Treasury outlines 3-pillar roadmap to unlock more private capital

Weeks after launching its inaugural green bond, Treasury has unveiled its sustainable finance agenda, offering a three pillar ‘roadmap’ to help mobilise private capital and turn Australia into a renewable energy “superpower”. 

Published this week, the roadmap outlines how the government, regulators, and industry can work together to “implement sustainable finance initiatives and reforms in a clear and coordinated way”, according to Treasurer Jim Chalmers.

“This roadmap will help mobilise the significant private capital required for Australia to become a renewable energy superpower, modernise our financial markets and maximise the economic opportunities associated with net zero and our sustainability goals,” the Treasurer explained in a statement.

“This is about creating well‑designed and well‑informed financial markets to help companies and investors make investments with confidence, better manage climate and sustainability risks, and help finance the transition to net zero.”

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The roadmap focuses on three goals including improving transparency on climate and sustainability, financial system capabilities, and Australian government leadership and outlines steps to achieve these. 

Each goal is broken down further into actionable items such as the implementation of mandatory climate-related financial disclosure requirements for large businesses and financial institutions, which the government plans to enact shortly. 

These disclosures, according to the Treasury document, should provide investors with greater transparency and more comparable information about entities’ exposures to climate-related financial risks and opportunities and their climate-related plans and strategies.

Also included among the items is the development of sustainable investment product labels, with a public consultation slated for early 2025, ahead of the legislation’s introduction in 2026, and the regime’s planned start date in 2027.

“The government has committed to establish consistent labels and disclosure requirements for investment products marketed as ‘sustainable’ or similar, including for managed funds and within the superannuation system,” Treasury said. 

“Such a regime will support product issuers as well as investors, given the increasing demand for investment products with specific sustainability objectives.” 

Meanwhile, the Australian Sustainable Finance Institute (ASFI) is expected to finalise the development of the initial Australian sustainable finance taxonomy by the end of 2024, Treasury said, with the government poised to explore initial use cases by mid-2025.

The taxonomies will cover ‘green’ and ‘transition’ activities that contribute to climate change mitigation, in six priority sectors, as well as ‘do no significant harm’ and ‘minimum social safeguard’ criteria.  

Other items on Treasury’s agenda include enhancing market supervision and enforcement, ensuring fit-for-purpose regulatory frameworks, and stepping up Australia’s international engagement. 

Roadmap ‘brings together key pieces of the puzzle’

Responding to the roadmap, the Australian Sustainable Finance Institute (ASFI) welcomed the clarity offered by the document.

“Progress over the past 12 months in introducing mandatory climate disclosures and developing an Australian taxonomy is helping to ensure Australia can properly manage climate risk and capitalise on the renewable energy superpower opportunity,” said ASFI CEO Kristy Graham.

“Further reform, including product labelling and corporate transition guidance will further Australia’s ability to attract international capital for the transition.”

She observed that, with recent progress on its sustainable finance agenda, Australia is “increasingly positioned to demonstrate global leadership and influence the development of regional and international sustainable finance standards, particularly in areas like transition finance.”

The Financial Services Council (FSC) pointed out the commitment to establish consistent labels and disclosure requirements for investment products marketed as sustainable will help address regulatory uncertainty.

“It will benefit consumers and combat greenwashing by providing common understanding about sustainability-related terms and labels,” said FSC CEO Blake Briggs. 

“It will also enable investment product issuers to more confidently meet the growing demand of Australians to invest in line with their sustainability and ethical values by bringing more sustainability-themed products to market, encouraging increased flows to sustainable investments.”

Moreover, the passage of the climate disclosure bill for companies will help firms “get on with the important task of tackling the challenge of climate risk”, he said, and investors can have access sooner to important data that will help in pricing the risk and opportunities of climate change to investments.

The Responsible Investment Association Australasia (RIAA) also believes that the new roadmap “brings together key pieces of the puzzle to shift capital towards sustainable practices.”

“A coordinated approach should line up Government agencies to leverage finance in areas such as climate change, energy, agriculture, nature, regional development, infrastructure and regulation,” it said.

“The Sustainable Finance Agenda provides clarity and direction in key areas for capital markets, and will help government better leverage private capital to support critical Australian Government priorities.”

Moreover, a just and orderly transition is key to both achieving net zero and attracting capital, RIAA said, adding that it “strongly supports the government’s work on credible net zero transition planning, including sector pathways and internationally-aligned corporate transition plans.”

However, like a number of other industry stakeholders, RIAA highlighted room for improvement in the government’s superannuation performance test, which was subject to a public consultation in April. Namely, according to the agency, the test should promote the integration of climate and other sustainability considerations in super investment decision making.

“[The test] contradicts the stated objectives of the Sustainable Finance Roadmap and in this way works to undermine the other great work that the government is doing to support investment in the climate, energy and economic transition,” RIAA said.

“Policy responses must be joined up.

“RIAA calls on the government to implement appropriate amendments to the YFYS regime, and establish an independent multidisciplinary oversight body to ensure the ongoing relevance of the performance test, and that it remains fit-for-purpose in the future.”