[Monthly Report] EU Suspends Subsequent Expansion of Common Ground Taxonomy (CGT & M-CGT): Real-World Divergence of Global Green Finance "Standard Convergence" and the Asian Turning Point

EU Suspends Subsequent Expansion of Common Ground Taxonomy (CGT & M-CGT): Real-World Divergence of Global Green Finance "Standard Convergence" and the Asian Turning Point

In mid-August 2026, the European Commission stated that it would no longer advance the subsequent expansion of the Common Ground Taxonomy (CGT) and the Multi-jurisdiction Common Ground Taxonomy (M-CGT) at this stage. This move signals that the European Union has stepped on the brakes on the road to cross-regional green finance standard mutual recognition. As a global green finance "bridge" that once carried high expectations, the EU's withdrawal has not only sparked market discussions on the fragmentation of global climate finance multilateralism, but has also had a profound impact on China and Asian markets that are actively advancing green standard alignment. 

CGT and M-CGT: From Bilateral Consensus to Multilateral Framework

To understand the significance of this EU withdrawal, it is first necessary to review the birth background and value positioning of the CGT and M-CGT. 

To achieve the Paris Agreement and the United Nations Sustainable Development Goals, the global green investment gap is huge, and a massive amount of capital is urgently needed to be precisely directed toward economic activities with significant climate and environmental benefits. However, global green finance standards have long exhibited fragmented characteristics—multilateral institutions, national regulators, and industry associations have developed hundreds of taxonomies. Due to differing assessment frameworks and technical indicators, this has resulted in market segmentation, cross-border duplicate certification, and stubbornly high "greenwashing" risks, severely constraining the efficient flow of international green capital. 

Against this backdrop, the CGT, initiated by China and co-led by China and the EU, came into being. Under the framework of the International Platform on Sustainable Finance (IPSF), China and the EU first launched the CGT at the COP26 summit in 2021. Through systematic taxonomy mapping and scientific comparison between China's Green Bond Endorsed Projects Catalogue and the EU Taxonomy, the CGT identified green economic activities that substantially overlap in both regions. As a technical reference document possessing both universality and interoperability, the CGT effectively eliminated information asymmetry for cross-border investors. It has not only achieved widespread green bond labeling and stock re-labeling applications within China, significantly reducing cross-border transaction costs, but has also been adopted by multiple emerging economies as a reference model for domestic taxonomy development. 

With the deepening of bilateral cooperation and initial success, Singapore officially joined the second phase of the CGT work in 2023, propelling the standards toward multilateralization. During COP29 in November 2024, the IPSF officially released the M-CGT, covering a total of 110 climate change mitigation activities across China, the EU, and Singapore. This multilateral framework is regarded as a major milestone in the convergence of global sustainable finance standards, carrying industry high hopes to further expand cross-border green capital flows, absorb more participating jurisdictions, and ultimately evolve into a global sustainable finance taxonomy benchmark. 

Why the EU Hit the Pause Button

Judging from the official statements of the European Commission, its policy shift is primarily based on three core considerations: First, insufficient market adoption—the EU assessed that actual demand and application evidence from its domestic market are relatively limited; second, regulatory resource constraints—continuously advancing and expanding this cross-regional work faces significant resource pressures; and third, steadfastly guarding its institutional moat, with the EU emphasizing the necessity of maintaining the unique legal and technical characteristics of its own sustainable finance taxonomy. An EU spokesperson explicitly pointed out that the CGT and M-CGT do not constitute a substantive "common taxonomy, regulatory equivalence, or mutual recognition"—this statement profoundly reveals the differences in underlying positioning between the two sides. In the EU's eyes, such tools are essentially limited to technical comparison attributes rather than institutional arrangements moving toward mandatory uniform standards. 

Even more noteworthy is that the CGT has encountered drastically different application environments in China and the EU; this "hot domestically, cold abroad" pattern has directly shaken the foundation for the project's continuous advancement. In the Chinese market, the CGT has been deeply embedded in green financial infrastructure. According to data from the China Foreign Exchange Trade System, as of July 31, 2026, interbank market CGT-labeled green bonds totaled 602, with 344 of them remaining active. Active bonds accounted for 26.7% of all existing green bonds in the interbank market, with an issuance scale of RMB 387.273 billion, representing 19.2% of the total existing green bond scale. Since 2024, two-thirds of newly issued green bonds within China have voluntarily adopted CGT labeling. 

In contrast, within the EU market, the actual application and market response of CGT have been relatively limited. This severe regional disparity led the EU to lean toward hitting the pause button when weighing the input-output ratio of regulatory resources. The deeper institutional root lies in the fact that the EU Taxonomy itself is a rigid regulatory framework with strong legal binding force, whereas the CGT remains merely a voluntary reference tool. When cross-regional "bridge standards" fail to translate into tangible regulatory dividends or market incentives within the EU, the EU's momentum to continuously invest core technical resources naturally becomes unsustainable. 

Impact on Asia and the Greater China Region

The EU's withdrawal has produced multi-layered structural impacts on the Asian and Greater China markets, bringing both realistic short-term challenges and catalyzing medium-to-long-term regional strategic reconstruction. 

In the short term, the multilateralism and authority of the M-CGT will suffer a direct blow. The core value of the M-CGT lies in its "multilateral" attribute—it represents the consensus of China, the EU, and Singapore as three major economies. Following the EU's withdrawal, the M-CGT remains an existing technical reference document formed through the participation of China, the EU, and Singapore, but it will lose technical and political support from the European side in terms of substantive advancement. An EU spokesperson has explicitly stated that the further expansion of the M-CGT will no longer be advanced at this stage. This means that the vision of the M-CGT acting as a benchmark for global sustainable finance standards is difficult to achieve, at least in the short term. Currently, economies such as Brazil, Indonesia, Australia, and the UK are deemed to have the potential to participate in the compilation of the next version of the M-CGT. However, affected by the EU's withdrawal, the established plan to incorporate more G20 members and Belt and Road partner countries into future versions of the M-CGT will face significantly increased uncertainty in its realization prospects. 

The direct impact on China is limited, but strategic adjustment is inevitable. China is the largest beneficiary and user of the CGT. The CGT has been widely used in the Chinese market, effectively reducing cross-border transaction costs and driving green capital flows toward China. The EU's withdrawal will not alter the application foundation of the CGT within China—the domestic CGT-labeled green bond market has formed a complete ecosystem ranging from issuance and trading to index and fund products. However, the "cross-border" value of the CGT will be weakened. The premise for the CGT's ability to lower cross-border certification costs was that it was simultaneously recognized by both Chinese and EU markets. Following the EU's withdrawal, the "mutual recognition" function of the CGT in China-EU cross-border financing has substantially diminished. In the future, whether Chinese financial institutions can continue to gain recognition and a "green premium" from EU investors when issuing CGT-labeled bonds overseas will be a question requiring re-evaluation. 

Regarding regional standard application and subsequent advancement, as one of the co-initiators of the M-CGT, Singapore's subsequent movements are also attracting attention. Given that the CGT has previously been referenced by multiple economies such as Sri Lanka, Hong Kong (China), Australia, and Pakistan, and that China and Singapore have maintained long-term communication and cooperation in green and transition finance through mechanisms like the China-Singapore Green Finance Taskforce (GFTF), China, Singapore, and other economies within the region still possess the foundation to explore standard alignment and application within the Asia-Pacific scope in the future. 

From a practical perspective, despite the EU’s withdrawal, outcomes accumulated in earlier phases have not been nullified. The existing stock of CGT-labelled green bonds worth tens of billions in the domestic market will remain valid. The 2024 version of the M-CGT document can still serve as a reference for domestic green bond and climate finance activities, and domestic regulatory policies will largely remain unaffected by external changes. The entity driving future standard updates will shift. Subsequent work including adding new environmental objectives and engaging emerging economies may be led by the Asia-Pacific grouping (such as China, Singapore, Hong Kong and Macao), fully free from the constraints of the EU framework.

The long-term impact on the Asian green finance market is more complex. On one hand, the EU's withdrawal may delay the process of global green finance standard convergence. The G20 Sustainable Finance Working Group clearly pointed out in the G20 Sustainable Finance Roadmap released in 2021 that it is necessary to enhance the comparability, compatibility, and consistency of sustainable finance definition standards across countries. The CGT/M-CGT was originally a substantive contribution made to achieve this goal. The EU's withdrawal means that this convergence path will face more realistic obstacles, and the global green finance market may continue to maintain a pattern of coexisting diverse classification standards for a period of time. 

On the other hand, Asia may take this opportunity to accelerate the construction of its own standard system. The continued cooperation between China and Singapore, coupled with the practical benefits demonstrated by the application of multilateral frameworks in the field of sustainable finance, may drive the formation of an Asia-centric multilateral green finance standard cooperation network. The framework and methodology of the M-CGT have already been established, and a list of 110 jointly recognized economic activities has been formed. Even without EU participation, China, Singapore, and other interested Asian economies can still continue to advance standard compatibility and mutual recognition on this basis. This may catalyse a regional green finance standard system that is more aligned with the stage of economic development and industrial structure characteristics of Asia.

Conclusion

The EU's withdrawal from the CGT/M-CGT project is both a realistic test of six years of practical implementation in this cross-regional cooperation and an objective reflection of the rational games played by various parties in global green finance governance based on their own development stages and regulatory demands. The vastly different application fortunes of the CGT in China and the EU indicate that for a voluntary technical standard to achieve genuine cross-border mutual recognition, it relies not only on methodological alignment at the technical level, but even more on deep compatibility among all parties in institutional incentives and market ecosystems. 

For China and the Asia-Pacific market, this transformation brings both the realistic challenge that regionally coordinated standards will no longer receive continuous EU investment and joint advancement in the short term, and provides an important opportunity to optimize the construction of regional green finance standards. China can leverage this to further play a guiding role, deepen Asia-centric multilateral green finance standard cooperation, and translate the mature practices of the CGT domestically into institutional achievements with greater regional and even global influence. As Dr. Ma Jun, co-chair of the IPSF Taxonomy Working Group, previously pointed out, as an initiator, co-chair of the working group, and major beneficiary of the CGT, China "has the obligation and capability to persuade more countries to participate in the M-CGT, jointly building the M-CGT into an international sustainable finance definition benchmark with greater authority and universality, providing an important piece of infrastructure to promote cross-border capital flows, especially for Global South countries to access international green funds". The EU's withdrawal may precisely be the critical turning point for this vision to move from a blueprint to reality.