The finance sector is now front and centre in the mammoth task of addressing climate change and ensuring the nation’s sustainable growth and prosperity, thanks to the announcement of a national sustainable finance agenda.
From economic recovery to climate action, the finance sector is increasingly seen as holding a significant part of the solution needed to ensure a strong, thriving and sustainable economy.
The volume of dollars required for this transition are truly daunting: to limit warming to 1.5 degrees, it is estimated that $4 trillion in annual investment in clean energy is required. Protecting and restoring biodiversity consistent with global frameworks are estimated in the trillions of dollars of investment required between now and 2050.
Emerging out of the recent climate COP27 meeting, these figures underscore just how crucial the finance industry’s participation will be in meeting these critical goals over the coming decades.
Even with a growing number of willing responsible investors, success is in no way assured. While we now see a tidal wave of capital looking to invest in low carbon assets, and ready to play a role in delivering a nature positive economy, without the right direction and incentives, this moment risks being thwarted. Wishful thinking alone will not unleash this capital towards the types of investments our government now desperately needs to deliver on our national targets.
The government recently announced plans to develop a climate risk disclosure framework. This latest policy announcement signals this government understands the critical role of finance in this regard with the commitment to provide enabling settings for capital to be deployed on a scale big enough for the task at hand.
Legislated climate targets are a strong start – we’ve long had investors calling for clarity and adequate targets to be set in a permanent manner that can underpin long term investment decisions.
But beyond that, leading nations are moving fast to establish the settings to tap the full potential of finance in this sustainability transition through detailed sustainable finance strategies.
With the Treasurer’s recent announcement, Australia has laid the foundations for a mandatory climate reporting regime, which will help investors get the right information so they can assess risk and target their investments. A rapid move towards mandatory climate risk disclosures, in the manner that the UK and New Zealand have already done, is essential for markets to work.
The next priority needs to be consistent disclosure standards for broader sustainability risks, and prompt adoption of International Sustainability Standards Board standards, bringing at long last global consistency to ESG disclosures, with equivalent force of accounting standards.
It will be essential for Australia to determine what constitutes the kind of environmentally-friendly and low carbon activities that need investment dollars. As in the EU, UK and across ASEAN, the rapid development of a sustainable finance taxonomy will do just that.
To have the strongest backing for our national biodiversity targets, and support the protection of 30 per cent of our land and waters by 2030 goals, our government must continue to build robust reporting and disclosure standards on nature. These include supporting the Taskforce on Nature-related Financial Disclosures and coupled with strong targets and robust and effective environmental protection legislation.
These priorities are the building blocks upon which we can harness the power of finance to drive a rapid and sustainable transition that builds the strongest Australian economy possible.
To fully realise this potential, it is pleasing to see the government announce the intention for a comprehensive strategy to properly harness sustainable finance. The strategy needs to coordinate all those pieces of policy to most effectively drive change, in keeping with the UK’s green finance strategy and the EU’s sustainable finance action plan. This should ensure Australia stays in the race to drive a stronger economic future for our nation.
Simon O’Connor is chief executive of the Responsible Investment Association Australasia.