Credible, usable taxonomy recommended for Australia

In a big week for sustainable finance, new recommendations examine what an Australian sustainable finance taxonomy could look like.

The key design elements of Australia’s proposed sustainable finance taxonomy have been released for consultation.

The release of the second taxonomy paper by the Australian Sustainable Finance Institute (ASFI) follows an announcement by Treasurer Jim Chalmers that Australia will develop a new sustainable finance strategy.

ASFI announced the taxonomy paper and said it “sits alongside” the Treasurer’s announcement.

See more: Australia takes steps towards sustainable finance framework

According to ASFI, the government’s endorsement of the taxonomy project lays the foundation for a stronger partnership between the two to implement it.

Chief executive officer of ASFI, Kristy Graham, told Pro Bono News the finance sector was ready to work collaboratively with the government to establish Australia’s sustainable finance credentials.

“I think what we heard from [Treasurer] Jim Chalmers… was a really strong willingness and interest from government to work in that partnership approach and to recognise and value the work that industry has started, and use that as a basis to be able to accelerate the development of an Australian taxonomy,” she said.

She added while Australia is currently behind in terms of the policy and regulatory frameworks around sustainable investment, the federal government’s public commitment to growing sustainable finance in Australia marks an important milestone, and signals a shift towards progress.

See more: Sustainable finance is here to stay

Australia-focused recommendations

The second taxonomy paper makes 15 recommendations around the design of Australia’s sustainable finance taxonomy, covering areas including greenwashing, the transition period required as the nation shifts to net zero emissions, and the sectors that should be prioritised for the taxonomy.

The recommendations were informed by stakeholder engagement as well as previous research into international examples.

Graham said the stakeholder engagement found “really strong alignment” between the experiences of international jurisdictions and the desires of domestic stakeholders.

There was also “really strong support” for a transition taxonomy as Australia moves from a high-emitting economy to net zero. The paper recommends a traffic light coding system to communicate:

• green activities that are aligned to the sustainable taxonomy’s objectives
• transition activities that are on a pathway to alignment with the taxonomy objectives
• excluded activities that are unsustainable, do significant harm and/or have no credible pathway to alignment with the taxonomy objectives.

There was also strong support for a “transparent and robust governance model” to oversee the development, implementation and revision of the taxonomy.

The paper suggests a model that would see joint leadership between the government and the finance sector.

“Credibility, usability, international interoperability [are] key principles that would underpin a taxonomy,” Graham concluded.

The recommendations paper is now open for public comment until mid-February, with ASFI planning a series of roundtables in late January 2023 to receive feedback on the draft recommendations. 

For more information and to read the recommendations, visit the ASFI website.