Rwanda Green Taxonomy FAQs
Answers to key questions about Rwanda’s Green Taxonomy and how it guides sustainable investments and activities.
Taxonomies classify and define sustainable economic activities that are in line with environmental or climate objectives.
A taxonomy is an essential domestic policy tool that can significantly contribute to achieving environmental and/or climate goals. It creates a direct link between the economy and the financial market on the one hand and sustainability on the other, which can help a country achieve its Nationally Determined Contribution (NDC) goals, attract money from climate-conscious international investors, and adapt its economy to the inevitable negative consequences of climate change.
Presently, more than 40 jurisdictions have either established or are in the process of implementing a green or sustainable finance taxonomy or a similar classification framework.1 These jurisdictions amongst others include the European Union (EU)2, ASEAN3, China4, Russia5, South Africa, Colombia7, Mexico8.
The taxonomies introduced by the EU, Climate Bonds, and ASEAN taxonomies are commonly used as benchmarks, with countries and regions aligning their national taxonomies to ensure compatibility with these established frameworks.
A robust Green Taxonomy has significant advantages for different groups in Rwanda, including investors, issuers of green bonds, regulators, policymakers, financial institutions, and society.
Policymakers can use the Taxonomy to modulate their policy, using government or central bank-led support measures to support certain private market players and demonstrate their commitment to decarbonization to international partners.
Regulators can also benefit from the Taxonomy. It helps ensure compliance with environmental regulations and serves as a foundation for measuring progress towards sustainability goals.
For banks and financial institutions, the Taxonomy allows for a faster identification of sustainability aligned investments, which reduces transaction costs. The Taxonomy further allow financial companies to restructure their product offering and appeal to sustainability conscious investors.
Investors benefit from the Taxonomy by receiving clear and standardized information about their investments. This reduces information disparities and enables better decision-making. Additionally, the Taxonomy helps to mitigate the risks associated with climate change and promotes sustainable long-term investments.
For issuers of green bonds, the Taxonomy provides credibility and legitimacy. This makes it easier for them to attract green investments and gain investors' trust.
Society benefits from the Taxonomy as it supports the transition towards a low-carbon, sustainable and more resilient economy. This fosters green economic growth, job creation and reduces environmental impact.
The need for a Taxonomy to meet Rwanda's development objectives was first identified in the Rwanda Sustainable Finance Roadmap9 published in October 2022 by the Kigali International Finance Centre with support from UNDP. The objective was to create a document that would be 'suitable to the local context as well as interoperable with major international frameworks'. Further, the paper ‘Diagnostic Review of National Bank of Rwanda (BNR) and Regulated Institutions' Capabilities to Implement the Rwanda Sustainable Finance Roadmap’, prepared and published in May 2023 jointly by the BNR and the French Development Agency, envisioned the creation of a robust science-based sustainable Taxonomy. In the paper, the following requirements were highlighted for the national taxonomy:
Ensure that the Taxonomy has the granularity and clarity required for financial institutions to qualify projects and assets efficiently.
Discuss priorities to be considered when designing and deploying financial regulation and policy or when designing incentivising monetary policies. A clear focus on adaptation needs to be reflected in the Taxonomy.
Understand the Taxonomy's governing and utilisation rules to translate them into sectoral guidance and support regulated institutions.
Define the design process well and be able to share experience with peers and partners in the region and internationally.
The Taxonomy development process was co-chaired by the Ministry of Finance and Economic Planning (MINECOFIN) and the Ministry of Environment (MoE), facilitated and coordinated by Rwanda Finance Limited (RFL). The process involved collaboration with regulators and other public sector entities such as the BNR, Rwanda Environment Management Authority (REMA), Rwanda Development Board (RDB), Capital Market Authority (CMA), Rwanda Stock Exchange (RSE), Development Bank of Rwanda (BRD), Rwanda Green Fund (FONERWA), Institute of Certified Public Accountants of Rwanda (ICPAR) and Private Sector Federation (PSF).
A preliminary governance framework was established, comprising a Taxonomy Steering Committee of the aforementioned institutions, a Taxonomy Working Group, Technical Expert Groups, and Industry Working Groups. Private sector entities were primarily involved through their participation in the Industry Working Groups. In the long run, it is recommended to agree on a governance structure for the implementation of the Rwandan Green Taxonomy and to determine where the institutional home of the Taxonomy will be.
The Taxonomy is not a mandatory list of economic activities for investors to invest in, nor does it set mandatory requirements on environmental performance for companies or financial products. The Taxonomy is merely a labelling system to provide guidance to economic and financial stakeholders on which activities are green and which are not. Compliance with the taxonomy indicates the alignment of the potential investment with climate and environmental objectives. Investors are free to invest in projects and activities that are not compatible with the taxonomy and at this stage there are no measures in place to penalise such investments.
Like other national taxonomies, the Rwandan Taxonomy was developed in phases. Phase I of the Taxonomy development took place from June 2023 – April 2024 and aimed to provide clarity about the economic activities needed to achieve climate change mitigation in three sectors: energy, transport and construction. Furthermore, Rwanda’s Green Taxonomy also provided in the first phase a more specific approach for the agriculture and livestock sectors, delivering a list of basic, intermediate and advanced sustainable practices that contribute to various environmental and climate objectives, including climate change adaptation, water and biodiversity protection, among others.
Phase II of the Taxonomy development took place between April 2024 and November 2024. Considering the comments received from different stakeholders during the consultation process of Phase I, Rwanda‘s Green Taxonomy was expanded to include additional sectors (Manufacturing, Waste, Water, ICT, Forestry) that substantially contribute to climate change mitigation and to evaluate and include additional economic activities for sectors already included in Phase I (Agriculture & Livestock, Energy, Transport, Construction) and develop corresponding criteria.
Given Rwanda’s vulnerability to consequences of climate change as described by Rwanda’s Third National Communication on Climate Change10, Phase II also focused more strongly on the inclusion of climate change adaptation and resilience sectors and activities. As such, Rwanda’s Green Taxonomy was updated to include the following sectors that significantly contribute to climate change adaptation and resilience: Energy, Transport, Construction, Water Management, Environmental protection and restoration, Community services; Agriculture and livestock.
The selection of the different environmental objectives was informed by Rwandan development priorities and strategies. In the current Taxonomy (November 2024), some objectives are more comprehensively addressed than others and it is understood that during future iterations of the taxonomy, additional environmental objectives can be addressed.
The climate change mitigation objective was addressed first because of several reasons:
During Phase I, a more specific approach for the inclusion of the agriculture and livestock sectors, was chosen. This approach led to a list of basic, intermediate and advanced sustainable practices that contribute to various environmental and climate objectives, including climate change adaptation, water and biodiversity protection, among others.
The Adaptation and resilience objective was primarily addressed during Phase II of the Taxonomy development process. It is aimed at increasing stability and resilience of Rwanda's communities, which are largely dependent on agriculture and natural water sources. Climate change is putting them under considerable pressure to adapt to new conditions, introduce new crops, agricultural practices, protect themselves from hazards and prepare people to cope with inevitable climate-induced disasters.
The Taxonomy was significantly expanded to include activities and measures that contribute to climate change adaptation and resilience such as the introduction of engineered and nature-based solutions to help cope with floods and landslides, the establishment of public warning systems and the training of emergency workers, as well as the introduction of agricultural practices that increase the resilience of farms to droughts and heat waves, etc.
The development of Phase II of the Rwandan Taxonomy, coincided with a new climate change adaptation methodology that was finalised by the Climate Bonds Initiative through which it was possible to provide a level of scientificity and credibility for economic activities that contribute to climate change adaptation and resilience comparable to that of the mitigation part of the Taxonomy.
All criteria and thresholds in this Taxonomy are based on the international best practices accumulated by the Intergovernmental Panel on Climate Change, the International Energy Agency, the Climate Bonds Initiative, Ambire Global and other organisations. The key basis for the criteria and thresholds used in the Rwandan Green Taxonomy are the documents and criteria developed by the Climate Bonds Initiative for other taxonomies, including the European Union, South Africa, Colombia, etc. The background papers for some of the criteria used can be found on a special taxonomy page on the Climate Bonds website.
The development process also considered the Rwandan context, so that international criteria were adapted to local realities without losing scientific rigour and credibility. Two rounds of public stakeholder consultations with Rwandan technical and sectoral experts, private sector representatives and Development Partners were conducted. More than 100 comments were collected and incorporated during Phase I.
The Phase II stakeholder consultation process continues till October 2024. These rigorous stakeholder consultations seek to ensure that the Rwandan Taxonomy reflects international best practices while sufficiently considering the local context to ensure wide-spread usability.
The international climate science, which serves as the basis of the present Taxonomy, is clear: To achieve the goals of the Paris Agreement and therefore to avoid the catastrophic consequences of climate change, all fossil fuels must be phased out as soon as possible. The Taxonomy includes only activities relevant for specific environmental objectives but not for purely economic development or a specific political agenda.
However, no obligation prevents investors from investing in activities outside the scope of the Taxonomy. The Taxonomy does not penalise them in any way.
Rwanda is actively building financial infrastructure and promoting itself as a regional financial centre in general and a powerhouse for green finance in particular. In this situation the inclusion of some activities that cannot be implemented directly in Rwanda is justified. For instance, Rwanda's neighbours with access to seas and oceans may well be interested in hosting this type of energy-related financial instruments.
There are studies13 pointing to the great potential for this type of energy development in East Africa.
In addition, Rwanda is actively developing and its economy is growing rapidly. It is likely that new industries will be created from scratch in the very near future, and the Taxonomy will provide guidance to meet the highest climate standards.
The Taxonomy provides many opportunities for public authorities and economic agents to link it to domestic policy, including the provision of incentives for taxonomy-aligned economic activities (cheaper access to capital for individuals, lower reserve requirements for banks with taxonomy-aligned portfolios, reimbursement of MRV costs etc.). Making it usable for the real economy requires additional regulation and guidance in the form of e.g. disclosure regulations or financial product standards. These instruments can be developed by respective Rwandan institutions over time and further guidance on the application of the Taxonomy provided to the market.
No. The Taxonomy focuses on the environmental and climate aspects of an entity and its business operations. It helps to evaluate green and non-green activities within an entity. A sustainability rating incorporates social and governance aspects of a business model, too, and as such, a company with activities that are not aligned with the present Taxonomy can technically still have a good sustainability rating due to the S and G element of ESG. Rwanda’s Green Taxonomy, in this current version, deals primarily with the environmental aspects of the company’s activities, while including safeguards for conformity with minimum social standards.
Unless stated otherwise, the emission thresholds in the Taxonomy relate to Scope 1 and 2 emissions. In this case, the owner of the activity should calculate the emissions of the activity itself as well as the emissions of associated electricity, heating, cooling and water supply. All Greenhouse Gas emissions should be translated into CO2 equivalent. If the Taxonomy criteria state that the emissions must be calculated according to the LCA (Lifecycle Assessment Approach), the owner must go beyond Scope 1 and 2 and calculate emissions using an LCA calculation methodology (GHG Emission Protocol or any international equivalent).
No. The Taxonomy does not consider the electricity source used to power the EVs. Only the car's direct (tailpipe) emission is important; it must be 0 gCO2e.