ASFI Blog: Release of the Sustainable Finance Strategy Consultation Paper
On 2 November 2023, the Australian Treasury released its much-anticipated Sustainable Finance Strategy Consultation Paper. This follows the commitment by the Australian Treasurer in December 2022 to develop an ‘ambitious and coordinated’ sustainable finance strategy in 2023. The paper proposes a range of measures to underpin development of Australia’s sustainable finance markets. It has three objectives:
mobilising private sector investment to support Australia’s sustainability goals (including net zero, and becoming a renewable energy superpower);
ensuring access to capital and business opportunities for Australian firms; and
managing sustainability-related risks at an entity and system level.
Policy proposals are structured in three key pillars: improve transparency on climate and sustainability; financial system capabilities; and Government leadership and engagement. Potential new measures include sustainability product labelling; a stewardship framework; and support for credible transition planning. The Paper also seeks feedback on critical questions including the future of the Australian sustainable finance taxonomy, and addressing sustainability-related data challenges.
Consistent with the Government’s approach to date, the paper is primarily focused on climate-related issues, but importantly sends clear signals on its intention to include broader sustainability-related issues over the medium term, in particular nature and First Nations outcomes.
Forward process
The paper outlines near-term priority actions for the Government, and seeks stakeholder feedback on a broader range of reform options. Submissions are due 1 December 2023. After considering stakeholder feedback to this consultation paper, the Government will publish an implementation roadmap for the Sustainable Finance Strategy. The paper also proposes a number of related consultation or reform processes to take place during 2024 (summarised below).
ASFI’s Analysis
Overall, ASFI considers the Strategy Paper to be a strong affirmation of the Government’s commitment to supporting and driving sustainable finance and investment in Australia. This will position Australia to manage sustainability-related risks, capitalise on opportunities, and build a stronger, more resilient and more inclusive financial system. We have outlined key Roses (strengths), Thorns (weaknesses), and Rosebuds (opportunities) below.
Roses
ASFI was pleased that the paper affirms the Government’s commitment to an ‘ambitious and comprehensive strategy’. This includes measures to keep pace with international developments, as well as areas where the Government proposes to take a leading role – particularly through its international engagement.
The strategy’s ‘principles’ are a key strength – prioritising inter-operability; ambition; alignment with Australia’s net zero transition; sensible staging of reforms; simplicity and useability; and cross-sector collaboration and shared responsibility. ASFI particularly welcomes the ‘climate-first’ but not ‘climate-only’ approach in the principles and throughout the paper:
“Climate should be the first priority for sustainable finance, but reforms should provide a platform to incorporate other critical sustainability-related issues over time. This should include a special focus on our natural capital and biodiversity, as well as incorporating First Nations perspectives and supporting positive social and economic outcomes for First Nations people.”
The proposed reforms go beyond existing commitments to address key gaps in the existing sustainable finance policy architecture. These include developing a labelling system for financial products marketed as sustainable; a program to identify and address sustainability-related data and analytical challenges; considering options to support effective investor stewardship; a staged approach to supporting high quality transition plans; and inviting feedback on options to further align financial regulation with sustainability objectives such as Your Future, Your Super benchmarks.
The paper’s focus on deepening international engagement on sustainable finance is another key strength that will support global progress on sustainability, and ensure emerging frameworks reflect Australia’s interests. The paper sets the stage for genuine Australian leadership:
“Building on a more coordinated and ambitious Sustainable Finance Strategy, the Government will promote sustainable finance as key pillar of ambitious international engagement on climate and nature, helping to position Australia as a regional and global leader in sustainability.”
Thorns
While collaboration is called out as a key principle for the strategy, the paper is silent on the role of competition law in supporting (or inhibiting) important climate-related collaboration. Currently, uncertainty regarding the application of Australian competition law to industry collaborations on sustainability is creating challenges for a range of collaborative initiatives designed to ensure consistent climate reporting methodologies across industries and sectors; or support the co-design of public-private partnerships to accelerate the flow of capital towards sustainability objectives; and other collaborative efforts essential to accelerate progress towards climate and sustainability goals. This should be addressed through the Government’s Competition Policy Review which is running in parallel, and could have been identified in the Strategy Paper as an area being considered concurrently that could also support the objectives of the Strategy.
ASFI would also like to have seen more detail on work being led by the Department of Finance to establish disclosure requirements for Government entities, and to implement the Government’s commitment to achieving net zero by 2030 for the APS. The latter in particular has potential to create strong incentives for investment in clean energy and other climate solutions by accelerating the decarbonisation of Government spending in areas such as infrastructure.
Submissions on the Strategy Paper are due on 1 December. This is a tight timeframe to respond to a broad ranging paper which asks questions on some complex issues. Some of these questions – such as how to embed the taxonomy into Australian regulation, and the most appropriate long-term institutional arrangements for the taxonomy – will likely require more detailed analysis over the medium-term and ASFI’s submission to the consultation will propose this where appropriate.
Rosebuds
The identification of “collaboration and shared responsibility” as a key principle of the strategy demonstrates the Government’s recognition that tackling sustainability challenges will require cross-sector partnerships. The taxonomy project – led by ASFI with oversight from the Council of Financial Regulators and funding from the Government – is an early example of this model. ASFI agrees that this model is both promising and essential to achieve our shared goals for a sustainable, resilient and inclusive financial system. It is a significant departure from traditional Government delivery models and will take concerted effort and up-skilling of capability in Government and in other sectors.
Summary of proposals and consultation questions
Related processes
Submissions to the Strategy Paper are due on 1 December 2023. The Paper also proposes additional related reform and consultations processes:
Disclosures
Consultation on the AASB’s draft disclosure standards is underway. We expect the government to release draft climate related disclosure legislation for consultation in early 2024
The development of the Australian Sustainable Finance Taxonomy is underway and will have its own stakeholder consultation and engagement processes
The Paper seeks views on how to support high quality transition plans. Once the climate disclosure standards are finalised, ASIC will release guidance related to the disclosure of transition plans. Treasury will also consult further on options for strengthening transition planning.
Product labelling
Treasury will commence work on a labelling regime in 2024, consulting closely with regulators and industry stakeholders on policy and legislative design.
Data
Building on feedback from the Strategy consultation, Treasury will ask the CFR to assess options to address sustainability-related data challenges and provide recommendations by the end of 2024. ASFI assumes this may also involve industry consultation.
Further Reading
ASFI media release on the Sustainable Finance Strategy consultation paper