Aussie investors call for international interoperability for new labelling regime

Investors have asked for alignment with existing labelling schemes in the EU, UK and US.

Australian investors have called for the country’s fund-labelling regime to be aligned with label and disclosure rules in other jurisdictions, including the EU’s Sustainable Finance Disclosure Regulation (SFDR) and the UK’s Sustainability Disclosure Regulation (SDR).

This follows the Treasury’s November consultation on its sustainable finance strategy, in which it announced plans to develop a label framework this year through consultation with regulators and industry stakeholders on policy and legislative design.

In its response to the Treasury’s consultation, the Australian Sustainable Finance Institute (ASFI) said it “supported” the proposal, adding that key considerations for the design of the scheme should include “alignment and harmonisation” with other major frameworks.

Citing the EU’s SFDR, the UK’s SDR and the US’s SEC Names Rule, the ASFI said Australia should seek to take an approach “consistent with one or more of those jurisdictions”.

It added that a robust labelling scheme will “help address and deter greenwashing”, but warned that failing to align with major markets would “create friction” and “inhibit the flow of capital to support climate and broader sustainability outcomes”.

The ASFI also suggested that the Australian taxonomy – currently under development – be used as a transparency tool for the labelling scheme, with taxonomy-linked metrics used to demonstrate meeting a credible standard of sustainability.

The Principles for Responsible Investment echoed the ASFI on international interoperability, adding that the scheme’s design should consider existing naming and disclosure requirements and certification schemes to “avoid market distortion”.

In its submission, it said the labelling regime should also be designed to consider investor stewardship activities, and referenced the Sustainable Improver category introduced by the Financial Conduct Authority in the UK as an example of this.

Meanwhile, the Responsible Investment Association Australasia (RIAA) said a “strong and government-endorsed” labelling scheme would be “highly effective” for addressing greenwashing and help to shift capital towards a net-zero economy.

However, the investment industry sustainability association cautioned the government against creating a new labelling regime, suggesting instead that it use RIAA’s certification programme, which has been widely adopted in Australia and New Zealand, as a basis for product labelling.

The RIAA, along with the Institute for Energy Economics and Financial Analysis (IEEFA), also said that funds should undergo independent verification of alignment to certify sustainability claims, which the RIAA also provides as a service.

The IEEFA said that while developments in other jurisdictions should be monitored to aim for alignment of approaches, “lessons can also be learned from experiences with the EU SFDR”.

The think tank added that products that do not qualify for a sustainable label, or do not have sustainability as an investment objective, should be prohibited from using “subjective sustainability-related terms”.