Kristy Graham

The Australian Sustainable Finance Institute (ASFI) is developing Australia’s sustainable finance taxonomy – a set of definitions of activities or assets that are considered sustainable – that will help mobilise more investor capital towards the country’s energy shift away from fossil fuels.

A clear and measurable set of definitions is important to “build credibility around definitions of activities that are supporting a transition to net zero,” said Kristy Graham, ASFI’s executive officer in an interview with Investment Magazine.

“The taxonomy needs to be science based and credible, both of which are critically important for both international interoperability, as well as ensuring the taxonomy gives investors, banks and insurers confidence in their sustainability claims that they are making about their sustainable finance commitments or sustainability focused products,” Graham said.

The Australian taxonomy will also include a transition category to ensure capital can flow to activities and assets that have credible sector pathways towards net zero, a key difference with the European Union’s taxonomy which is focused on what is sustainable.

ASFI was established about 12 months ago with 21 founding members from across the financial services sector in Australia.

Strong links

Another key aspect of ASFI’s work is to build strong links with government. “There’s a lot of interest from government on the role of private capital to achieve climate, environment and social policy objectives,” Graham said.

ASFI is also collaborating with other peak bodies and industry associations such as the Responsible Investment Association Australasia (RIAA), the Investor Group on Climate Change, the Australian Council of Superannuation Investors and the PRI to develop a sustainable finance strategy for Australia.

The private sector has been leading the work on the Australian taxonomy, a key difference in other jurisdictions which have been directed by the public sector.

“Under the previous government, taxonomies were off the table for regulators as a tool to drive sustainable finance,” Graham said.

“If we didn’t get going at that time, we would find that we had to adopt other rules that were being set internationally that weren’t necessarily fit for purpose for the Australian economy and the climate transition challenge that we have in Australia.”

However, Graham said the government will be able to take a more active role in the future.

Taxonomy development

EY has been appointed to lead work on the taxonomy. The first phase is a scoping and framework design which will be released in the middle of October. The second phase is to set up institutional and governance arrangements and the development of the taxonomy and the third phase is industry application and adoption. There will be overlap between phases two and three as the technical screening criteria will be developed sector-by-sector and move into the implementation phase as each sector is completed.

ASFI is organising an inaugural summit at the end of October in Sydney to give attendees an opportunity to hear from government as well as case studies from other international markets such as Canada and Singapore. The organisers expect around 250 attendees from the public, private and not-for-profit sectors as well others on-line.

“The summit is trying to bring perspectives from countries that are possibly more analogous to the Australian experience in terms of the transition challenge, shape of economy, where they’re up to in developing sustainable finance policy and regulation,” said Graham.

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