HESTA case study: Applying the taxonomy to bond assessments and climate-related investment reporting
HESTA
Organisation Type
Asset Owner
Sustainability Reporting
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Experience piloting the Australian taxonomy
We were tasked with assessing how the Australian Sustainable Finance taxonomy could add further rigour and insights to HESTA’s methodology for assessing the climate mitigation credentials of labelled bonds, as part of the integration of Responsible Investment with internally managed defensive assets. In doing so, we continued to evaluate the use of the taxonomy and its applicability across the investment process.
In addition to the use of the taxonomy to assess the quality of labelled bonds, further opportunities arose for mainstreaming the taxonomy within investment team processes. We also utilised the taxonomy during corporate engagements where we provided feedback to companies on reporting against the taxonomy and the benefits of doing so.
Our key takeaway is that the taxonomy is a credible framework that investors can use to identify and assess alignment to climate change mitigation. It can also be utilised in a wide range of functions across asset classes including capital allocation, company engagement, and advocacy.
The Australian taxonomy’s value for the superannuation sector
HESTA has a total portfolio approach, and the taxonomy can fit into that as it focuses on ‘activities’ rather than companies. A focus on activities allows an investor like HESTA to evaluate those activities through the lens of various asset classes.
The taxonomy has streams that lean more into the nuance of the Australian market with our higher exposure to mining and minerals in particular. It will also be a valuable part of funds’ toolkits for unlisted asset due diligence, identifying if and how investment opportunities align with the taxonomy.
A number of super funds have long-term climate change goals including investment in climate solutions.
The taxonomy will likely provide an uplift in measuring and reporting these types of allocations with better understanding of what can be classified as climate mitigation activities.
How the Australian taxonomy can support capital allocation for Australia’s transition to net zero
Australian sustainable finance taxonomy is a credible tool that has the potential to facilitate greater long-term investment in Australia’s transition to a low-carbon future. The taxonomy is a valuable tool for investors and governments, private and public sector, policy makers and corporates. When adopted broadly, it will result in a universal language and a shared framework that links different parts of the capital value chain.
The universal language the taxonomy creates can have a multiplier effect. If investors use the taxonomy in capital allocation, policy makers leverage it to guide policy, and corporates embed it into their strategy and disclosure, the multiplier effect can benefit Australia’s transition to a low-carbon future.
The taxonomy offers a valuable compass for stewardship and advocacy. The taxonomy being a publicly available common language means that companies and investors in Australia are approaching the transition to a low-carbon future from a common base.
This common language and standard will also help investors and corporates meet their regulatory reporting obligations in a way that enhances transparency for all users.