Australian finance sector calls on govt to join EU’s international taxonomy group

Australia’s participation in the International Platform on Sustainable Finance identified as ‘quick win’ by the ASFI, as body reports 'modest' progress on sustainable finance efforts.

The Australian Sustainable Finance Initiative (ASFI), the finance sector-led body, has called on the Australian government to join the EU’s International Platform on Sustainable Finance (ISPF) as a priority. 

The IPSF was launched in 2019 to support and influence the development of a common approach to sustainable finance globally. It consists of the EU and 18 other jurisdictions, including China, Japan and the UK, representing 55 percent of global GDP as well as GHG emissions. 

A key deliverable for the ISPF is the creation of a Common Ground Taxonomy, a framework that seeks to bring more clarity and transparency around the similarities and differences between taxonomies being developed in different jurisdictions, starting with an in-depth comparison between the EU and China taxonomies. 

In its second progress report against its sustainable finance roadmap, ASFI called on the Australian government to join the ISPF, identifying involvement as one of the “quick wins to be had” and one of the “critical gaps that should be prioritised”.  

“By joining the ISPF, the Australian government would increase its influence in setting global norms, particularly on transition finance and taxonomies,” ASFI wrote. 

A taxonomy tailored to the needs of the Australian context is currently being developed by the ASFI. The body’s executive director, Kristy Graham, recently told Responsible Investor that its framework will likely include a transition category that will ramp up over time.   

She explained that given that the need for guidance to allocate capital to credible transition activities is emerging as a “key driver”.  

Her comments came as ASFI published a taxonomy “framing paper” outlining key considerations that will inform the development of the Australian framework. The report, produced by consultant EY, said there were “lessons to be learned” from the EU and UK’s efforts “around promoting a science-based approach, at arm’s length from government, to support effective outcomes”.   

On this, Graham told RI, at the time, that there is a clear role for government as part of taxonomy governance – “particularly when setting the strategic direction”. She noted, however, that in order to ensure the taxonomy is usable and credible, the finance sector has said that a “clear, transparent methodology for developing and reviewing technical criteria, which is applied consistently over time and not subject to evolving policy shifts” is critical.   

In the latest progress update, ASFI reported a “modest” overall score against the 37 recommendations set out in its 2020 roadmap, albeit with some “standout achievements”. 

“The concept of ‘sustainable finance’ is moving from the margins and into the mainstream of leading financial institutions, national treasuries and financial regulators. But we remain at the very early stages of our journey. In particular, Australia lags behind jurisdictions like the UK, EU and Singapore on sustainable finance policy and regulation,” Graham wrote in a statement. 

The report also called on the Australian government to develop its own sustainable finance strategy to “identify and prioritise the policies, programmes and initiatives needed to support and drive sustainable finance in Australia”. 

Similar efforts internationally have been “influential in the development of sustainable finance markets”, it argued.  

Unlike most national sustainable finance bodies, ASFI and its 2020 roadmap were established without input from the Australian government. 

Following the election of prime minster Anthony Albanese in May, however, there is a perception that policymakers are more open to engagement on the issue of sustainable finance than under the previous administration. 

Moving to New Zealand, the country’s central bank, Reserve Bank of New Zealand, has found that more than a quarter of bank mortgage lending in Auckland is exposed to flood risk. The analysis was included in the preliminary results of its stress test released today in an annual financial stability report.

A subsequent analysis on the agricultural exposure of banks is due to be published in H1 2023. The supervisor added climate-related events to its existing stress test cycle in 2021 and is due to conduct a purpose-built climate stress test in 2023.