Stay updated on the latest trends of Green Finance
The Taxonomy of Sustainable Finance of Panama, a new milestone in the region
The Taxonomy of Sustainable Finance of Panama (TSFP) is a classification system that defines clear, science-based criteria to identify economic activities, assets and/or projects that contribute to the achievement of the country’s environmental and social objectives. The taxonomy provides clear guidance to all market participants on investments that are considered environmentally and socially sustainable in Panama, thus creating a frame of reference for national and international private and public sector actors.
This achievement is also a valuable experience for other countries that intend to advance along the same path. For this reason, Green Finance LAC spoke with Abdiel Douglas of the United Nations Environment Programme Finance Initiative (UNEP-FI) and Vishwas Vidyanya of Ambire, who worked on the development of the TSFP.
1. Taking into account its approach aligned with national environmental commitments, strategies and policies, deeply participatory, its complex nature and innovative condition, how long did the Taxonomy development process take in its different phases?
• The development of the TSFP was a process that took a considerable period of time. This document was prepared over the course of a year and a half, involving the creation of 11 technical roundtables that brought together 350 representatives from 90 public sector institutions, productive and financial sector actors, civil society, international organizations and citizens. In addition, an exhaustive public consultation process was carried out, coordinated by the three Panamanian financial system regulators: the Superintendency of Banks of Panama (SBP), the Superintendency of Securities Markets (SMV) and the Superintendency of Insurance and Reinsurance of Panama (SSRP), during which more than 250 comments were received. These valuable contributions were incorporated into the final version of the document.
2. What criteria were worked on in the first version of Panama’s Taxonomy of Sustainable Finance?
• In this first phase, the Panama Sustainable Finance Taxonomy establishes eligibility criteria for economic activities, mainly grouped under eleven economic sectors: Land Use Sector (Livestock, Agriculture, and Forestry); Transportation; Construction; Waste Management and Emissions Capture; Manufacturing; Information and Communication Technology (ICT); Water Supply and Treatment; Electricity, Gas, Steam and Air Conditioning; and Financial and Insurance Activities; that contribute substantially to climate change mitigation and adaptation objectives.
3. How were the priorities establisehd for the inclusion of the prioritized economic sectors in Panama’s Sustainable Finance Taxonomy?
• The economic sectors were prioritized based on their relevance for the fulfillment/achievement of climate change objectives (mitigation and adaptation), as well as their contribution to the country’s economic development.
4. To what extent do you believe that the application of the Common Taxonomy Framework for Latin America and the Caribbean contributed to the development of the Panama Taxonomy under interoperability criteria?
• The TSFP is based on the six guiding principles of the LAC Common Taxonomy Framework and applies its technical guidelines to all its structural elements. Adopting this framework ensures that Panama’s Taxonomy of Sustainable Finance is aligned with regional and international taxonomies.
• The evaluation of global and regional taxonomies, as well as the review of other public and private initiatives (such as the Climate Bonds Initiative Taxonomy), was crucial for the development of Panama’s Taxonomy of Sustainable Finance. Among the main references used are: the European Union’s Taxonomy of Sustainable Finance (European Commission, 2020), the draft of the Regional Taxonomy of Green Finance for Central America (developed by the Central American Council of Superintendents of Banks, Insurance and Other Financial Institutions – CCSBSO), Colombia’s Green Taxonomy (2022), and Mexico’s Sustainable Taxonomy (2023).
• The TSFP focuses on environmental objectives that correspond to those of the main reference taxonomies, especially with regard to climate change mitigation and adaptation. In addition, it comprehensively addresses the contribution to all environmental objectives from the three economic land use sectors: Agriculture, Livestock and Forestry. This alignment with the region’s taxonomies, such as those of Mexico and Colombia, reflects a key feature of the LAC regional context.
5. What were the main challenges to its implementation? What capacities had to be developed and strengthened to develop the framework?
The TSFP challenges were diverse. Among them are the following:
• It required several discussions with sectoral technical experts to ensure adequate contextualization of the technical criteria.
• It was necessary to gather specific information and data, for example, to establish and develop technical criteria for sectors and economic activities without many references in taxonomies, for example, in the economic activity of maritime transport.
• The focus was on developing in detail the adaptation objective to ensure applicability for different users (small, medium and large). This objective was not previously developed in detail in other taxonomies, which involved several technical discussions to establish the substantial contribution criteria.
To develop the TSFP, the following were necessary:
• Training to the entities that are part of the taxonomy governance.
• Ongoing training of actors in the financial and real sector.
• Training on potential users and applications of the taxonomy.
• Define strategies for piloting or testing the taxonomy.
• Understand gaps related to data availability, local context on regulations, national standards, certifications, among others to ensure contextualization of the Taxonomy
• Define the roadmap for its future implementation for different stakeholders in the country.
6. Have you foreseen a training program for economic agents and other social actors that may be involved in the application of the Taxonomy, particularly for the understanding of the sectoral technical annexes included in the instrument itself?
• After the publication of the TSFP, the piloting process will begin, which will include 6 banks, 3 insurance companies and 3 bond issuers.
• Successively, a cycle of practical training will begin on the most relevant aspects of the Taxonomy, focusing on the use of this document, focused on the institutions participating in the piloting in order to raise the level of knowledge among them to get the most out of the exercise.
• Subsequently, the execution of the pilot will begin – the review of portfolios (business segments, financial products and by economic sector) of the institutions participating in the pilot.
• Then, a comprehensive gap analysis will be conducted to develop recommendations and practical guidelines for the implementation of the Taxonomy in the Panamanian Financial Sector, considering the local context and the degree of progress of the Panamanian financial sector in terms of sustainability and the individual needs of each group of participants (banks, insurance companies and issuers).
• Although the pilot will be developed with a small group of participants, the result of this process will be the development of guidelines and training for the implementation of the Taxonomy for the entire financial sector (banking, insurance and issuers), thus reinforcing the value it offers to provide credibility, integrity and transparency to the market, attracting the effective mobilization of capital towards investments considered strategic, and contributing to the identification and management of climate risks, which allows building resilient business models and prepared for the future.
• For Panama’s financial sector actors not participating in the TSFP pilot process, a capacity building program will be carried out simultaneously with the Panama Sustainable Finance Working Group. This program will include a series of inductions designed to provide members of the financial sector and the Group with a better understanding of the Taxonomy and its implementation process.
7. Any other considerations or comments that you believe may be useful for the countries of the region that are in the process of developing their taxonomy?
• Be flexible with the time needed for technical discussions and public consultations.
• Conduct prior training for all the members of the roundtables involved.
• Provide clarity on the necessary steps for the implementation of the taxonomy.
• Include the participation of the financial sector and regulators as observers in all technical roundtables.
• Ensure equal importance in terms of resources and timing for all substantial contribution objectives. For example, many countries focus on mitigation, while adaptation tends to receive less attention. In the case of Panama, there was also a significant focus on developing detailed criteria.
Abdiel Douglas
Abdiel holds a degree in Environmental Engineering from the Technological University of Panama and currently coordinates the Financial Flow Alignment Project in Panama. He also acts as Panama’s negotiator on finance issues under the UNFCCC.
Vishwas Vidyanya
Vishwas is the General Manager of Ambire, a consulting firm based in Colombia, working in areas of sustainable finance and circular economy globally. He has extensive experience in sustainable finance and has been involved in the development, implementation and harmonization of more than 15 sustainable taxonomy projects globally.
Micaela Carlino
Micaela is an Economist and an expert in sustainable finance. She is part of the Fundación Torcuato Di Tella team in charge of the operation of Green Finance LAC, the IDB’s sustainable finance knowledge platform.
