Australia catching up with world on sustainable finance

Australia has barely squeaked through with a pass mark on sustainable finance, according to an independent tracker.

The Australian Sustainable Finance Institute’s tracker released on Monday had an average score above a pass (2.6 out of 5) across the 37 recommendations, a rise of 0.6 from last year’s average.

Australia is moving rapidly from being a “laggard” on sustainable finance as it catches up with global developments, the institute’s CEO Kristy Graham says.

Sustainable finance means taking environmental, social and governance factors into account when making investment decisions, such as the impact on local communities or not making climate change worse.

A mandatory climate disclosure for Australian firms will be rolled out from July 1 next year, starting with large companies. A framework for the country’s first sovereign green bond is in the works.

The clearer requirements and guidance on corporate transition plans are expected to push firms to translate net-zero promises into action.

But a single national ratings framework for the energy performance of homes, and the introduction of mandatory disclosure at the point of sale and lease, are being held up by a lack of co-operation between governments.

Other policy potholes identified in the third annual progress report include regulation of superannuation funds’ performance being out of step with climate and sustainability goals.

Regulators have identified a lack of understanding among professionals in how non-financial performance measures impact on risk and performance.

There is also uncertainty about whether industry collaborations on sustainability are in breach of competition law.

Chair of the institute Kristian Fok, who is CEO of Cbus Super, said the announcement by Treasurer Jim Chalmers last December of a sustainable finance agenda was a “landmark development” welcomed across the finance sector.

There has been “strong progress” on frameworks for nature-related disclosures with international recommendations released last month, the report found.

Also being developed is a sustainable finance taxonomy, intended to provide a common standard and help combat “greenwashing” from false claims about sustainability and energy transition investments.

These pillars of sustainable finance policy are expected to help climate considerations become mainstream within Australian financial institutions, and allow sustainability-related claims to be proven or debunked, the research suggested.

The progress could also boost Australia’s ability to influence the development of international sustainable finance frameworks.

“We have seen another step-change in Australian sustainable finance over the past 12 months, this time driven by the Australian government, but there is more to do,” Ms Graham said.

While the nation is now positioned to take on a leadership role internationally, she warned that gaps remain.

She said the tracker demonstrates where industry, government, regulators and civil society need to show courageous leadership, more investment in capability, more collaboration and better co-ordination.

The rejection of the voice at the October referendum underscored the need for greater efforts to accelerate reconciliation, bolstered by leadership from the finance sector, according to the report.

Critically, Australia lags well behind other developed nations in support for early-stage innovation.

This should be an important consideration for the government’s response to industrial policy developments in the US and EU, the institute said.

Australia’s green energy export superpower ambitions are also constrained by barriers to the roll-out of renewable energy.

These include permissions and approvals, supply chain constraints and a shortage of skills in key areas, the tracker found.

Marion Rae
(Australian Associated Press)