Recommendations

Embedding sustainability into leadership

This domain for change and related recommendations focuses on the importance of financial institution leadership – both through leaders within the industry and the industry as a whole – is key to ensuring that there is appropriate valuing of, and accountability for, sustainability performance and the broader impact of financial institution activities across Australian society, the environment and the economy.

a) Lead accountability for sustainability from board level
b) Integrate sustainability into purpose, corporate strategy, risk management frameworks, remuneration structures and organisational culture
c) Manage and measure impact of activities on others
CASE STUDIES LINK LINK LINK
Build the necessary skills and capabilities by:

a) working with existing industry training organisations to deliver new skills and training in sustainable finance across all levels of an organisation
b) supporting the establishment of university-hosted centres for sustainable finance
c) working with the Australian university sector to ensure that core curriculum for all finance and related discipline degrees includes sustainability
d) developing strategic skills partnerships with experts outside of financial institutions to build mutual understanding
a) Build inclusive corporate cultures that facilitate and protect employees to speak up
b) Support industry-funded employee codes
a) Align remuneration structures with sustainable long-term value creation
b) Consider embedding sustainability targets into remuneration and incentive practices, and rewarding for sustainability performance and leadership
a) Establish the Australian Sustainable Finance Initiative as a permanent body
b) Establish special projects and forums consistently with legal obligations of all participants (including competition laws) as a mechanism to provide guidance on implementation of the Roadmap
Establish a First Peoples Financial Services Office led by an Aboriginal and Torres Strait Islander person
Work to codify the principle of free, prior and informed consent in decisions made by financial institutions
Establish international partnerships to support the implementation of the Australian Sustainable Finance Roadmap

Integrating sustainability into practice

This domain for change and series of recommendations addresses the need to embed sustainability issues into decision making and valuation frameworks. Financial institutions rely heavily on valuation of risk to underpin the investment, lending and insurance decisions being made daily. Yet limitations with existing valuation tools, mainstream practices and a lack of quality data on environmental and social risks challenge the sector in being able to respond to the new sets of risks and opportunities. These challenges need to be addressed so that the sector can properly value risk and make better informed decisions.

Establish a key project to explore the implementation of a sustainable finance taxonomy in Australia
Join the International Platform on Sustainable Finance
Financial institutions with annual consolidated revenue of more than $100m report according to TCFD recommendations by 2023 on an ‘if not, why not’ basis
a) All ASX-listed companies, beginning with the ASX 300, report according to TCFD recommendations by 2023 on an ‘if not, why not’ basis
b) Develop guidance to support TCFD-aligned reporting by ASX-listed entities
Develop guidance to support TCFD-aligned reporting by financial institutions
Play a leadership role in the development of the TNFD by:
a) funding research that supports TNFD’s working groups
b) engaging in the process to develop the TNFD reporting framework
c) establishing, through ASFI, an Australian project to develop guidance for nature-related financial disclosures aligned to Australia’s biodiversity challenges
a) Mandate sustainability reporting and assurance for listed entities and for unlisted assets that are wholly owned by financial institutions
b) Work to align with international developments in relation to comprehensive corporate reporting
a) Undertake scenario analysis and stress test the institution’s resilience to physical and transition risks from climate change
b) Create an industry-led stress-testing framework
c) Expand scenario analysis and stress tests to include other sustainability-related impacts, for example, biodiversity loss
d) Develop guidance on best practice approaches to conducting stress tests that is relevant for financial institutions of different sizes
APRA expands its vulnerability assessments to include fit-for-purpose assessments for small and medium financial institutions across Australia, as well as the superannuation and insurance sectors
a) Value environmental and social externalities
b) Facilitate compilation of national- and state-level data sets by developing general principles and guidance to allow financial system participants to measure and assess multiple capitals
Work with Australia’s financial system regulators on an ongoing basis to embed sustainability into regulatory guidance and standards to drive system-wide practice
Drive best practice for the benefit of the whole of the Australian economy and society, including by:
a) embedding sustainability into outsourcing and procurement practices
b) embedding sustainability information into products and services for households and businesses
a) Implement high standard of stewardship
b) Develop stewardship codes

Enabling resilience for all Australians

This series of recommendations recognise that all Australians engage with – or are impacted by – Australia’s financial system, whether through banking, insurance or investment. However, their level of inclusion, understanding of the sector, access to essential services, capacity to engage and involvement with the sector varies widely. As such, greater attention is needed to bolster the financial resilience of all Australians to acute shocks.

Support the establishment of community finance that can be accessed by place-based groups as part of a place-based community resilience strategy
Develop income and revenue contingent loans
a) Establish Financial Inclusion Action Plans
b) Review current practices and design of products and services to embed financial inclusion
Consistent with applicable laws and regulations, measure and report on:
a) financial distress for households
b) financial outcomes for Aboriginal and Torres Strait Islander customers
Collaborate to support networks, programs and initiatives that build individual and community financial capability
Support the development of labelling standards that provide consumers with access to consistent labelling and disclosure of the sustainability of products to provide clarity on quality of products and how sustainability is considered and managed within products
Enable Australians to make financial decisions based on their values and sustainability preferences, including:
a) ensuring financial advisers (human and robot), superannuation funds, accountants and platforms consider the sustainability preferences of consumers, including through use of a standard set of sustainability preference questions
b) for ASIC to consider strengthening its Regulatory Guide 65 to facilitate meaningful disclosures on the extent to which product issuers disclose whether and how labour standards, environmental, social or ethical considerations are taken into account for investment products
c) for trustees of registrable superannuation entities and responsible entities of other publicly available funds to voluntarily disclose their portfolio holdings within 90 days of each half year
d) collaborating to develop best practice guidelines for the disclosure of portfolio holdings by superannuation entities and other publicly available funds
e) passing regulations to prescribe the content and format of disclosure of portfolio holdings by superannuation entities
Develop best practice principles to guide product design, delivery and disclosure to drive sustainable and community-focused outcomes
Support the development and implementation of an Australian-focused well-being framework

Building sustainable finance markets

This series of recommendations recognises the importance of building a sustainable financial market and that collaboration between the private and public sector and civil society is key to achieving that outcome. Australia’s financial system plays a key role in supporting a strong and resilient economy and in generating long-term prosperity for Australians through the allocation of capital.

Establish interim science-based targets and trajectories that will support individual financial institutions to make net-zero-aligned decisions
Work collaboratively to support development of a sustainable capital market by:
a) working with financial system regulators to develop guidance for financial institutions on treatment of green and resilience or sustainable assets related to risk weightings and capital treatment of such assets
b) removing roadblocks to commercialising impactful technologies and developing investment models that align with liquidity requirements of financial system participants
c) working with financial system regulators in developing guidance on sustainable benchmarks and indices
d) supporting sustainability-focused businesses across the Asia-Pacific region to raise capital and issue bonds through Australia’s capital markets
e) supporting sustainability-focused Asia-Pacific businesses to list on ASX or other Australian stock exchanges
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Produce a regular report that considers whether Australia’s sustainable finance markets are functioning efficiently to support the delivery of net zero emissions by 2050, consistent with science-based targets
Work collaboratively to support development of sustainability impact and resilience markets including natural capital, carbon, impact investment and climate mitigation and adaptation, with a focus on:
a) building market architecture through the establishment of common platforms for information disclosure, trading and intermediary services with strong governance rules and enforcement
b) development of standardised documentation and support for credit guarantees and other measures that reduce the risk of financing and investing
c) developing social enterprises and impact investments that focus on Asia-Pacific countries
Support the formation of an independent Social Impact Investment wholesaler for Australia
Finance the development and regeneration of real assets, including infrastructure and property (housing, industrial and commercial), through:

a) aligning Australia’s Infrastructure Priority List produced by Infrastructure Australia with the objective of achieving net zero emissions by 2050
b) efficient and streamlined regulatory requirements for investment into essential assets
c) working with AEMO, AEMC, AER, ESB and the COAG Energy Council to expedite an actionable Integrated System Plan
d) developing infrastructure investment across the Asia-Pacific region that is focused on delivering social and environmental outcomes
e) integrating ESG factors into the investment decision-making process for new infrastructure projects, and for expansions to existing assets, using broadly accepted standards and frameworks relevant to the specific category of infrastructure assets
f) using a national rating scheme for the energy performance of homes, such as NAtHERS, and establishing mandatory disclosure of performance at the point of sale and lease
g) supporting an industry approach to adopt the three major rating tools (NABERS, Green Star and ISCA’s Infrastructure Sustainability rating scheme) as measurement benchmarks and minimum standards for new and existing assets to become more climate change resilient and socially responsible
h) integrating built environment ratings into consumer and business lending and investment valuations, including infrastructure projects
i) working with stakeholders to update the National Construction Code so that future residential properties are built to be resilient to climate change and broader climate and geological risks and ensure energy efficiency as well as use of sustainable materials

Tracking our progress to the Roadmap recommendations