An Australian sustainable finance taxonomy is on the way, and the latest report from the Australian Sustainable Finance Institute (ASFI) analyses the models used in other countries, in order to help define what the local structure will look like.
The taxonomy is a central pillar of the work being done at ASFI, and was one of the key recommendations from the institute’s roadmap that was released in late 2020.
A taxonomy is essentially a consistent set of definitions for what it means to be ‘sustainable’. It’s vital to ensure that company’s and their investors are using the same methodologies when it comes to emissions reduction, transition pathways and other sustainability issues like biodiversity loss and ocean health.
The ‘transition’ concept is particularly important in Australia where some of the country’s largest companies are fossil fuel miners. The taxonomy will include a specific ‘transition’ category, to allow companies to raise funds as transition deals, rather than trying to shoe-horn the projects into a sustainability label.
“The strongest and most consistent messaging from our research and consultation is that the taxonomy must be science-based and credible.” says Kristy Graham, ASFI Executive Officer.
“This is critically important for international interoperability, to ensure community confidence, and to give investors, banks and insurers confidence in their sustainability claims as they design products, make sustainability commitments and prepare their disclosures.”
The ESG and impact investing sectors have long been hampered by a lack of clear definitions, and its exacerbated problems around greenwashing as it can be difficult to separate the marketing hype from the genuine sustainability progress.
It also helps investors and capital allocators to trust green claims, and also to better compare the credentials of various products.
In Australia the process is industry-led, while in other countries, the momentum and decision-making is coming from government.
Europe is leading the way, having already developed a taxonomy in 2020. The Australian model will leverage as much from this work as possible. Ensuring international interoperability is key.
“This report provides the basis for the development of a taxonomy which meets the needs of Australia, without replicating work done overseas.” Kristy says.
“We are confident we will be able to achieve international interoperability while considering Australia’s unique economic circumstances and starting position. ASFI is not looking to recreate the wheel but learn from what exists globally and build on it.”