The Australian government has announced plans to develop a fund-labelling regime for sustainable investment products as part of its sustainable finance strategy.
The highly anticipated strategy was launched today (Thursday), following an announcement from the Treasury last December that it planned to play a leading role in sustainable finance.
Stakeholders have until 1 December to comment on the consultation, which aims to mobilise private investment, enable Australian firms to access capital for financing the transition, and identify and manage financial opportunities and risks presented by climate change.
The strategy has been divided into three pillars. The first looks at ensuring markets have access to “high-quality, credible and comparable” information to assess financial risks posed by climate and sustainability issues. The Treasury has already started to address this through its climate-related disclosure regime and sustainable finance taxonomy.
The second pillar covers how Australia’s financial regulators should be supported in their efforts to address climate change, and how they can enhance market supervision and enforcement.
The final pillar addresses how the government will take a leading role in developing sustainable finance markets and promoting international alignment.
In the strategy, the Treasury said it plans to legislate to create a labelling regime for funds marketed as “sustainable” or similar, including managed funds within superannuation. The framework will cover all sustainable investment products marketed to retail investors to “promote comparability” across the market.
Work on the reform would begin from next year to “standardise the use of sustainability terminology” in investment product marketing by setting minimum standards for what qualifies for a prescribed sustainability label.
Funds that integrate sustainability into their investment processes without an explicit sustainability objective would not qualify for a label, the Treasury said.
It noted other global fund classification regimes including the EU’s Sustainable Finance Disclosure Regulation, the UK Financial Conduct Authority’s work on a labelling framework, and the SEC’s proposed framework for classifying ESG funds in the US.
In Australia, an estimated A$1.3 trillion ($839 million; €787 million) of financial assets are managed using a “responsible” investment approach, according to Responsible Investment Association Australasia (RIAA) latest benchmark report.
Currently, the most popular voluntary fund-labelling regime is RIAA’s certification programme, which has been widely adopted in Australia and New Zealand.
The Treasury stressed, however that without a “consistent regulatory approach” it is difficult for investors to understand how sustainability considerations are factored into investment product and strategies.
As part of its ongoing regulatory developments, the Australian government said it wants to ensure legislative changes to deliver climate disclosure reforms “provide flexibility to expand to nature-related financial disclosures as global standards mature”.
It added that the Australian Securities and Investments Commission (ASIC) will consider how regulatory guidance could support voluntary nature-related disclosures, and nature-related claims for investment products.
The Council of Financial Regulators (CFR) will also build its capacity to analyse and respond to nature-related financial risks, including through regulatory initiatives.
The Treasury noted its work on the taxonomy, which is already underway. It is being managed by the Australian Sustainable Finance Initiative, which in August announced that 25 senior industry figures had joined the Taxonomy Technical Expert Group for the first phase of development.
On climate-related disclosure, the Australian Accounting Standards Board last month proposed three reporting standards based on the International Sustainability Standards Board’s (ISSB) two sustainability disclosure standards.
The consultation on the standards will close on 1 March, and the government said it plans to start reporting periods next July for the largest listed and unlisted companies, with others phased in over time.
It added that, while it does not intend to introduce transition planning disclosure requirements that go beyond ISSB-aligned standards in the near term, it will work alongside CFR next year to consider additional regulatory requirements.
Following the finalisation of Australian disclosure standards, the treasury said ASIC will inform the market of its key expectations and supervisory priorities relating to the disclosure of transition-related targets, which will be informed by international standards and practices.
The government added that it will continue to support ASIC’s supervision of greenwashing, to promote acceleration of the work next year. It has also provided the regulator with an additional A$4.3 million to expand its surveillance and enforcement activities relating to greenwashing over 2023-24.
This follows a crackdown on greenwashing by ASIC, which saw the regulator issue several greenwashing lawsuits and infringement notices this year.
Finally, the Treasury announced that the first issuance from its green bond programme is expected in mid-2024.