Australia announces six-month consultation on sustainable finance taxonomy in 2024

The initial development phase covers green and transition criteria for climate mitigation, as well as DNSH criteria and minimum social safeguards.

The Australian Sustainable Finance Institute (ASFI) will undertake a “period of extensive public consultation” for six months starting in late March next year to receive feedback on its ongoing taxonomy work, the industry body has announced.

ASFI started work on Australia’s taxonomy in July, in partnership with the Treasury, and the following month appointed 25 senior industry figures to its Taxonomy Technical Expert Group (TTEG) for the first phase of development.

The Australian government also named the taxonomy as one of its key priorities in its sustainable finance strategy published in November.

The initial phase of development covers green and transition criteria for climate mitigation, as well as do no significant harm (DNSH) criteria and minimum social safeguards.

ASFI’s report on defining green and transition activities outlines how sectors and activities will be assessed as eligible for inclusion in the taxonomy under one of the two labels, with criteria based on 1.5C-aligned climate scenarios.

The decision to treat green and transition activities separately differs from the EU’s taxonomy approach, but is in line with the methodology of other jurisdictions developing taxonomies such as Singapore.

The TTEG has decided that the green category will apply to activities which are consistent with achieving net-zero greenhouse gas emissions in accordance with the Paris Agreement temperature goals.

Meanwhile, the transition category will apply to activities which need to be decarbonised owing to their continued role in a net-zero emissions economy, which can be decarbonised across Scope 1, 2 and 3 emissions in the long term, and where the risk of locking in future high-carbon assets can be mitigated.

Activities where there are low-carbon emissions substitutes or where emissions cannot be substantially reduced should not be eligible, the TTEG said.

The group also recommended separating decarbonisation activities from phase-down activities that, based on current technology readiness and credible global climate scenarios, are “inconsistent with and therefore have a diminished role or use in a net-zero future economy”.

DNSH criteria

ASFI’s second paper proposes DNSH criteria in line with the EU taxonomy, covering climate change mitigation, adaptation, pollution prevention and control, circular economy, biodiversity and ecosystem protection, and sustainable use and protection of water resources.

The TTEG has also suggested Australia includes soil protection as an extra objective as it is an “important environmental consideration” for the country.

The report recommends that DNSH criteria in Australia’s taxonomy should be determined by using reference taxonomies as a starting point, and for the criteria to then be streamlined using the approach taken by UK’s Green Taxonomy Advisory Group as a guide.

It added that consideration should also be given to the usability principles, as defined by the European Commission’s Platform on Sustainable Finance.

ASFI said the baseline for setting environmental objectives should be determined by identifying Australia’s national priorities using existing legislation, standards, regulations and policies, and the level of ambition decided by cross-referencing Australia’s national priorities with best practice international approaches.

The TTEG has chosen not to adopt the EU taxonomy’s minimum social safeguard pillars – human rights, bribery, corruption, and taxation and fair competition – due to “implementation challenges” experienced by the bloc, it said.

It has also suggested developing a list of minimum social safeguard criteria for an Australian context to be applied across entities or assets, rather than at an activity level.