Australia’s Treasury department has unveiled its proposed Sustainable Finance Strategy, which is designed to facilitate the influx of private capital required for financing the shift to a net-zero economy. This initiative will help companies access funding for their own sustainability transitions while managing risks and opportunities associated with climate change and sustainability matters.
Key components of this new strategy involve establishing a framework for financial disclosures related to sustainability and net-zero transition plans. It also includes the creation of a sustainable finance taxonomy and the introduction of a labelling system for sustainable investment products. The strategy’s initial focus will be on addressing climate-related issues due to their systemic nature, with plans to extend to other sustainability-related concerns and frameworks over time.
Enhancing transparency concerning climate and sustainability is identified as the cornerstone of this sustainable finance strategy. The goal is to provide markets with high-quality, credible, and comparable information to assess financial risks posed by climate change and other sustainability issues for companies and their impact on the environment and climate. One of the main priorities for transparency improvement is the implementation of a framework for sustainability-related financial disclosures. The government intends to mandate climate-related financial reporting for companies and financial institutions, starting in 2024 for large businesses and phased implementation for smaller entities.
The paper also outlines plans for developing a Sustainable Finance Taxonomy, which sets criteria for assessing economic activities’ alignment with climate and sustainability objectives. This taxonomy will be developed by the Australian Sustainable Finance Institute (ASFI), with oversight from the Council of Financial Regulators’ Climate Working Group and aims for international alignment with similar systems used in the EU and UK.
To address the challenges investors face in understanding sustainable investment products, the government is proposing the creation of a labelling system for investment products marketed as ‘sustainable.’ This initiative will primarily target retail investors and require product issuers to provide additional information on how sustainability factors into the investment process.
Furthermore, the strategy includes corporate transition plan disclosure requirements for large companies and financial institutions. Other facets of the government’s sustainable finance strategy encompass supporting regulators in addressing climate change impacts on businesses and the financial system. This involves enhancing market supervision and enforcement, identifying and responding to potential systemic financial risks, addressing data and analytical challenges, and ensuring a suitable regulatory framework.