Green Taxonomies in Africa: Sophisticated Frameworks, Forgotten Enterprises
African countries are racing to build green finance taxonomies. But can frameworks designed for global investors also serve the small businesses that form the backbone of the continent's economies?
Across the continent, a wind of change in sustainable finance architecture is underway. South Africa published its Green Finance Taxonomy (GFT) in 2022. Rwanda’s Cabinet approved its own in April 2025. Zambia launched the Zambia Green Finance Taxonomy (ZGFT) in December 2025. Kenya published a first edition in April 2025 and became the first African country to set a mandatory adoption timeline, October 2026 (1). In August 2025, the African Development Bank validated a continental sustainable finance taxonomy, designed “by Africans, for Africa” (2).
These are serious, technically ambitious instruments. They classify economic activities against environmental objectives, set screening criteria aligned with international standards, and aim to channel capital toward climate-aligned investments. They are also, with very few exceptions, structurally blind to the enterprises that dominate African economies.
Micro, small and medium enterprises (MSMEs) account for over 90% of businesses in most African countries and employ the majority of the workforce (3). Yet according to the Alliance for Financial Inclusion, 79% of member regulators have still not categorised the sustainable economic activities that MSMEs can participate in (4). The taxonomies being built are sophisticated. The question is whether they are relevant.
I. The African Taxonomy Landscape: Ambition Meets Reality
As of early 2026, Africa has moved from having a single published taxonomy (South Africa’s) to at least 6 national frameworks and a continental one. Globally, more than 60 national and regional taxonomies are now in use or under development (5). Africa is catching up, but from a low base, and with significant variation in ambition and approach.
South Africa’s GFT, modelled closely on the EU Taxonomy, was the continent’s first. It uses technical screening criteria across climate mitigation and adaptation objectives, requires activities to demonstrate “substantial contribution” while doing “no significant harm” to other objectives, and sets minimum social safeguards (6). It is, by design, rigorous. It is also, by evidence, largely unused. A 2024 study based on 44 expert interviews found that one year after publication, the GFT had hardly been adopted in practice. No institution reported implementing taxonomy assessments in its working procedures (7). The reasons: fragmented governance responsibilities, absence of mandatory disclosure requirements, hesitance among financial institutions to invest in data collection capacity, and deep fossil fuel path dependencies in the economy (7).
Rwanda and Zambia followed different timelines but similar architectures. Rwanda’s taxonomy covers construction, energy, transport, manufacturing, waste management, and water, with detailed ISIC-coded screening criteria aligned with IEA decarbonisation trajectories and SBTi sector guidance (8). Zambia’s ZGFT covers eight priority sectors: Agriculture, energy, forestry, mining, tourism, transport, waste, and water, and explicitly flags capacity building and data availability as implementation challenges (9). Both are voluntary. Both are interoperable with the EU taxonomy by design. Neither mentions MSMEs in its screening criteria.
Kenya’s approach stands out. Its taxonomy, issued by the Central Bank, follows an “adopt and adapt” model, drawing on the EU and South African frameworks while tailoring criteria to national priorities. Critically, it introduces an 18-month voluntary period followed by mandatory application for licensed banks (1). This phased transition, building capacity before requiring compliance, may offer the most pragmatic pathway for the region.
At the continental level, the AfDB’s taxonomy aims to harmonise national efforts and provide a shared classification for green financial flows across African markets. It arrives, however, at a moment of institutional fragility. The Global Center on Adaptation, a key partner in the AfDB’s Africa Adaptation Acceleration Program, faced a major credibility crisis in late 2025 when investigative reporting revealed significant concerns about exaggerated results claims under its former leadership (10). A new CEO and board chair have since been appointed, with a stated focus on rebuilding donor trust and reinforcing the Africa focus (11). The episode raises broader questions about the resilience of the institutional architecture that African taxonomy initiatives depend on and the importance of transparent, credible governance in sustainable finance.
II. What the EU, ASEAN, and China Models Reveal
African taxonomies have not been developed in a vacuum. They draw, sometimes explicitly, sometimes structurally, on three distinct international models. Each offers lessons, and each has limits.
The EU Taxonomy is the most technically detailed: it sets out six environmental objectives, NACE-coded activity classifications, and mandatory disclosure for large financial institutions. It has also been the most exclusionary for small enterprises. European SMEs, which contribute over 63% of enterprise CO₂ emissions, are not covered by the taxonomy’s reporting requirements (12). Recognising this gap, the EU Platform on Sustainable Finance proposed in March 2025 a streamlined “SME sustainable finance standard” based on proportionality: simplified screening criteria, a main-activity focus (90–100% of turnover), and modular reporting through the voluntary VSME standard (12). It is a corrective measure, but one that took years to materialise, and whose applicability to the African informal economy is limited.
The ASEAN Taxonomy offers a structurally different approach. Its Foundation Framework uses a qualitative, principle-based decision tree that classifies activities into Green, Amber, or Red categories based on four environmental objectives and three essential criteria (13). Unlike the EU’s rigid technical screening, the ASEAN model is deliberately sector-agnostic and designed for progressive adoption across countries at very different development stages. Its simplicity is a feature, not a limitation, and it is the model most frequently cited in proposals for MSME-friendly taxonomy design (14).
China provides a third, less discussed but arguably most instructive model for Africa. China’s green finance system operates not just through a national taxonomy (the Green Bond Endorsed Project Catalogue, unified in 2021 and further consolidated in July 2025 into a single Green Finance Taxonomy) (15), but through a decentralised network of green finance pilot zones. Launched in 2017 by the People’s Bank of China across eight cities in five provinces, these zones were selected to reflect different economic structures, development stages, and natural resource endowments (16).
The results are striking. By 2020, green loans in the pilot zones accounted for 15.1% of total lending — more than double the 6.9% national average (16). Crucially, the pilot zones developed products tailored to smaller enterprises and rural economies: low-interest loans for rural solar installations, energy efficiency financing for households, insurance products ensuring SME access to green credit, and index insurance protecting smallholder agriculture against extreme weather (16). Huzhou, the most advanced zone, also built a green finance information management system covering all 35 local commercial banks, providing real-time data on green financial flows and reducing greenwashing risk through digital monitoring (16).
This ecosystem approach, linking taxonomy standards to central bank incentives, localised financial products, and digital infrastructure, offers African policymakers a more transferable model than either the EU’s disclosure regime or ASEAN’s principle framework alone.
III. African Taxonomies and MSMEs: The Gap
The core problem is straightforward: existing African taxonomies are calibrated for formal, data-rich, large scale economic activities. The screening criteria in Rwanda’s taxonomy, for instance, set emissions thresholds for cement manufacturing (aligned with SBTi’s 1.5°C sectoral decarbonisation approach) and energy intensity requirements for steel production (8). These are meaningful standards for industrial facilities. They are meaningless for a smallholder cassava processor or an informal waste recycler in the region.
This is not a design flaw unique to Africa; even the EU’s taxonomy excluded SMEs for years. But the consequences are sharper here. In most African economies, ~80% of MSMEs operate informally (3). Many already perform activities that are functionally “green”, such as organic agriculture, small-scale waste recycling, biomass energy production, but without any framework to recognise or reward them. The taxonomy, as currently designed, cannot see these enterprises.
The voluntary vs mandatory question compounds the challenge. South Africa’s experience demonstrates that voluntary adoption, without regulatory embedding or clear incentives, leads to non-use (7). Yet mandatory application, as Kenya is planning, risks imposing compliance costs that MSMEs cannot absorb. The principle of proportionality, well-established in EU financial regulation but largely absent from African taxonomy discussions, is essential. Nepal’s approach exempting loans under USD 100,000 in non-critical sectors from environmental due diligence requirements, and Ecuador’s allowing savings unions to set their own thresholds for environmental risk management, offer practical models (4).
There is also a mitigation/adaptation imbalance. Rwanda’s and Zambia’s taxonomies are overwhelmingly focused on climate mitigation: emissions thresholds, decarbonisation pathways, energy efficiency benchmarks. Yet African MSMEs face adaptation challenges primarily: water scarcity, crop failure from drought, flooding, heat stress... Taxonomies that cannot classify climate-resilient agriculture or community-based water management as “green” activities are missing the bulk of where African MSMEs intersect with climate action.
IV. Recommendations: From Framework to Function
Rebalance taxonomy priorities toward adaptation. African taxonomies are being designed to mirror the EU’s mitigation-focused architecture, but Africa’s climate reality and the livelihoods of its MSMEs demand frameworks that equally valorise adaptation activities. Climate-resilient agriculture, rainwater harvesting, community flood protection, and drought-resistant seed production should be explicitly included in screening criteria, with thresholds calibrated to the scale and data capacity of smaller enterprises.
Use carbon pricing revenues to fund MSME green transition. South Africa remains the only African country with an operational carbon tax (introduced in 2019, entering Phase 2 in 2026 with rates rising toward R462/tCO₂e by 2030) (17). The tax is currently under political pressure as the Minister of Electricity and Energy has proposed suspending it under fossil fuel industry lobbying (18). Rather than suspension, a portion of carbon tax revenues (currently estimated at R1.5 billion annually) should be hypothecated toward an MSME green transition facility: credit guarantees, capacity building, and simplified taxonomy assessment support. This would simultaneously strengthen the political case for the tax and create a tangible link between climate policy and economic inclusion.
Embrace CBAM as a catalyst, not just a threat. The EU’s Carbon Border Adjustment Mechanism, now in its definitive phase since January 2026, will impose real costs on African exporters, particularly in aluminium, iron, steel, and cement (19). This is not unexpected. The global policy environment is moving toward mandatory carbon accountability, and African economies that delay adjustment will face compounding disadvantages. The more productive framing is to treat CBAM as an accelerator: countries that strengthen domestic carbon pricing and green their supply chains, including through MSME-level decarbonisation, will see their CBAM exposure reduce (since carbon taxes paid domestically are deductible from CBAM charges). South Africa’s carbon tax, far from being a burden to suspend, is a strategic asset in this context.
Adopt a pilot zone approach inspired by China’s model. Rather than relying solely on national taxonomy documents, African countries should designate green finance pilot zones in economically diverse regions linking taxonomy standards to localised financial products for MSMEs, backed by central bank or development bank incentives. Rwanda’s Kigali International Financial Centre, which has positioned itself as a sustainable finance hub, could serve as a natural anchor for such an initiative. The pilot zone approach allows for experimentation with simplified screening criteria, digital assessment tools, and targeted green lending products before national-scale rollout.
Invest in digital taxonomy tools. The EU Platform has proposed an “SME Sustainability Checker”, a digital tool allowing enterprises to self-assess eligibility under simplified criteria (12). African countries could leapfrog this concept by building mobile first assessment tools integrated with existing digital financial infrastructure (Here, I think of the possibilities through M-Pesa in Kenya or MTN MoMo in West Africa). A USSD-based taxonomy self assessment, connected to green credit lines, would make the taxonomy tangible for enterprises that will never read over 100 pages screening document.
In short,
Green taxonomies are necessary instruments. They bring transparency, reduce greenwashing, and create a common language for sustainable investment. Africa’s progress in building them from South Africa’s 2022 GFT to the AfDB’s continental framework is substantial and should not be understated.
But a taxonomy that cannot reach the enterprises that form 90% of the economy is a taxonomy that serves investors, and puts aside actual development. The challenge ahead is not to simplify taxonomies into irrelevance, instead, building the ecosystem around them: proportionate regulation, digital tools, adaptation-focused criteria, localised financial products, and political commitment to use climate policy revenues for broad-based inclusion. The frameworks exist. What is missing is the infrastructure to make them functional for the economies they are meant to transform.
References
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African Development Bank. (2025, August 12). Africa’s financial industry validates the continental sustainable finance taxonomy. https://www.afdb.org/en/news-and-events/africas-financial-industry-validates-continental-sustainable-finance-taxonomy-85995
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