By Fiona Reynolds, CEO (@fireynolds), PRI
During a year in which Australia has suffered one if its worst bushfire seasons, followed by droughts, floods and then the outbreak of coronavirus, the time has never been more propitious for adopting long-term sustainability directions and embracing transition measures. These structural changes will help to support future prosperity.
At the heart of achieving a better future sits a sustainable financial system—one that reduces short-term systemic risks while enabling a long-term transition to a zero carbon, resource efficient and socially inclusive economy which is signposted by 2030, 2040 and 2050 national goals. This system, to be realised, must be embedded in national policy objectives.
In what we believe is a major step forward, the PRI—as the world’s largest proponent of responsible investment—is delighted to welcome the Australian Sustainable Finance Roadmap: A Plan for Aligning Australia’s Financial System with a Sustainable, Resilient and Prosperous Future for all Australians, published today by the Australian Sustainable Finance Initiative (ASFI). We commend the cooperative approach taken by domestic banks, insurers, asset managers and superannuation funds to develop this roadmap. It reflects the high level of private sector support for action on environmental, social and governance (ESG) issues to ensure a sustainable economy that underpins Australia’s future prosperity. We urge the government to adopt ASFI’s recommendations.
At the PRI, a sustainable financial system is core to our mission, which states: “We believe that an economically efficient, sustainable global financial system is a necessity for long-term value creation. Such a system will reward long-term, responsible investment and benefit the environment and society as a whole.” Our work in this area for almost 15 years has shown that to achieve a more sustainable future, governments must work together with the private sector to challenge the barriers which hinder progress towards realising a sustainable financial system at both a national and global level.
Australia, with its stable banking system and growing funds management sector, should not stand at the wayside, but rather find its place at the forefront of such a significant shift.
Taking that opportunity is at the heart of the ASFI report. The roadmap delivers a total of 37 recommendations, many of which are aligned with the United Nations Sustainable Development Goals (SDGs). We support these recommendations and believe that requiring financial institutions to measure the impacts and outcomes of their activities using the SDGs as a guideline is one of several key steps to ensuring a resilient financial system.
Transparency and accountability are essential to the viability and robustness of global financial systems, so we strongly support the requirement for all financial services sector organisations to articulate how they have considered sustainability and values-based preferences of their clients in the provision of their services. This move is very much aligned with the European Commission Action Plan on Sustainable Finance.
In recent years, the EU has led the way towards defining a sustainable future for its citizens. The EU Green Taxonomy has underscored the importance of standardising definitions around sustainable economic activity, which will impact financial products, indices, ratings and investments, thereby bringing consistency around the meaning of sustainable finance to all stakeholders.
Outside the EU, we now need to think about global harmonisation around taxonomy definitions, along with harmonisation of existing stewardship codes into one single code, defining a minimum set of reporting standards on stewardship activities applicable to all investors. Importantly, this must include mandatory disclosure.
Disclosure requirement must also be extended to ASX companies. The PRI strongly supports mandatory TCFD reporting by all financial services organisations and ASX-listed companies from 2023 to include the four thematic areas that represent core elements of how organisations operate: governance, strategy, risk management metrics and targets. Likewise, we support the recommendation that ASX-listed companies be required to report on financially-materially sustainability information from 2023 onwards.
On climate, net zero targets are a 2020 reality. Australia’s major regional trading partners have already committed to net zero, as has its sister nation, New Zealand. The EU is well out in front and we expect the Biden administration will increase international momentum and reinvigorate climate action at the G7 and G20 levels, which has essentially been stalled since 2016.
Another step in building a sustainable financial system is squarely facing the risks and volatility of climate impacts. And, as importantly, embracing the enormous opportunity that climate change brings, both domestically and more broadly in the region – including green investment, jobs and industries of the future.
Australia cannot remain in the slow lane on climate action as the transition unfolds through the 2020s. The time is here and now to make a change. We urge the government to commit to net zero, including interim targets and support financial institutions and listed companies in their efforts to reorient towards the same.
We are also pleased to see recommendations around indigenous communities. Research conducted in partnership between the Centre for Social Impact, First Nations Foundation and National Australia bank showed that, in 2018, nearly 50% of indigenous Australians were experiencing severe or high financial stress and had significantly lower levels of access to financial products and services than non-indigenous Australians. The roadmap focuses specifically on recommendations that aim to support meaningful engagement between financial system participants and indigenous peoples; support indigenous peoples’ self-determination and improve financial outcomes for indigenous peoples. This is a significant step forward.
Ultimately, a sustainable financial system will improve decision making, transparency, risk management and long-term value creation. It will improve the ability of all stakeholders to navigate the upcoming challenges we face, including the transition to net zero.
The recommendations in the ASFI roadmap are laudable. However we would like the Australian Government to go even further, for example, by becoming part of the International Platform on Sustainable Finance (IPSF). Aligning with this initiative will support many of the other recommendations in the roadmap.
A sustainable financial system will enhance the resilience and competitiveness of Australia’s financial system and its alignment with longer-term global developments. We look forward to seeing policy makers, regulators and the many stakeholders behind ASFI working together with the Australian Government on implementation.
The ball is firmly in the government’s court – now it’s time for action.
This blog is written by PRI staff members and guest contributors. Our goal is to contribute to the broader debate around topical issues and to help showcase some of our research and other work that we undertake in support of our signatories. Please note that although you can expect to find some posts here that broadly accord with the PRI’s official views, the blog authors write in their individual capacity and there is no “house view”. Nor do the views and opinions expressed on this blog constitute financial or other professional advice. If you have any questions, please contact us at [email protected].