This is a response to the opinion piece on ASFI’s sustainable finance taxonomy in Investment Magazine.

The Australian Taxonomy helps users check whether an activity that plays a stable or growing role in Australia’s transition makes a positive contribution to the goals of the Paris Agreement. It provides a set of technical criteria for users to assess whether an activity is performing sustainably.

 As a classification tool it has multiple uses: companies and financial institutions can use it to show that an activity is aligned and already performs well (by meeting the technical screening criteria), or, for activities that don’t yet perform well, to use the criteria (and emissions abatement measures included in the taxonomy) to inform the allocation of capital to improve that performance, in a bond, loan or other types of financing. Users can therefore determine and disclose to relevant audiences the capital that is going toward maintaining and improving already high-performing assets, or going towards improving their activities to align them with the criteria.

Like other credible taxonomies around the world including the EU and CBI, it is out of scope for the Australian Taxonomy to set specific limits on refinancing assets that already meet its criteria — this applies to all assets covered, whether that’s renewable energy facilities or buildings. Like these taxonomies, the Australian taxonomy is not designed around additionality.

Rules around these elements in use-of-proceeds debt financing sit outside the taxonomy and are determined almost universally by global market standards — including ICMA’s Green Bond Principles (GBP), the EU Green Bond Standard, and the Climate Bonds Standard. None of these global standards consider additionality or limit refinancing for high-performing assets that meet the relevant taxonomy criteria.

 The use of the Australian Taxonomy as a voluntary input in use-of-proceeds instruments operates within this broader market context. Any requirements or recommendations relating to additionality or refinancing for use-of-proceeds debt would sit at the layer of ICMA’s GBP and certifications that are used and recognised in capital markets.

It must be noted that the Australian Taxonomy use-of-proceeds debt guidance is not a green bond standard or certification and therefore does not seek to adjust these globally recognised rules for use-of-proceeds debt or create a new set of rules. The guidance instead supports issuers who want to use the taxonomy to identify and align their use-of-proceeds by explaining how to apply the taxonomy’s criteria and disclose taxonomy use when issuing use-of-proceeds debt, and to do so in line with the recognised global market standards already in operation.

This is explicitly articulated in Section 1 of the guidance:

• “This guidance is not a standard, certification or labelling scheme”; and
• “The Australian Taxonomy and this guidance were developed with consideration of key market standards, including but not limited to the International Capital Market Association’s (ICMA) Green Bond Principles, Green Enabling Projects Guidance and Climate Transition Bond Guidelines; the Asia Pacific Loan Market Association (APLMA), the Loan Market Association (LMA) and the Loan Syndications and Trading Association’s (LSTA) Green Loan Principles and Guide to Transition Loans; and the Climate Bonds Initiative’s (CBI) Climate Bonds Standard. This guidance does not seek to replace, duplicate or diverge from general principles or requirements set out in these documents”

The Acquisition and Ownership criteria in the Australian taxonomy set a high bar for what counts as a high-performing building. Building owners can use the criteria in two ways: those who don’t yet meet the bar can use them to set a target for using funds to improve performance; and those who have already made significant energy efficiency and emissions improvements can use them to access use-of-proceeds debt to maintain and/or further improve that performance. Active ownership and management strongly influence a building’s ongoing energy and emissions performance to keep it in alignment with the stringent criteria.

This matches how banks and investors operate— with many relying on building certification and rating schemes, such as Green Star Performance and NABERS Energy, as their benchmark for high performance, and use these to inform their own use-of-proceeds debt issuances and asset holdings.