Aussie finance sector wants a green taxonomy that reflects ‘the unique characteristics of the Australian market’

Australia looks set to become the latest country to create a green investment taxonomy, according to a national roadmap published by its financial industry today. 

The Australian Sustainable Finance Initiative (ASFI), set up in 2019, represents a huge portion of Australia’s financial system, including its four biggest banks, major insurers, fund managers, superannuation funds and financial regulators. 

It makes 37 recommendations within the 95-page roadmap, including that the group should become “permanent” and oversee the delivery of the proposed strategy.

One of the suggested “priority special projects” involves looking into the “implementation of a sustainable finance taxonomy in Australia”. 

Many economies are moving towards establishing such taxonomies, including the EU, the UK, Japan, Mexico, South Africa, Russia, Canada, Malaysia and China. But there is growing concern that the proliferation of regional frameworks will undermine the primary objective of a taxonomy – setting common definitions of ‘green’ and reducing confusion for investors and companies. 

The International Platform on Sustainable Finance (IPSF), a EU-convened intergovernmental body that launched last year, recently established a working group on harmonising taxonomies.

ASFI recommends that Australia joins the IPSF through a “relevant public authority” to “enhance coordination and alignment with international sustainable finance initiatives, and to promote best practice in sustainable finance”. 

The group stressed that any Australian taxonomy should “align and harmonise with emerging international sustainable finance taxonomies”, “while also reflecting the unique characteristics of the Australian market”. 

Notably, while the EU’s taxonomy – currently the biggest and most influential in the world – excludes all business activities involving coal, Australia is one of the world’s largest coal exporters. 

In addition to the work on a taxonomy, the roadmap identifies other “priority special projects” that a permanent ASFI might work on, including:

•  Establishing interim science-based targets and trajectories that would support individual financial institutions to make net-zero-aligned decisions on lending, insurance and investment;
• Working with the Climate Measurement Standards Initiative and other stakeholders to develop guidance for financial institutions to support reporting according to the Task Force on Climate-related Financial Disclosures (TCFD) recommendations; and
•  Developing guidance for nature-related financial disclosures aligned to Australia’s biodiversity challenges.

The roadmap comes hot on the heels of New Zealand’s sustainable finance strategy, but – while NZ’s efforts are government driven – the Australian initiative is private sector led; although the Australian Prudential Regulation Authority and Australian Securities and Investments Commission are observers to the initiative’s work. 

ASFI recommends that the Australian Government be involved in the creation of any taxonomy along with a broad group of key stakeholders, including civil society, asset owners, asset managers, banks, insurers, financial regulators, legal experts, industry experts, technology experts, sustainability experts, state governments. 

“ASFI will provide strong benefits in relation to creating common frameworks and taxonomies that can be applied across the financial services sectors, including alignment with global initiatives,” said Kristian Fok, CIO of superannuation fund Cbus and a member of the group.