rethink sustainability
Australian finance industry pushes for clear sustainability agenda
Governments around the world are in the process of implementing their net-zero policies, and those policies are impacting businesses, transportation networks, industries, households, and financial sectors.
Australia is on its own sustainability journey, with commitment to reach net zero by 2050. The country's financial sector has asked for better clarity from the government, given the critical role the net-zero transition plays in guiding investments.1
In June 2023, the government released its second consultation paper on climate-related financial disclosure, proposing mandatory reporting requirements to commence from 1 July 2024 for some of the largest business entities and financial institutions that meet certain size thresholds. 2 This has broad implications on the financial industry and businesses, prompting Australian Sustainability Finance Institute (ASFI), an industry-led sustainability body, to seek 'bespoke or supplementary guidance' around the standards from the government.
There was a similar call for clarity last year. In a report published by the Principles for Responsible Investment, the United Nations Environment Programme Finance Initiative and the Generation Foundation, it noted a lack of adequate clarity, guidance and tools to support investors in shaping sustainability outcomes. The report underlined the policy barriers limiting the ability of institutional investors in Australia to pursue sustainability objectives.3
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Building a Taxonomy
One vital step in addressing some of these challenges is the building of a sustainable finance taxonomy. The Australian government has pledged to co-fund the ASFI to lead the taxonomy's development.4 The initiative aims to bring forward a common set of standards for green and transition finance, such as climate mitigation taxonomy screening criteria for priority sectors.5
The ASFI has now appointed a Taxonomy Technical Expert Group to help push the needle forward6 in an initiative that has been welcomed by the country's super funds.7 25 senior leaders, endorsed by the Australian Council of Financial Regulators' Working Group, will provide strategy direction and input into the initiative, which will go on to be evaluated by the government.8
This follows on the heels of other countries in Asia, which are further in development or establishment of their own standards. China was among the pioneers in green taxonomy in Asia-Pacific (APAC), for example, and others, including Indonesia, Malaysia, and South Korea, have followed suit.9
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The Sustainability Revolution
At Lombard Odier, we welcome the development of green taxonomies in APAC and around the world. We believe that the next economic revolution has begun – the Sustainability Revolution. Sustainable investing is not just about doing the 'right thing', it is about generating long term returns and growing our clients' prosperity in perpetuity.
This can only happen if the governments, companies and investors concede that the global economy is on the cusp of an exponential change. This change is led by climate science, clean technologies reaching their tipping points, all underpinned by supportive policy landscapes to accelerate technology adoption while pricing negative externalities10. Investors must adapt if they want to mitigate the risks and capture the opportunities of the transition of our economies.
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We believe that Australia's decision to expand its climate disclosure and reporting requirements is a positive step for the country's investment industry, and for the wider region, as APAC continues to build its sustainability credentials and embrace the path to net zero.
1 https://www.responsible-investor.com/australian-finance-sector-tells-government-prioritise-transition-plan-guidance/
2 https://www.ashurst.com/en/insights/mandatory-climate-related-financial-disclosure-in-australia/
3 https://www.unpri.org/news-and-press/more-clarity-is-needed-to-help-australian-investors-pursue-sustainability-objectives-says-new-report/10497.article
4 https://www.investmentmagazine.com.au/2023/05/australia-moving-ahead-with-sustainable-finance-taxonomy/
5 https://esgclarity.com/australia-taxonomy-esg/
6 https://static1.squarespace.com/static/6182172c8c1fdb1d7425fd0d/t/64cc7196efd6ae16dddfd6e5/1691120023048/TTEG+Member+List.pdf
7 https://www.responsible-investor.com/aussie-super-funds-welcome-government-backing-for-sustainable-finance-taxonomy/
8 https://www.regulationasia.com/australia-asfi-unveils-taxonomy-technical-expert-group/
9 https://www.eco-business.com/news/sustainable-finance-in-asia-taxonomies/#:~:text=Since%20then%2C%20five%20more%20Asian,in%20the%20region's%20energy%20transition.
10 https://www.systemiq.earth/breakthrough-effect/
Important information
This document is issued by Bank Lombard Odier & Co Ltd or an entity of the Group (hereinafter “Lombard Odier”). It is not intended for distribution, publication, or use in any jurisdiction where such distribution, publication, or use would be unlawful, nor is it aimed at any person or entity to whom it would be unlawful to address such a document. This document was not prepared by the Financial Research Department of Lombard Odier.
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