Institutional investors are a key plank of Treasurer Jim Chalmers’ plan to make Australia an “energy transition superpower”, as the government calls on business to take advantage of its new 12-point sustainable finance strategy.
In a consultation paper released on Thursday, Treasury outlined 12 priorities across climate transparency, financial system capabilities and government engagements that are now open for industry feedback.
Chalmers said the framework aims to help Australian companies and investors make the most of the energy transition and transform the country into a renewable energy superpower.
“The strategy is all about mobilising the significant private capital required to achieve net zero, modernising our financial markets and maximising the economic opportunities associated with our energy, climate and sustainability goals,” Chalmers said in a media release.
Several proposals within the paper already have works underway, such as the climate-related financial disclosure requirement that has been through two rounds of consultations since late 2022. Industry participants will have until 1 December to give feedback to the Sustainable Finance Strategy’s consultation.
Hesta chief executive Debby Blakey said the healthcare industry fund would take time to consider the report, but said the sector should broadly heed the government’s call.
“We are pleased to see the strategy focus on stimulating public-private collaboration, the possible consideration of barriers in the construction of the performance test, and expanding the framework to address nature and biodiversity issues,” Blakey told Investment Magazine via a spokesperson.
“We believe superannuation can play an important role in the financing of the transition, and this is a step towards ensuring that role is appropriate.”
Regulatory power to the taxonomy
The sustainable finance taxonomy is a project to establish common language around sustainability outcomes for the sector. Its early-stage development has been led by the Australian Sustainable Finance Institute and doesn’t have formal regulatory status.
At the institute’s summit last week, Minister for Financial Services Stephen Jones flagged the Sustainable Finance Strategy’s consultation as having “a big agenda” and called for industry-government collaborations in certain areas.
One such area is the regulatory use case of the taxonomy, once established. The consultation paper proposed mid-term options including requiring large firms to declare how much of their activity is aligned with the taxonomy, or requiring financial entities to declare how much of their investment products or portfolios are aligned with the taxonomy.
In the long-term, Treasury and the Council of Financial Regulators (CFR) proposed ways to embed the taxonomy into market arrangement by giving it legislative force, using it as a standard or framework, or adopting it as a part of a voluntary best-practice guide.
The consultation paper recognised that legislation will likely give the taxonomy the most force. However, it won’t directly be a part of the regulatory architecture until the government deems it to be “credible, internationally aligned, readily useable” by participants and that it will “materially support” the finance market.
Labelling regime for investment products
Drawing experience from international markets, the consultation proposed to legislate and create a labelling regime for investment products marketed as “sustainable” or similar, across managed funds and superannuation.
Work on the reforms will commence in 2024, primarily to inform retail investors about the sustainability characteristics of investment products. The move will standardise what qualifies for a prescribed sustainability label.
Managed funds and superannuation funds will need to provide retail investors with additional information on sustainable investment products, both pre-contractually and on a periodic basis.
The consultation paper pointed to the European Union’s similar Sustainable Finance Disclosure Regulation (SFDR) framework, which enforces disclosure requirements on financial products that claim to be sustainable.
However, there were recent concerns from the European Commission about whether SFDR is being misused as a marketing tool to promote the ESG/sustainability performance of financial products when it is intended as a disclosure regime, prompting further greenwashing behaviours.
Other proposals in the consultation paper include:
- Establish a framework for sustainability-related financial disclosures
- Support credible net zero transition planning
- Enhancing market supervision and enforcement
- Identifying and responding to potential systemic financial risks
- Addressing data and analytical challenges
- Ensuring fit for purpose regulatory frameworks
- Issuing Australian sovereign green bonds
- Catalysing sustainable finance flows and markets
- Promoting international alignment
- Position Australia as a global sustainability leader
Minister for Environment and Water Tanya Plibersek will discuss Australia’s path to net zero and the role for financial services firms at a Conexus Financial Political Series lunch at the InterContinental Sydney on Thursday November 23.