When the Australian Sustainable Finance Institute (ASFI) released the country’s sustainable finance taxonomy in June last year, it aimed to assure investors that capital labelled “climate-aligned” genuinely supported climate-aligned activities and to curb greenwashing.

A year on, with the framework now being piloted by Rest, HESTA, the big four banks, the government-owned Clean Energy Finance Corporation, rating house Moody’s and Metrics Credit Partners, there is a real question as to whether it does the opposite.

This particular problem with the taxonomy stems from the fact that acquiring and owning an existing green-rated building – and issuing debt to finance or support that ownership – can qualify as a climate-aligned investment.

Green-rated buildings that have solar panels on the roof and don’t burn gas are nice, but analysis by Climate Energy Finance makes the obvious point that passive ownership of them does not reduce emissions. Emissions abatement only happens where the building is actually being converted, not after it, or where ownership directly enables it: say, premises purpose-built to manufacture wind turbines, or land that facilitates utility-scale renewables. Buying a building that already meets a green standard – or ‘green’ bonds that finance it – does nothing.

There is already a cautionary tale here. In 2019, Woolworths became the first supermarket globally to issue a green bond certified by the Climate Bonds Initiative (a technical development partner on the ASFI taxonomy). The $400 million bond was five times oversubscribed, but roughly 86 per cent of its proceeds financed leases on 32 existing “low carbon” stores, with only the remainder funding actual energy efficiency improvements.

The instrument matured and repaid in full in 2024; it was never reissued as a green bond. Its clearest benefit was not to the planet but to Woolworths, which was able to diversify its lenders by attracting asset managers who might not have otherwise bought its paper and was able to return more money to its shareholders.

In a letter to ASIC regarding the Woolworths bond, the Environmental Defenders Office wrote that “we are concerned that… those developing the rules for inclusion are also those with an interest in marketing financial products as sustainable”.

ASFI’s recently released guidance on use-of-proceeds debt has lifted the bar for what counts as a green building, but it still permits the refinancing of existing assets, and risks replicating the same problems that emerged with the Woolworths bond.

The 2025 Impact Investing Benchmarking Study put the Australian market at $157 billion, up from $19.9 billion in 2020. But roughly 93 per cent of that growth was in green, social and sustainability bonds.

Greenwashing has been a fraught area for super funds in the last few years, with both Mercer Super and Active Super hit with court action by ASIC for making false and misleading representations about ESG. Others, like Future Super, HESTA and Prime Super have been issued infringement notices.

Now trustees are piloting a taxonomy that leans on certifiers with a potential commercial conflict and waves through assets that have no impact on emissions, while telling members that their money is being put to work saving the planet. A credible taxonomy would reward new abatement, not the purchase or refinancing of assets that were already green. Until it does, “climate-aligned” will mean less than the members paying for it assume.

Following a request for comment prior to publication, ASFI provided the following statement:

“The taxonomy is a classification tool to identify activities that meet strict climate-aligned performance criteria. It can be used in multiple ways by different users. The financing or refinancing of activities is governed by established market standards and falls outside the taxonomy’s scope”.

ASFI also provided a longer statement, which can be found here.