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“Science based and credible”- what’s needed for an Australian sustainable finance taxonomy

Australian Sustainable Finance Institute Media Release

A new report outlines the key considerations that will inform the development of an Australian taxonomy to advance sustainable finance and drive investment in the transition to a net zero economy using credible, science-based definitions.

In November 2020 the Australian Sustainable Finance Roadmap called for a taxonomy to urgently shift new and existing capital into activities that create and better support sustainable and equitable outcomes for Australia. After its establishment in July 2021, the Australian Sustainable Finance Institute (ASFI) prioritised the development of Australia’s sustainable finance taxonomy, recognising the need to mobilise more capital towards the country’s energy shift away from fossil fuels.

Executive Officer Kristy Graham says “The strongest and most consistent messaging from our research and consultation is that the taxonomy must be science-based and credible. This is critically important for international interoperability, to ensure community confidence, and to give investors, banks and insurers confidence in their sustainability claims as they design products, make sustainability commitments and prepare their disclosures.” “There is also strong consensus that a transition category should be included to ensure a mechanism to guide capital in credible sectoral decarbonisation pathways in Australia, given the high carbon intensity of the Australian economy, which is at the early stages of the path to net zero.”

To provide technical input to the taxonomy project, ASFI brought together an expert group of 55 members and observers from across the finance sector including from banking, consulting, superannuation, asset management, private equity, ESG market specialists, academics, and international taxonomy experts, as well as key financial industry peaks and Australian governments and regulators.

ASFI has received strong engagement and support from the Federal Treasury and government regulators – Reserve Bank of Australia, ASIC, APRA, all of whom are observers in the process. “This report provides the basis for the development of a taxonomy which meets the needs of Australia, without replicating work done overseas.”

“We are confident we will be able to achieve international interoperability while considering Australia’s unique economy circumstances and starting position. ASFI is not looking to recreate the wheel but learn from what exists globally and build on it”, Graham says. ASFI are collaborating with jurisdictions across the region and in Europe and North America and are having open and ongoing conversations with them to share information, approaches and lessons learned. The Report outlines globally there are 12 taxonomies in place, and 15 currently under development – collectively representing more than 55 per cent of global GDP.

As part of the release of this paper ASFI will be surveying a broader range of finance sector stakeholders to further inform and validate the initial findings. The next deliverable, planned for release by the end of the year is a recommendations paper for an Australian taxonomy, which will set out the proposed framework and design elements of an Australian taxonomy and will be open for broad public comment and feedback.

Note: You can access the report and further information about the project here.

What is a taxonomy: A sustainable finance taxonomy is effectively a set of definitions of activities or assets that are considered sustainable, and which can be used to define sustainable investments credibly and transparently. Taxonomies help to make it easier to identify opportunities, to create sustainable assets and activities and guide capital to support the achievement of Australia’s climate, environmental and social objectives. They also provide the finance sector with confidence and assurance of sustainability claims, enabling comparability between investment products and portfolios and reducing transaction costs.

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  1. wam

    Dear michael, Phylum class order family, genus, species is my limit on taxonomy. Seems I have lost too many neurons and neural pathways to understand your post. But anything that helps the organizing of information should be pursued?

  2. B Sullivan

    Taxonomies are classifications.

    Sustainable finance is classified as what? Finance that can be sustained?

    How many times do you need to finance an industrial plant that produces hydrogen gas with solar powered electricity to replace the more costly, unsustainable, environmentally disruptive and carbon dioxide emitting LNG that is currently the world’s fossil fuel flavour of the month? Maintenance and operating costs are covered by the consumers of the electricity that is provided to them by new or converted hydrogen gas powered stations that keep the lights on at night even when the sun is not shining. And because the sun usually shines during the day a constant supply of hydrogen is replenished. The water from which the hydrogen gas is electrolysed can also be recycled when the hydrogen is burned. No batteries required.

    Not perhaps an attractive investment for the private finance sector looking for quick, fat ever-increasing profits, but easily affordable by the public sector, publicly owned and publicly financed with a progressive tax scheme, providing clean, reliable and sustainable electrical power that could be allotted free to domestic users and at a very competitive rate to businesses.

  3. Gav

    “ASFI is not looking to recreate the wheel”, which in layman terms will translate to theft of our resources by another name. ASFI represent vested interests who want to take control of Aus. Rather than have an open debate involving the public on what is the best way forward to a greener future, unelected bureaucrats, govt corruptocrats and big business venture/vulture capitalists are telling us what they are going to do, like it or not. And the average voter will say ‘Yes, I agree, let’s nut the economy.’ As Aus shuts down coal-fired power stations, China opens 84 in a year. Our skies might be cleaner but we will pay the price when we import goods produced using their energy. It is irrelevant where the CCP gets the coal from, we are involved because we are end users of the energy they used. Does anyone else see the hypocrisy and how our energy-wasting lifestyles are integral to the charade?

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