Green Finance Taxonomy to Be Rolled Out Over Three Years

Bhutan’s updated Green Finance Taxonomy (GFT) 2026/Addendum is expected to be implemented in phases over a three-year period following validation, approval, capacity building, and pilot implementation, according to officials and experts involved in the initiative. A green finance taxonomy is a classification system that defines which economic activities can be considered environmentally sustainable or climate-aligned based on clear criteria, indicators, safeguards, and reporting requirements. According to Senior Consultant with the Asian Development Bank (ADB), Sonam P. Wangdi, the objective of Bhutan’s taxonomy is to guide banks, investors, government agencies, and project developers in identifying and financing activities that support carbon neutrality, climate resilience, sustainable development, and Gross National Happiness (GNH). “It also helps avoid greenwashing,” he said. Greenwashing is the practice of making a company, product, organization, or activity appear more environmentally friendly or sustainable than it actually is. Bhutan introduced the Green Finance Taxonomy in 2024, and the updated 2026/Addendum version aims to strengthen sustainable finance practices in the country. The taxonomy is expected to help Bhutan mobilize green and climate finance, improve investor confidence, support low-carbon and climate-resilient projects, standardize project screening, strengthen monitoring, reporting and verification (MRV), and align national priorities with international sustainable finance practices. It would be implemented gradually with practical tools, clear institutional responsibilities, sector-specific training, measurable indicators, and third-party verification mechanisms where necessary. Senior Climate Change Specialist with ADB, Esmyra Javier, said the taxonomy would help align investments with Bhutan’s national priorities by directing finance toward sectors that support climate resilience, low-carbon growth, and environmental protection. “It can also help manage climate risk, avoid greenwashing, and support access to blended finance,” she said. Blended finance is a way of funding development or climate projects by combining public money with private investment to make projects more attractive and less risky for private investors. She added that Bhutan is well-positioned to implement the framework because of its strong environmental policies and commitment to sustainability. However, she stressed that successful implementation would require additional capacity building, clear guidelines, and gradual adoption by financial institutions. ADB recently conducted a three-day validation workshop in Thimphu where stakeholders discussed the implementation framework and the need for incentives to encourage adoption. Participants highlighted the importance of financial incentives such as interest rate subsidies, fiscal incentives including tax facilitations, and other benefits such as access to green labeling and certification systems. ADB officials said the bank is supporting Bhutan through technical expertise, global best practices, and capacity building initiatives to help strengthen the country’s sustainable finance ecosystem. “ADB’s interest is to help Bhutan mobilize sustainable finance and strengthen its financial system’s role in addressing climate change,” officials said. The taxonomy is also expected to create new business opportunities by channeling investment into green sectors such as renewable energy, sustainable agriculture, and climate-resilient infrastructure. It would also support climate adaptation by encouraging investment in resilient assets and services that help communities and businesses better manage climate risks. Meanwhile, officials acknowledged that implementation would require clear criteria, robust reporting and disclosure standards, and alignment with international best practices. Although Bhutan’s financial institutions are still at an early stage in green finance adoption, there is growing interest within the sector. They added that continued government commitment, practical guidance, and sustained capacity-building efforts would be essential for successful implementation. Bhutan’s Green Finance Taxonomy is being viewed as a major step toward translating the country’s environmental commitments into concrete investment decisions while supporting both climate mitigation and sustainable economic development. ADB reaffirmed its commitment to supporting Bhutan in implementing the taxonomy and advancing its sustainable finance agenda. Sangay Rabten , Thimphu