The Government of Australia’s Department of Finance has announced the release of its proposed Sustainable Finance Strategy, aimed at supporting the mobilization of private capital needed to finance the transition to a net-zero economy, helping businesses to access finance for their own transitions, and ensure the management of risks and opportunities posed by climate change and other sustainability issues.
Key proposals in the new strategy include establishing a framework for sustainability-related financial disclosures and net-zero transition plans, developing a taxonomy for sustainable finance and introducing a labeling system for sustainable investment products.
The new strategy, set out in a Treasury consultation paper, follows the government’s announcement in December 2022 that it will “pursue a coordinated and ambitious sustainable finance agenda”, with the document outlining the immediate investments and reforms needed to support sustainable financing. and to solicit feedback on proposed reforms and priorities.
The document adds that the strategy will start with a focus on climate-related issues, due to the systemic nature of climate-related opportunities and risks, and then expand to other sustainability-related issues and frameworks over time.
The consultation document identifies improving climate and sustainability transparency as the ‘foundation’ of the new sustainable finance strategy, to ensure ‘that markets have access to high-quality, credible and comparable information that will enable them assess both the financial risks and the financial risks. that climate change and other sustainability issues pose to companies, and the impact of companies on the climate and the environment.
One of the key priorities outlined to improve transparency is the introduction of a framework for sustainability-related financial disclosures. The government announced plans earlier this year to introduce mandatory climate-related financial disclosure requirements for companies and financial institutions, with reporting requirements set to apply to large companies as early as 2024, while smaller entities will be phased in over the following three years, and in In October 2023, proposed standards for companies to report climate-related information will be established, based on the recently released sustainability standards of the IFRS Foundation’s International Sustainability Standards Board (ISSB).
The document sets out plans for the development of a Sustainable Finance Taxonomy, or a set of criteria that can be used to evaluate the alignment or contribution of economic activities to climate and other sustainability goals. This initiative would follow the establishment and ongoing development of similar taxonomy systems in jurisdictions including the EU and the UK. Australia said its taxonomy, which will support international alignment and interoperability with other taxonomies, will initially be developed by industry body the Australian Sustainable Finance Institute (ASFI), under the supervision of the Council of Financial Regulators’ Climate Working Group.
Australia’s proposal to develop labels for investment products marketed as sustainable comes as the market for sustainable investment products is expanding, but investors face challenges in understanding how these products are managed, or identifying their sustainability features, according to the newspaper. a wide range of approaches are emerging, including ‘ESG integration’ or ‘screening’. In its proposed approach, the government said it will legislate to introduce a labeling regime for investment products marketed as ‘sustainable’ or similar, with the Treasury starting this initiative in 2024. The labeling regime would be primarily aimed at private investors. , and would also include requirements for issuers of investment products to provide additional information about the products, including a description of how sustainability is integrated into the investment process.
The strategy also included developing disclosure requirements for large corporations and financial institutions.
Additional “pillars” of the government’s sustainable finance strategy included supporting regulators in their efforts to address the impacts of climate change on business and the financial system, with priorities including improving market surveillance and enforcement, identifying and responding to potential systemically important financial risks, addressing data and analytical challenges, and ensuring an appropriate regulatory framework, and; initiatives for government to play a leading role in supporting the development of sustainable financial markets, including issuing green government bonds, catalyzing sustainable financial flows and markets, promoting international alignment and positioning the country as a global leader in sustainability.
In a statement announcing the release of the strategy, Treasurer Jim Chalmers said:
“The Strategy is all about mobilizing the significant private capital needed to reach net zero, modernizing our financial markets and maximizing the economic opportunities linked to our energy, climate and sustainability goals .
“Australia’s financial system plays an integral role in aligning investment and economic growth with climate, environmental and social objectives, including financing the net zero transition.
“We want to ensure that markets have access to high-quality, credible and comparable information when it comes to climate and sustainability, so that investors and businesses have the confidence, clarity and certainty they need, and are better able to manage climate-related risks to master. .”
click here to access the sustainable finance strategy.