On 19 June 2024, the Albanese Government released the Sustainable Finance Roadmap (Roadmap), a strategic framework designed to guide Australia towards becoming a renewable energy superpower while ensuring economic prosperity and security.
The Roadmap outlines various initiatives and regulatory amendments primarily aimed at improving market transparency and mobilising private capital towards the race to net zero emissions by 2050. The Roadmap is divided into three ‘pillars’ and recognises transparency on climate and sustainability and the implementation of mandatory climate-related financial disclosures as the top priority in the government’s ‘climate first, not only’ approach to sustainable finance.
Pillars and Priorities
Pillar 1: Improve Transparency on Climate and Sustainability
- Priority 1: Implementing mandatory climate-related financial disclosures for large businesses and financial institutions. From as early as 1 January 2025, the mandatory disclosure regime will require in scope entities to report their climate-related risks and opportunities. The regime will align disclosure requirements across the private and Commonwealth public sectors, supported by standards developed by the Australian Accounting Standards Board and assurance standards from the Australian Auditing and Assurance Standards Board. For more information, see our previous article on this topic here.
- Priority 2: Developing an Australian Sustainable Finance Taxonomy in collaboration with the Australian Sustainable Finance Institute to direct private capital towards sustainable practices. The taxonomy will be available for use on a voluntary basis by both private and public sectors and will act as a guide for the development of sustainable finance products.
- Priority 3: Supporting credible net zero transition planning by implementing mandatory climate-related transition plan disclosures for large companies and financial institutions, effective January 2025. Best practice guidance for these disclosures that incorporate insights from international frameworks and align with Australia’s Net Zero Plan is expected to be developed by the end of 2025.
- Priority 4: Developing sustainable investment product labels to standardise labelling for ‘sustainable’ investment products including managed funds and superannuation systems. Policy development will begin with a public consultation in early 2025, targeting a regime launch in 2027.
Pillar 2: Financial System Capabilities
- Priority 5: Enhancing market supervision and enforcement to tackle greenwashing and promote sustainable finance. ASIC will continue to undertake targeted surveillance activity and enforcement action in 2024-2025 to this end.
- Priority 6: Identifying and responding to systemic financial risks through the continued work of the Council of Financial Regulators’ Climate Working Group and the Australian Prudential Regulation Authority (APRA). This includes undertaking Climate Vulnerability Assessments (CVA) to evaluate the long-term impact of climate risks on the affordability of insurance and banking stability. APRA plans to publish its findings from the Insurance CVA by mid-2025.
- Priority 7: Addressing data and analytical challenges through the work of the Council of Financial Regulators with a focus on the key areas of accessibility of corporate climate data, estimation of scope 3 emissions, and data on physical, transition-related and nature-related climate risks. Other government agencies will also work to improve greenhouse gas emissions transparency and accounting, with significant budget allocations for sectors such as agriculture. Recommendations to support informed decision-making within the financial sector are anticipated by early 2025.
- Priority 8: Ensuring fit for purpose regulatory frameworks that effectively incorporate sustainability risks in accordance with ASIC and APRA guidelines. Concerns have been raised about the annual superannuation performance test limiting sustainable investment decisions. Consultation aimed at refining the test where appropriate was initiated in March 2024.
Pillar 3: Australian Government Leadership and Engagement
- Priority 9: Issuing Australian sovereign green bonds in accordance with the Australian Government Green Bond Framework published in December 2023. The program, which includes a $7 billion bond issued in June 2024, will help mobilise climate-aligned capital and develop sustainable finance markets.
- Priority 10: Stepping up Australia’s international engagement on sustainable finance to promote the harmonisation of global frameworks that will cater to Australia’s economic considerations and not inhibit cross-border investment. Australia will host the 2024 Global Nature Positive Summit to further these goals and will advocate for trading markets that reward environmentally responsible practices through G20 engagements.
Key Takeaways and Next Steps
The Sustainable Finance Roadmap provides an overview of the key reforms that have been, or will be, implemented by the Albanese Government to promote market transparency and mobilise private capital towards achieving net zero emissions. The Roadmap prioritises 10 actions starting with the implementation of mandatory climate-related financial disclosures and including the development of an Australian Sustainable Finance Taxonomy and a standardised sustainable product labelling regime.
The Roadmap refers to new regulatory requirements that come into effect from as early as 1 January 2025 and will require proactively compliance for in scope entities. Businesses must be informed on these regulatory developments and review their internal processes to ensure alignment with the forthcoming requirements.
For further details or assistance with navigating the implications of the Sustainable Finance Roadmap, please contact James Delesclefs, Partner Carbon Capital and M&A; Michael Tooma, Partner and Head of ESG; and Matt Baumgurtel, Partner and New Energy Lead.
