ASFI's chief Kristy Graham says the Australia's sustainable finance taxonomy will be interoperable with other key jurisdictions such as the EU, Canada, ASEAN and Singapore.

The next phase of the Australian sustainable finance taxonomy project is set to commence in July following the government’s pledge to co-fund the Australian Sustainable Finance Institute (ASFI) to lead the taxonomy’s development.

The taxonomy will provide a common standard for sustainable and transition finance, helping to combat greenwashing by improving the transparency around sustainability outcomes being achieved by activities, assets and investment products and ultimately drive investment to support Australia’s decarbonisation.

The Albanese government’s announcement to co-fund ASFI to lead the taxonomy’s development followed the release of ASFI’s paper “Designing Australia’s sustainable finance taxonomy” in March this year. This paper was the product of a collaborative effort with financial institutions and other stakeholders across the finance industry, who have made significant contributions to ASFI’s taxonomy project since its inception in May 2022.

Second phase of taxonomy development

The next phase of the work will use the paper as the basis for developing a comprehensive taxonomy in Australia, that is inter-operable with taxonomies being developed internationally.

Supported by $1.6 million of funding from Treasury, ASFI will convene a new Technical Expert Group (TEG) to oversee the development of screening criteria and other products with input from taxonomy and sustainability specialists. Alongside development of technical screening criteria, this phase will include associated technical work on data requirements, methodology for incorporating transitional activities, minimum social safeguards and ‘Do No Significant Harm’ framework.

The TEG will be established following an open expression of interest process, comprising experts in sustainable finance, climate science and policy and include industry perspectives and Indigenous representation. As part of this work, ASFI will also undertake comprehensive stakeholder engagement across key sectors.

The Australian Council of Financial Regulators Climate Working Group (CWG) will oversee this second phase of taxonomy development, as part of its role supporting the development and implementation of the government’s sustainable finance strategy.

Led by Treasury, the CWG will review outputs and provide feedback on the taxonomy’s development to facilitate alignment with the Government’s key sustainable finance policy objectives, and wider market and regulatory developments in sustainable finance.

Close collaboration

ASFI will continue its close collaboration with those developing taxonomies in other jurisdictions, including the EU, Canada, ASEAN and Singapore to align frameworks and criteria as much as possible, a critical component of inter-operability.

In an address at ACSI’s annual conference last week, Minister for Financial Services Stephen Jones expressed that “partnership is essential” to the taxonomy’s development.

“During the next 12 to 18 months, the government will provide direct support to ASFI to co‑fund the initial development phase for an Australian sustainable finance taxonomy. It will be a genuinely collaborative effort between government and industry,” he said.

“This will ensure there is direct input from government, helping to align the taxonomy development with our broader sustainable finance policy objectives and wider market and regulatory trends.”

The Minister also said the taxonomy will form a foundational component of government’s broader sustainable finance strategy due to be released later in the year.

Further information about the next phase of the taxonomy project is available on ASFI’s website.

Kristy Graham is chief executive of the Australian Sustainable Finance Initiative.

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