Green finance is gradually maturing in Taiwan, but greenwashing remains a risk.

Since Taiwan unveiled its Green Finance Action Plan 3.0 in September 2022, the financial sector has been steadily deepening its sustainability efforts in line with the government’s plan to reach net-zero carbon emissions by 2050 through sustainable investing, disclosure frameworks, and risk management practices.

Progress has been made in several areas. For instance, the financial industry’s carbon inventory coverage – the extent to which it has identified, measured, and reported its carbon emissions – has reached 85%. Further, Taiwan’s main financial regulator, the Financial Supervisory Commission (FSC), announced the second edition of the “Reference Guidelines for Determining Sustainable Economic Activities,” incorporating input from the industry to guide the identification and transition of economic activities toward sustainability, including in areas like low-carbon buildings.

Meanwhile, Taiwan’s green bond market has expanded significantly, with NT$627.7 billion (US$19.6 billion) in outstanding issuance since the first bonds were listed in 2017. Driving its growth has been Taiwan Semiconductor Manufacturing Co. (TSMC), the world’s largest contract chipmaker. On March 28, TSMC issued NT$19.2 billion in green bonds on the Taipei Exchange (TPEx), Taiwan’s over-the-counter market. TSMC said the funds raised in the sale – its first bond sale of the year – will be used to fund green building initiatives, renewable energy projects, and related investments.

Since 2020, TSMC has raised NT$121.9 billion from green bonds, making it the largest issuer of them in Taiwan.

As green bonds are a stable source of medium- to long-term funds that meet the needs of large-scale projects, including energy transformation and infrastructure, they will expand from being mainly issued by banks to industries such as technology and energy, says Honda Chen, an associate research fellow and head of the Sustainable Finance Office at the Taiwan Academy of Banking and Finance (TABF), a training institute and think tank.

“Taiwan’s gradual alignment with international sustainable disclosure standards will increase bond market transparency and international investor confidence, increase foreign investment willingness, and help further enhance the international visibility of Taiwan’s bond market,” Chen says.

Chen further notes that Taiwan’s financial industry is increasingly providing credit for green initiatives. By the third quarter of 2024, the banking industry had provided loans of NT$2.9 trillion to the green power and renewable energy industries. The insurance industry, meanwhile, has provided loans of NT$40.8 billion to support low-carbon projects or businesses, including six offshore wind farm projects.

Several of Taiwan’s prominent commercial banks are also expanding their sustainability initiatives, notes Alex Chu, a senior industry analyst at the semi-governmental Market Intelligence and Consulting Institute (MIC). For instance, E.SUN Bank has linked corporate carbon intensity with interest rates, encouraging customers to increase their annual carbon reduction by 15%.

For its part, Fubon Financial Holdings has integrated AI into its green credit process using satellite imagery to analyze solar energy site generation efficiency, reducing loan default rates to 0.8%. Additionally, Shanghai Commercial Bank is using blockchain technology to track green bond fund flows, creating real-time linkages between carbon credit production and bond ratings.

Countering greenwashing

A massive challenge for Taiwan’s green finance initiatives is combating greenwashing. While there is no universal definition for the term, Harvard University’s Law School defines it as “misrepresentation, misstatement, and false or misleading practices in relation to environmental, social, and governance credentials.”

To be sure, greenwashing occurs globally and is not believed to be worse in Taiwan than in other countries. However, since Taiwan is a newcomer to sustainable finance, it is especially important to lay the groundwork to shorten the learning curve and minimize the risk of greenwashing.

To that end, MIC’s Chu notes that in 2024, Taiwan’s FSC adopted regulations based on the EU’s Corporate Sustainability Reporting Directive (CSRD), requiring sustainable funds to disclose “non-green asset proportions” and use artificial intelligence to scan corporate reports for ambiguous language. In addition, Taiwan’s Ministry of Environment has established a “reduction quota dual-track verification system,” combining fixed carbon fee mechanisms with emissions trading oversight and using Internet of Things devices to monitor carbon rights projects in real time, achieving an automatic anomaly reporting rate of 92%.

“However, insufficient third-party verification capacity means that small and medium-sized enterprises (SMEs) still face an average cycle of 14 months to obtain internationally certified carbon credits,” Chu says.

TABF’s Chen expects that in the future, the sustainability reports of Taiwanese financial institutions may be reviewed for ESG compliance with increasingly stringent requirements. “Financial institutions must be able to take into account the interests of various stakeholders and investors,” he says. “Otherwise, there may be controversy over the possible greenwashing of their reports.”

For example, the use of funds for climate risk investment and financing must disclose their use objectives as well as the sustainability-related manner in which the investment and financing are formed and operated. “The labels must be accurately and clearly distinguished to avoid exaggerating the sustainable contribution of the funds,” Chen says.

In the future, Taiwan can further employ AI and big data technologies to strengthen the monitoring of green financial information and greenwashing risks, Chen adds.