Progress by Sector

NSW Treasury noted that the ASFI roadmap provides an opportunity to strengthen and drive the sustainable finance agenda in Australia and demonstrate leadership. The roadmap is already being used to shape the development of a number of internal policies.

NSW Treasury has performed a high-level gap analysis to consider the alignment of the roadmap recommendations with NSW Government initiatives, which reportedly demonstrated a degree of alignment with many of the recommendations.

Release of the roadmap will help support ongoing implementation of these initiatives, and maturation of our approach to meeting our core outcomes of delivering a sustainable fiscal outcome, and a strong resilient and diverse economy.

The Department of Planning, Industry and Environment (DPIE) has used the ASFI Roadmap to demonstrate alignment of the various sustainable finance related initiatives with the roadmap recommendations. This has reportedly assisted in anchoring and informing the Department’s thinking and strategy development.

DPIE is currently undertaking a gap analysis on the roadmap’s recommendations to identify what role government can and should be playing to ensure Australia’s financial system is orientated to ensure capital flows support NSW in delivering on sustainable development goals, including facilitating an orderly transition to a net zero emissions, resource-efficient and socially inclusive economy.

The key take-away from the gap analysis exercise was that the NSW Government’s sustainability initiatives and policies are strongly aligned with the roadmap’s recommendation and action plan.

The NSW Treasury noted that the ASFI Roadmap process is assisting NSW Treasury in shaping the strategic direction of the sustainable finance work program across NSW Government including aligning with industry developments where appropriate.

The ASFI Roadmap will continue to support the development of the sustainability impact and resilience markets for NSW Treasury, through its sustainability bonds program and its Office of Social Impact Investment.

1) Recognising Natural Capital Program (ReNCaP), a national initiative which aims to identify and test how natural capital can be recognised on the balance-sheet. This project has adopted a co-design approach with both State and Federal Government participation with a strong engagement from the finance sector.

2) The Climate Risk Ready program (CRR) is jointly sponsored by NSW Treasury, to improve the management of climate risks to NSW Government assets and services and to mainstream these considerations into government decision making.

3) National housing disclosure and ratings work, on behalf of the Federal Government, in collaboration with the finance and social housing sectors. This work is focusing on ensuring consistent and reliable data underpins decision making regarding funding and finance and ultimately interventions in the housing market.

In addition to the above activities, the newly announced Net Zero Industry and Innovation Program includes a focus on Clean Technology Innovation – which aims to identify and facilitate the commercialisation of sustainable technologies, including identifying suitable funding/finance vehicles which can be led by governments

TCorp is invested in the future of NSW and recognises it has a role to play in Australia’s contribution to the meeting the United Nations Sustainable Development Goals (SDGs).

TCorp established the NSW Sustainability Bond Programme which allows it to issue green, social and/or sustainability bonds, providing a mechanism for investors to contribute capital to accomplish environmental and social goals.

https://www.tcorp.nsw.gov.au/resource/Case_study-Helping_the_NSW_Government_deliver_on_sustainable_social_and_green_infrastructure.pdf

Once the final ASFI Roadmap was released, First Sentier Investors completed a gap analysis against its strategic priorities. This review found that there was good alignment between the ASFI recommendations and existing practices or strategic priorities for further development.

The firm notes that where there is alignment between an existing strategic priority for the business and an ASFI recommendation, the content of the recommendation has formed part of the business case for that strategic priority.

Once the final ASFI Roadmap was released, First Sentier Investors completed a gap analysis against its strategic priorities. This review found that there was good alignment between the ASFI recommendations and existing practices or strategic priorities for further development.

The firm notes that where there is alignment between an existing strategic priority for the business and an ASFI recommendation, the content of the recommendation has formed part of the business case for that strategic priority.

Key initiatives include:

Committing to achieve net zero carbon emissions by 2050 in the investment portfolio and developing a comprehensive net zero implementation program across our investment, stewardship, measurement and reporting and collaboration and advocacy activities.

• Publishing its TCFD-aligned Climate Change Report, which includes comprehensive transition and physical risk analysis.
• As a founding member of Climate Action 100+ and steering committee member AustralianSuper participated in the development of the Net-Zero Company Benchmark to provide investors with a consistent framework to measure company progress towards net zero 2050.
• As an investor partner of the Australian Industry Energy Transitions Initiative AustralianSuper is working with industry to develop pathways for emissions reductions across five supply chains in hard to abate sectors: steel, aluminum, liquified natural gas, other metals and chemicals.
• Establishing the Sustainable Development Investments Asset Owner Platform (SDI AOP) with three major global investors. The platform is designed to help investors across the world identify and assess companies on their contribution to the UN Sustainable Development Goals.

AustralianSuper also became a founding member and Steering Committee member of the Investors Against Slavery and Trafficking (APAC) and published its first Modern Slavery statement.

The NSW Treasury noted that the ASFI Roadmap process is assisting NSW Treasury in shaping the strategic direction of the sustainable finance work program across NSW Government including aligning with industry developments where appropriate.

The ASFI Roadmap will continue to support the development of the sustainability impact and resilience markets for NSW Treasury, through its sustainability bonds program and its Office of Social Impact Investment.

The HESTA Responsible Investment team used the Roadmap as a compass to guide its general direction, particularly in relation to the pursuit of ‘system level’ change and selected strategic areas of impact. It has also been used it as a reference point for new priority areas that emerge in the investment portfolio, such as work related to the rights of Indigenous peoples and cultural heritage.

The principles to ‘build genuine relationships’, demonstrate respect for the rights of Indigenous peoples in the due diligence processes by investors and the spotlight on self-determination and free, prior and informed consent (FPIC) outlined in recommendations 6 and 7 have formed the basis for the Fund’s active ownership activities in this area.

Cbus notes that the key learning from ASFI has been understanding the importance of working in collaboration with the finance sector across the capital value chain. It is now sharing the work that has been undertaken on its Climate Change Roadmap and decarbonisation pathways with the banking and insurance sectors. The Fund hopes to continue sharing of information and building on this work across the finance sector to drive greater change.

Cbus has committed to a 45% reduction in emissions by 2030 and net zero greenhouse gas emissions across our total portfolio by 2050. Its updated Climate Change Roadmap: Beyond 2020, includes several actions over the next two years that align with ASFI’s recommendations 16 and 31 and are important to achieve these targets.

These include:

• Publishing TCFD-aligned Climate Change Report, which includes comprehensive transition and physical risk analysis.
• Ensuring the Climate Change Roadmap and resulting targets are science-based.
• Use of the NGFS disorderly scenario to incorporate climate change risk (specifically impact on GDP) into their expected returns out to 2050.
• Establishment of emissions baselines against which the 2030/2050 commitments will be measured. This work has identified that 50% of their emissions come from 20 assets.
• Use of six climate models (differing in speed of transition) to establish the 2030 reduction target and model whether a 45% reduction is feasible.
• Initiating significant work on asset class pathways. This includes looking at decarbonisation trajectories for different sectors/regions.
• Identifying Cbus growth as a key challenge given the absolute nature of our targets. Cbus’ growth strategy means their projected growth is more than the GDP growth factored into climate models, they will look at how they measure and communicate their progress.
• Assessment of real assets for exposure to key physical risks, the aim being to develop resilience plans for all real assets.
• Establishment of a 1% allocation to climate related solutions which is asset class agnostic, the aim being to increase exposure / understanding of climate solution investments across different asset classes.

AustralianSuper identifies climate change in the Terms of Reference of its Investment Committee, which has responsibility for investment portfolio management on delegation from the Fund’s board.

AustralianSuper has a multi-disciplinary Climate Change Committee comprising representatives from the investment, risk, policy and corporate affairs teams. The Committee is responsible for developing and overseeing the Fund’s climate change strategy from an investment and organisational perspective.

Australian Council of Superannuation Investors (ACSI) and the Church of England Pensions Board has partnered with a group of 64 international investors representing US$10.2 trillion in assets under management to write to investee companies around the world to understand their approach to consultation with Traditional Owners and Indigenous stakeholders, in particular in relation to free, prior and informed consent. The investor group aims to examine the approach taken to date and how standards have been applied and monitored across the sector.

The ASFI Roadmap recommendation focuses on the provision of finance. The ongoing stewardship in relation to investee companies is vital to promote sustainability and therefore, our work program is ongoing. Investors are seeking to understand and promote better practice to manage this material investment risk. The work program will include engagement with Traditional Owners, Indigenous stakeholders, companies and investors.

The work will promote a better understanding by investors of the risks associated with failure appropriately protect Indigenous cultural heritage. We want to understand how companies across the industry are managing these risks and working to ensure that a disaster like the Juukan Gorge never happens again. Good practice exists within the sector and the investor group is seeking to better understand the practices of companies to ensure best practice becomes the minimum operating standard. This is the beginning of a long process, aimed at more sustainable financial outcomes over the long-term.

As part of Aware Super’s strategic initiatives, in 2018 a framework was established to help measure the impact of its investments and assess how some of its key investments are contributing to the United Nations Sustainable Development Goals (SDGs).

The Impact Measurement Framework measures the positive impact of our investments across the following areas:

• social impacts, such as jobs creation and access to affordable housing
• environmental impacts, such as climate change solutions and renewable energy generation
• sustainability impacts, such as waste avoided and contributions to a circular economy.

Aware Super measures the positive impacts of 10 assets – representing approximately $1.6 billion of its members’ retirement savings. Over time, the Fund intends to add more assets and a greater percentage of its overall portfolio.

Impact measurement results for the year to 30 June 2020 include:

• 228 FTE additional jobs created (SDG 8)
• 178 key workers benefiting from affordable housing (SDGs 10 & 11)
• 133 retirement village villas fitted with solar energy (SDG 11)
• 400,849 MWh of renewable energy generated (SDG 7)
• 477,000 M3 of agricultural waste reused, avoiding landfill (SDG 12)

This information is publicly disclosed in its 2020 annual report: https://aware.com.au/content/dam/ftc/digital/pdfs/about/reportsaudits/reports/AR2020-AwareSuper.pdf

Climate League 2030 is a ten-year, private sector-focused initiative to support and act towards a goal of reducing Australia’s annual greenhouse gas emissions by at least a further 230 million tonnes from what is projected for 2030.

The initiative is coordinated by the Investor Group on Climate Change (IGCC) and assisted by foundational supporters Aware Super, Cbus, IFM Investors and the Queensland Investment Corporation.

To help put Australia on a Paris-aligned emissions trajectory, investors, banks, insurers and businesses must be part of the solution. To participate in Climate League 2030 organisations support the initiative’s goal and commit to taking at least one new action each year that will make a demonstrable contribution to reducing Australian emissions. Participants can commit actions under the following themes:

Integrating Paris-aligned emissions reduction goals into the organisation’s investment policy or business strategy

Collaboration between investors, clients and companies to deliver absolute emission reductions

Investing in line with the goals of the Paris Agreement

Climate League 2030 participants will report annually on the progress towards their existing commitments and detail how these actions are helping to reduce Australian domestic emissions. Each participant will also pledge at least one new action each year. The collective progress of the registered actions in contribution to the initiative’s goal will be reported periodically.

Climate League 2030 was launched in October 2020 starting with investor participants. Over the following 18 months it will be progressively opened to banks, insurers and companies to replicate the coverage and success of initiatives in other markets, such as We Are Still In in the U.S. and the Climate Leaders Coalition in New Zealand.

Australian Super’s participation in collaborative investor initiatives like the Sustainable Development Investments Asset Owner Platform (SDI-AOP) are important mechanisms for influencing change on a global scale.

The Fund’s involvement in the SDI-AOP with APG, British Columbia Investment Management Corporation and PGGM brings together a group of asset owners who collectively manage more than US$1 trillion in assets.

The platform has been developed specifically by asset owners for asset owners, to help investors identify and assess companies on their contribution to the Sustainable Development Goals by providing a common taxonomy and extensive IA-powered mapping. The SDGs are important for investors as they provide a pathway for fostering sustainable economic development and growth by tackling 17 of world’s most urgent sustainability challenges including climate change, water scarcity, healthcare access and social inequality.

Adding an SDG lens to the investment process alongside traditional ESG metrics can provide a holistic view of the investment portfolio and future opportunities, while offering valuable insights to integration and stewardship practices.

The next big step for the platform is defining forward-looking metrics to enable reporting on SDI outlooks of companies based on SDG-aligned patents. This is an important development as the industry moves towards more transparency about how investment portfolios can contribute to solutions for global sustainability challenges.

The First Nations Peoples’ Rights Working Group was established by the Responsible Investment Association Australasia (RIAA). It is a highly active collaboration of finance sector participants and First Nations organisations. The ASFI Roadmap has proven extremely useful for:

1) Contextual analysis and framing – the roadmap’s background on First Peoples in Australia and the intersection with the finance sector provide useful reference material and articulate a common understanding across the finance sector of the opportunities and barriers. This context has helped shape and validate the Working Group’s objectives and activities.

2) Prioritisation and focus – the Roadmap provides an important focus for the Working Group in its engagement with First Nations people and organisations. The endorsement of the recommendations by the finance sector provides weight to the Working Group’s engagement efforts. The Working Group is collaborating with First Nations organisations on investor toolkits and resources to support the ASFI recommendations.

3) Guiding advocacy – the roadmap’s articulation of the principle of self-determination and the role of the finance sector has guided the Working Group when making it’s submission to the Uluru Statement Interim Voice Co-Design Report.

The AICD has developed a guide to help directors identify and elevate key stakeholder voices to the board.

The guide explores:

• The board’s role in stakeholder governance
• Directors’ legal duties in relation to stakeholders
• Principles boards should apply to ensure effective stakeholder governance
• How boards can balance the interests of stakeholders when making decisions
• The hallmarks of good stakeholder governance

The guide incorporates advice from Australian stakeholder groups representing customers, employees, suppliers, Aboriginal and Torres Strait Islander peoples, as well as activists and community groups on matters such as climate change, human rights and environmental issues. The focus is on non-shareholder stakeholders.

The guide also offers:

Insights from prominent directors, stakeholder groups, subject matter experts and board advisers

Key questions the board should be asking

Case studies demonstrating effective stakeholder governance

Links to practical tools and other relevant resources

This guide will lead boards through the process of identifying and proactively engaging with key stakeholders and determining how best to balance the interests of stakeholders in decision making.

It can be used by directors of all organisations. Even the smallest organisation will have important stakeholder relationships and can benefit from applying the principles outlined in the guide.

Guided by the ASFI Roadmap recommendation 14 and supported by RIAA’s annual member survey results which highlighted nature and biodiversity as a top ESG priority, RIAA is launching a Nature working group to play a leadership role in supporting the development of the Taskforce on Nature-related Financial Disclosures (TFND).

This working group will primarily serve and provide a platform for working towards establishing a TNFD reporting framework and guidance for nature-related financial disclosures. The working group objectives are to:

Build out the recommendations of the Australian Sustainable Finance Initiative (ASFI) and Aotearoa Circle’s Sustainable Finance (SFF) Roadmaps

Engage with the latest international developments (particularly the TNFD)

Address nature-related financial risks and expand opportunities in Australia and Aotearoa New Zealand.

Climate League 2030 is a ten-year, private sector-focused initiative to support and act towards a goal of reducing Australia’s annual greenhouse gas emissions by at least a further 230 million tonnes from what is projected for 2030.

The initiative is coordinated by the Investor Group on Climate Change (IGCC) and assisted by foundational supporters Aware Super, Cbus, IFM Investors and the Queensland Investment Corporation.

To help put Australia on a Paris-aligned emissions trajectory, investors, banks, insurers and businesses must be part of the solution. To participate in Climate League 2030 organisations support the initiative’s goal and commit to taking at least one new action each year that will make a demonstrable contribution to reducing Australian emissions. Participants can commit actions under the following themes:

Integrating Paris-aligned emissions reduction goals into the organisation’s investment policy or business strategy

Collaboration between investors, clients and companies to deliver absolute emission reductions

Investing in line with the goals of the Paris Agreement

Climate League 2030 participants will report annually on the progress towards their existing commitments and detail how these actions are helping to reduce Australian domestic emissions. Each participant will also pledge at least one new action each year. The collective progress of the registered actions in contribution to the initiative’s goal will be reported periodically.

Climate League 2030 was launched in October 2020 starting with investor participants. Over the following 18 months it will be progressively opened to banks, insurers and companies to replicate the coverage and success of initiatives in other markets, such as We Are Still In in the U.S. and the Climate Leaders Coalition in New Zealand.

The University of Technology Sydney Institute for Sustainable Futures looks to establish an Australian Sustainable Finance Centre that would support financial system participants to implement recommendations by creating an enabling, collaborative learning ecosystem for sustainability.

The focus of the strategy is to develop partnerships between financial system participants and Australian universities that can provide a mechanism for governments, financial sector regulators and finance sector organisations to influence the development of learning opportunities.

An Australian Sustainable Finance Learning Committee is in the process of being established by UTS’ Institute for Sustainable Futures. The aim is to provide a collaborative mechanism for exchange to communicate, co-design and implement learning across Australia’s financial system.

The Committee will operate as a Community of Practice and will comprise of university practitioners, finance sector organisations (including banks, insurers, superannuation funds, investment managers and service providers), government representatives, financial sector regulators and stakeholders. The Committee will focus on the establishment of a learning ecosystem that supports learning for sustainability across Australia’s financial system through:

• Formal education courses of study that provide a mechanism for an individual to acquire skills
• Continuing professional development (CPD) that ensures that skills are continuously updated to support practitioners in their evolving roles
• New knowledge generated through research projects which is then communicated to individuals through CPD programs

A Net Zero Masterclass is also being piloted to build the skills of employees across Australia’s financial system.

An initiative of ClimateWorks Australia with Monash Sustainable Development Institute. The Net Zero Momentum Tracker monitors Australia’s progress towards net zero emissions across key sectors of the economy.

The latest update indicated that 195 organisations have been analysed, 52 of which have committed to net zero by 2050 pathway. In addition to the State Governments and Territories all committing to net zero emissions, the commitments span the corporate sector, banking, insurance, superannuation funds, asset managers and other financial market participants.

https://www.climateworksaustralia.org/net-zero/

Once the final ASFI Roadmap was released, First Sentier Investors completed a gap analysis against its strategic priorities. This review found that there was good alignment between the ASFI recommendations and existing practices or strategic priorities for further development.

The firm notes that where there is alignment between an existing strategic priority for the business and an ASFI recommendation, the content of the recommendation has formed part of the business case for that strategic priority.

Australian Ethical noted that the roadmap has provided a menu to check gaps and identify areas where they can best focus energy as it reviews business strategy and assesses areas for evolution and innovation in principled investment management.

The roadmap has reportedly helped focus attention within Australian Ethical on the importance of standardised sustainability frameworks, metrics and labels for transparency and accountability, including to help consumers make informed choices.

As the firm reviews its existing and new partnerships, many of the roadmap recommendations emphasise the power of collaboration to effect the urgent change needed in and beyond the finance sector.

Looking ahead, recommendations 18, 33 and 35 are important for considering how Australian Ethical can more effectively contribute to the development of datasets and government policy which will increase the efficiency and scale of action in finance and the real economy to address sustainability challenges. Focus areas include pricing of carbon and other externalities, including data and mechanisms for measuring, pricing and preserving natural capital.

TCorp is invested in the future of NSW and recognises it has a role to play in Australia’s contribution to the meeting the United Nations Sustainable Development Goals (SDGs).

TCorp established the NSW Sustainability Bond Programme which allows it to issue green, social and/or sustainability bonds, providing a mechanism for investors to contribute capital to accomplish environmental and social goals.

https://www.tcorp.nsw.gov.au/resource/Case_study-Helping_the_NSW_Government_deliver_on_sustainable_social_and_green_infrastructure.pdf

Climate League 2030 is a ten-year, private sector-focused initiative to support and act towards a goal of reducing Australia’s annual greenhouse gas emissions by at least a further 230 million tonnes from what is projected for 2030.

The initiative is coordinated by the Investor Group on Climate Change (IGCC) and assisted by foundational supporters Aware Super, Cbus, IFM Investors and the Queensland Investment Corporation.

To help put Australia on a Paris-aligned emissions trajectory, investors, banks, insurers and businesses must be part of the solution. To participate in Climate League 2030 organisations support the initiative’s goal and commit to taking at least one new action each year that will make a demonstrable contribution to reducing Australian emissions. Participants can commit actions under the following themes:

Integrating Paris-aligned emissions reduction goals into the organisation’s investment policy or business strategy

Collaboration between investors, clients and companies to deliver absolute emission reductions

Investing in line with the goals of the Paris Agreement

Climate League 2030 participants will report annually on the progress towards their existing commitments and detail how these actions are helping to reduce Australian domestic emissions. Each participant will also pledge at least one new action each year. The collective progress of the registered actions in contribution to the initiative’s goal will be reported periodically.

Climate League 2030 was launched in October 2020 starting with investor participants. Over the following 18 months it will be progressively opened to banks, insurers and companies to replicate the coverage and success of initiatives in other markets, such as We Are Still In in the U.S. and the Climate Leaders Coalition in New Zealand.

Powering Australian Renewables (PowAR) reached agreement to acquire the Australian assets of Tilt Renewables Ltd (Tilt).

PowAR – a partnership between QIC, the Future Fund and AGL Energy Ltd –announced that it has joined with Mercury NZ Limited to acquire all the outstanding shares not already owned in Tilt.

Under the terms of the proposed transaction, PowAR will take ownership of all of Tilt’s Australian businesses and Mercury NZ will take ownership of all of Tilt’s New Zealand businesses.

Tilt is a developer and operator of renewable generation assets across Australia and New Zealand, with total operating capacity of 836 MW across seven wind farms in operation and two further windfarms in commissioning. The company has a development pipeline of more than 5,000 MW1 capacity across various technologies, including wind, solar and battery storage and peaking capacity.

The transaction, when completed, will reinforce PowAR’s standing as Australia’s largest owner and operator of renewable energy, with installed capacity of 1,313MW across seven operating wind and solar farms, with a further two wind farms in the final stages of commissioning. PowAR’s development pipeline would represent the largest, high-quality portfolio of renewable energy development opportunities in Australia, at more than 3,500MW across wind, solar, battery storage and peaking capacity.

https://www.qic.com.au/investment-capabilities/global-infrastructure/assets/powar

National Australia Bank (NAB) is building a team of climate experts to support the low carbon transition plans of its biggest greenhouse gas-emitting customers.

Over the next two years, a group of corporate and institutional bankers will complete a new course developed for NAB with Melbourne Business School (MBS).

Bankers will be trained in identifying climate-related financial risks and transition planning so they can better work with customers.

Over the next four years the training program will involve more than 30,000 colleagues refining the skills needed to serve customers and communities well, including the environmental impacts of business operations and sustainable business practises.

NAB starts the training program with Melbourne Business School (MBS) in May 2021.

NAB also trains its bankers through its Career Qualified in Banking Program, where all employees will undertake a professional qualification that’s been developed in partnership with the Financial Services Institute of Australia (FINSIA).

https://news.nab.com.au/news_room_posts/nab-skilling-bankers-to-support-big-carbon-emitters-transition/

Teachers Mutual Bank Limited (TMBL) is different to other banks: profit-for-purpose is the business model and philosophy.

The Bank operates under socially responsible strategies, standards and practices that apply to all the banking divisions and products. These are written into the Constitution and the member-owned structure. The Business Objective of the Lending Risk Policy is that “The Bank strives to provide quality services to members via prudent lending practices that are financially, socially and environmentally sustainable.”

The Bank applies strict social responsibility criteria when it comes to investing and lending members’ money, and is the only Australian bank to certify retail deposits, mortgages as well as wholesale funding.

It does not lend to or invest in sectors that harm our society or our world, including alcohol, armaments, correctional facilities, cryptocurrency, deforestation or gross environmental degradation, fossil fuels, gambling, military activities, political activities, pornography, slavery, tobacco, or uranium.

Australian Prudential Regulatory Authority (APRA) launches prudential practice guidance for all APRA regulated entities on remuneration practices, including non-financial measures

CPS511 requires an entity to maintain a remuneration framework that sets out the key policies and processes needed to meet CPS 511 requirements. This includes the structure and terms of remuneration arrangements, the process for managing risks from the remuneration practices of any third-party service providers, and operational systems and processes.

In incorporating non-financial measures into the design of variable remuneration arrangements, the guidance notes that good practice would be to ensure that:

a) the impact of non-financial measures on individual variable remuneration can be easily understood, particularly in complex methodologies;

b) remuneration outcomes are sensitive to the assessment of non-financial measures, as there is otherwise limited scope to impact behaviours;

c) non-financial measures can impact each and all components of variable remuneration, including any long-term and short-term incentive plans; and

d) the impact of non-financial measures is not merely considered in cases of significant events, such as misconduct or adverse risk outcomes.

Defining non-financial measures

APRA notes that the purpose of applying a material weight to non-financial measures is to promote a balanced approach to incentives, encourage the prudent management of risk, and limit financial performance measures so that they are not the only or predominate driver of remuneration outcomes.

APRA expects an entity to define non-financial measures that best suit their particular strategy and risk objectives, and reflect their specific risk profile. The selection of non- financial measures is critical in articulating, shaping and promoting the goals and incentives for employees. A prudent entity would be able to demonstrate how non- financial measures support their desired risk culture, and promotes the prudent management of key risks.

Illustrative examples of non-financial measures used domestically and internationally include:

• Risk management objectives and initiatives, including remediation activities, control effectiveness, regulatory and audit findings, and risk culture surveys;
• Best interests of beneficiaries (RSE licensee), including fund performance and member returns;
• Conduct risk, such as breaches, incidents, event reports and customer complaints; and
• Broader indicators, such as strategic goals, employee engagement, customer satisfaction, and environmental, social and governance criteria.

A prudent entity would be able to demonstrate how non-financial measures incentivise risk management, and would not rely only on metrics such as strategic goals. It is important that the use of broader indicators do not lead to the exclusion of risk management indicators.

The draft Prudential Practice Guide (PPG) aims to assist entities by providing guidance on prudent practice in the management of financial risks arising from climate change, including with respect to governance, risk management, scenario analysis and disclosure.

The plan to develop this PPG was outlined in APRA’s 2020 letter to industry on climate change financial risks. It responds to requests from regulated entities for more information about APRA’s expectations, and insights on better industry practice, in managing climate change financial risks. The draft PPG is designed to assist entities to consider climate risks and opportunities within their existing risk management frameworks, and to support well-informed decision-making.

APRA has engaged with the other agencies from the Council of Financial Regulators in preparing the draft PPG and has also aligned the draft PPG with recommendations from the Financial Stability Board’s Task Force on Climate-related Financial Disclosure (TCFD). The draft PPG has also been informed by APRA’s engagement with peer regulators in other jurisdictions.

Scenario analysis is an area where APRA sees a wide range of capabilities and practices. APRA is currently undertaking a climate vulnerability assessment (CVA) involving Australia’s largest banks, which will involve climate scenario analysis in line with the expectations outlined in the draft PPG. In due course, the lessons from the CVA exercise will be shared with the wider industry to support entities in improving their scenario analysis.

https://www.apra.gov.au/consultation-on-draft-prudential-practice-guide-on-climate-change-financial-risks-0

In alignment with ASFI recommendations 11 and 12, Mercer published its progress in alignment with the Task force on Climate-related Financial Disclosure (TCFD) recommendations and supports asset owner clients who are looking to do likewise.

The scenario analysis and related analytics encouraged by ASFI recommendation 16 were reportedly important stepping-stones for Mercer’s net-zero commitment, and the executive and board support that underpins that commitment.

Mercer has developed analytical tools that pair scenario analysis with stress testing, including physical, policy and transition risks. The results allow the firm to have practical conversations with its internal stakeholders about portfolio outlook in a changing world. The tools that are applied to Mercer’s own funds are also available and have been utilised by its clients globally.

An initiative of ClimateWorks Australia with Monash Sustainable Development Institute. The Net Zero Momentum Tracker monitors Australia’s progress towards net zero emissions across key sectors of the economy.

The latest update indicated that 195 organisations have been analysed, 52 of which have committed to net zero by 2050 pathway. In addition to the State Governments and Territories all committing to net zero emissions, the commitments span the corporate sector, banking, insurance, superannuation funds, asset managers and other financial market participants.

https://www.climateworksaustralia.org/net-zero/

Mercer noted that the clear signal of industry intent embedded in ASFI recommendation 31 added credibility to its proposal internally to achieve net zero emissions by 2050 for its Managed Funds and the Mercer Super Trust.

The clarity afforded by the ASFI roadmap also enabled Mercer to launch its Analytics for Climate Transition advisory service for asset owners looking to make similar commitments.