Australian major banks have teamed up with superannuation and insurance organisations to create Australian Sustainable Finance Initiative. The goal is to change the finance, corporate, investment and economy landscape in Australia. Some of the members of this initiative are – CBUS, IAG, Westpac, Commonwealth Bank, Bank Australia, NAB, Business Council for Sustainable development Australia and John Hewson, one of the leaders in this sector.

The initiative will be overseen by the UN; green think thanks and a representative from academia. The roadmap will be presented sometime next year. The idea is to help guide the Australian corporate sector and the economy through the next ten years since there will be many issues with human wellbeing, social equity, environmental protection and climate change.

What is the ultimate goal of the Australian Sustainable Finance Initiative?

It is expected that the initiative will deliver a set of recommendations that should help finance sector to contribute to a more sustainable economy in the future.

Two formal observers of the committee will be the head of the UN Environment Program Finance Initiative – Economy Division, Eric Usher and Geoff Summerhayes, chair of the Sustainable Insurance Forum and also an executive committee member of the International Association of Insurance Supervisors and executive board member of Australian Prudential Regulation Authority.

Chief executive officer of the Responsible Investment Association Australasia and the co-chair of the initiative, Simon O’Connor said that the need for the initiative was apparent when human rights and climate change issues have become essential to the business. He said that the deputy governor of Reserve Bank of Australia described the climate change as a risk to the stability of the country’s economy and that APRA claims that climate risks are both foreseeable and material.

The roadmap should push financial services sector toward the sustainability goals, enabling Australia to have a more sustainable financial system.

The Insurance Australia Group’s group executive for people, performance and reputation, Jacki Johnson said that the only way to ensure Australia’s prosperity in the future is to build a resilient and sustainable economy. She believes that the goals that Australia has set are necessary for both finances and the economy. Furthermore, she said that there is no possibility of Australia’s economy prospering in future with more severe weather events and impacts that come with those events.

Sustainable finance should be a global goal

OECD has recently published a prediction that stated that the world needs to invest $6.9 trillion annually in energy, buildings, transport and water infrastructure in next 15 years, to be able to keep average global temperature below 2°C.

However, to cap global warming at 1.5°C Celsius as UN Intergovernmental Panel on Climate Change recommends, the world will have to invest even more. Since public funding will not be enough, experts believe that the financial sector has an important role to play.

What is sustainable finance roadmap going to bring?

The roadmap that will be delivered by the initiative will most probably be modelled according to international best practice. There are two groups from Europe established with the same idea – High-Level Expert Group on Sustainable Finance founded by the European Union (their final report was published last year) and the Green Finance Taskforce established in the UK (their reports were published more than a year ago).

Accelerating Green Finance, a report published in the UK, had these recommendations:

  • Increase demand and supply of green products
  • Use data to improve climate risk management
  • Increase investment into clean and innovative technologies
  • Create Clean Growth Regeneration Zones
  • Create a resilient and green infrastructure
  • Start issuing a sovereign green bond (debt security which is issued by a national government)

These recommendations are not about improving the financial system. Instead, they focus on increasing the investment into the clean energy economy. The recommendations from the European expert group are more focused on the reform of the complete system:

  • Creating a new standard for green bonds
  • Define the role of investors in making a more sustainable financial system
  • To make it clear what is sustainable
  • To make financial institutions provide some insight into how they factor sustainability in their decision making
  • A new label for green investment funds
  • Adding sustainability to the mandates of the Supervisory Authorities

The European Commission used those recommendations to create its strategy on sustainable finance. The Action Plan on Financing Sustainable Growth was published a year ago, right after publishing three new legislative proposals: low-carbon benchmarks, the disclosure of sustainability risks and a Pan-European taxonomy to determine which activities are environmentally friendly.

Recommendations were taken seriously in Europe

Catherine Howarth, ShareAction chief executive, said that the EC is following the advice. Furthermore, she stated that the EC is currently finalising the negotiations for the Disclosure Regulation, which should report about the sustainability risks of mainstream products. The idea is for this regulation to make investors think about what is the impact of their activities on the environment and the communities.

However, she noticed that some proposals are falling behind. The part with investors’ duties that covers many different recommendations is among those lagging. For her, the reform of investors’ duties could lead to a more accountable and democratic financial system.

Many problems on the road to sustainable finance

Howarth, however, sees a critical issue when it comes to acting on recommendations. She finds that it appears to be easy to influence on the sustainable part of the market. On the other hand, she thinks that shifting from brown capital assets to green is much more difficult.

It has proven to be challenging to integrate sustainability risks in the decision-making process.

The second sustainable finance conference

The second high-level conference was organised by the European Commission on 21 March. Jean-Claude Juncker, the president of the commission, said that how we consume and produce, we need at least four planets, even though we only have one. He stated that we need the financial sector to finish the green transition. His idea is that our money should work for our planet.

Michael Bloomberg, the UN Secretary General’s special envoy for climate action, said that there is a need to create new capital markets that will on European level take into account the urgency of climate action. Bloomberg believes that capital markets are the best tool to use to fight against climate change.

The Vice President of the European Commission, Valdis Dombrovskis said that the financial sector should help fight against climate change.

Europe has support from its leaders to move toward sustainable finance. Now, Australia needs the same level of support from its leaders.