The Australian Sustainable Finance Taxonomy (ASFT) and what it means for your business

The Australian government has approved the development of an Australian Sustainable Finance Taxonomy (ASFT).

Why is it being developed?

The ASFT will be a standardised framework for Fund Managers to assess the sustainability credentials of new investments and fulfil their obligations as a responsible manager. The ASFT will integrate sustainability considerations into financial decision-making and will align Australian financial markets with global markets, improving capital flows and streamlining the complex landscape.

The first round of consultation closes at the end of June. The ASFT is seeking feedback on:

• The proposed activities and draft substantive climate change mitigation criteria for electricity generation and storage, minerals, mining and metals and the built environment
• The draft headline ambitions for the Australian taxonomy's environmental objectives

What are the timelines?

• Short-term
  • First round of consultation closes Sunday, 30 June 2024.
• Medium-term to 2025:
  • Develop the taxonomy
  • Build awareness and understanding
  • Promote adoption
  • Enhance transparency and disclosure
  • Support innovation and collaboration
• Long-term to 2030:
  • Expand scenario analysis and stress tests to include other sustainability risks
  • Facilitate compilation of national- and state- level data sets
     

What are the details?

The Australian sustainable finance taxonomy serves as a framework to classify economic activities based on their sustainability impacts, aiming to guide investors and financial institutions towards more sustainable choices.

It categorises activities into three main groups; sustainable activities, enabling activities and transition activities.

Each activity is assessed according to its potential positive or negative impacts, allowing investors and financial institutions to make informed decisions that align with their sustainability goals. This will help drive capital towards activities that contribute to a more sustainable and resilient economy while reducing financing for activities that harm the environment or society.

The headline topics of the ASFT are:

• Climate change mitigation
• Climate change adaptation and resilience
• Biodiversity and ecosystem projection
• Sustainable use and protection of water resources
• Circular economy
• Pollution prevention and control

The ASFT reflects a growing global trend towards integrating sustainability considerations into financial decision-making.

What will it achieve?

It will align Australian financial markets with global markets, bolstering capital flows and streamlining the complicated global ESG landscape. Although this alignment is positive, it's important to note that a local and geographical lens should overlay Australia's sustainable taxonomy.

As investors increasingly integrate environmental, social, and governance (ESG) factors in their investment strategies, the taxonomy provides a valuable tool for identifying opportunities that generate positive impact while managing risks associated with unsustainable practices.

Overall, it represents a significant step towards aligning financial flows with the broader goals of sustainability and addressing pressing global challenges.

Want to know more?

For more information on the ASFT including understanding how it may impact your business, please reach out to team via the enquiry form here.