs, and the private and public sectors further enhanced the taxonomy and fostered ownership.
4. Designing effective governance. A monitoring committee was established at the beginning of the project, consisting of key government institutions such as the Superintendence of the Stock Market, the Ministry of Environment and Natural Resources, the Superintendence of Banks, the Ministry of Finance, the Central Bank, and the National Council for Climate Change and Clean Development Mechanism. To ensure proper governance and supervision, the Green Taxonomy Committee was created, comprising members from the Monitoring Committee. This committee is responsible for managing the taxonomy, while the Ministry of Environment and Natural Resources assumes the Technical Secretariat role. This collaborative approach among institutions ensured effective coordination and a unified vision in addressing climate change.
5. Organizing public consultation and market events. Developing the Green Taxonomy involved a public consultation and participation process. It started with reviews with the sectoral leaders and was followed by creating working groups for each sector. The formal public consultation allowed stakeholders to review and comment on the taxonomy. The consultation helped clarify concepts and address challenges, ensuring a more robust and comprehensive taxonomy for dissemination.

Early Results

During the approval event of the Green Taxonomy, the Minister of Environment and Natural Resources, Miguel Ceara, stated the significance of the taxonomy and its impact on sustainable development. Considering the eligibility criteria of the Green Taxonomy, the Ministry of Environment and the Ministry of Finance have established a framework for sustainable bonds to issue sovereign debt, and the Association of Multiple Banks (ABA) has developed specific frameworks for sustainable bonds for three financial institutions. 

Facilitated by IFC as secretariat, the Sustainable Banking and Finance Network supported the development of a Green Protocol for the banking association, signed in March 2024. Another illustrative example is the issuance of Banco Popular's Green Bond, which will have the ability to finance activities approved by the SIMV within the framework of the Green Taxonomy.

What is next?

Moving forward, the focus will be on implementation and continuous improvement of the taxonomy. It will evolve over time to include additional sectors and refine its content based on user feedback and experiences in the Dominican Republic. Pilot projects supported by IFC and the World Bank will contribute to a better understanding of identifying green assets and highlight areas for improvement.

The approval of the green taxonomy is an important milestone, but it is just the beginning of a journey towards promoting sustainable practices and driving innovation in the financial sector. Ongoing collaboration, monitoring, and adaptation will be key to ensuring the taxonomy's effectiveness in achieving environmental objectives and supporting the transition to a sustainable and low-carbon economy in the Dominican Republic.

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