Stephen Jones

The Federal government is committed to a sustainable finance taxonomy which will pave the way for more investor capital to be directed towards projects and investments to accelerate Australia’s transition to net zero.

Working together with you on a green taxonomy, one that aligns with international standards, that has an Australian accent is going to be absolutely critical,” said Stephen Jones, minister of financial services at the Australian Sustainable Finance Institute’s (ASFI) inaugural summit in Sydney last Friday.

“Unless our capital markets have a common language, a common set of standards, we are not going to get the most efficient allocation of capital to do the ambitious work that we need to be done.” He said the government had allocated funds in the Federal Budget for climate disclosures.

Jones also said Australia would be updating the international community on its commitments at the upcoming COP27 in Egypt. “It is absolutely critical we are not lagging in those international forums. We have more at stake than any other country,” he said.

Conference delegates were also given an overview of Singapore’s initiatives to establish itself as a sustainable finance hub for Asia. The government has adopted a whole-of-economy approach through its Singapore Green Plan 2030. These include a carbon tax on emitters, currently set at S$5 ($5.52) per t/CO2 which will progressively rise to S$50-$80 per t/CO2 by 2030.

“The objective of the carbon tax is a single price to reflect the externality of carbon and generate revenue to fund mitigation packages,” said Darian McBain, who recently completed her term as chief sustainability officer at the Monetary Authority of Singapore (MAS).

The MAS is prioritising the resilience of the financial sector and high-quality disclosure, she said.

Similarly, APRA has also been concerned about the impact of climate-related risks on the financial sector in Australia. In November, the regulator will publish aggregated results of a climate vulnerability assessment on the largest five banks – ANZ, Commonwealth Bank of Australia, Macquarie Bank, National Australia Bank and Westpac.

“The results will provide insights on the potential financial risks to participating banks from both physical and transition climate risks,” said APRA deputy chair Helen Rowell at the conference.

“Significantly, they highlight that these impacts are uneven across regions and business sectors, and some segments of banks’ lending portfolios are exposed to relatively higher risk.” Over the longer term, APRA plans to expand the climate vulnerability assessment to other industries and other climate-related changes, she said.

Rowell also echoed the importance of developing an Australian sustainable finance taxonomy to create a common language to disclose risks and exposures.

“The absence of an agreed and consistent set of definitions hampers disclosure and creates conditions where misinformation and the selective use of statistics can thrive, undermining the enhanced understanding that greater transparency seeks to achieve.”

Modest progress

ASFI released its second progress report on the Australian Sustainable Finance Roadmap – a set of 37 recommendations to align the country’s financial system with a sustainable economy – that showed a score of two out of five.

The modest score highlighted the amount of work need towards building a sustainable and resilient financial system. One of the key recommendations called for government to develop a whole of government sustainable finance strategy.

In a damning report released last week, the UN Environment Program said there was no credible pathway to preventing temperatures rising 1.5C above pre-industrial levels despite binding commitments in the Paris Agreement.

“Australia is not doing well enough on many metrics. There needs to be significant change and we can’t afford to fail,” said ASFI chief executive Kristy Graham.

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