Sustainable finance among ‘greatest investment opportunities of a generation’
Assistant Minister Andrew Leigh has shared his vision for Australia’s sustainable finance system, driven by a common environmental language.
“Today, we stand at the crossroads of opportunity and crisis,” Assistant Minister for Treasury, Andrew Leigh told the Climate Integrity Summit on Wednesday.
“We face rising temperatures, and a race against the clock to achieve net zero. And yet we also have one of the greatest investment opportunities of a generation.”
The opportunity: a robust sustainable finance system. His vision is one founded on transparency, both around how business operations will affect the environment and how they will be affected.
“By improving transparency through better public reporting on climate-related disclosure and sustainable finance classifications, investors better understand negative externalities,” he said.
Transparency, no matter the strength of its aims, will fail in the absence of a common language. Dr Mattia Anesa, for example, said certain corporate behaviours are more responsive to transparency measures than others.
Human rights abuses and certain isolated incidents of bad environmental practice are “pretty clear-cut,” he said.
A certain public response can be all but guaranteed in the face of irresponsible toxic waste disposal, for example, but what of less obvious, more ongoing environmental conduct?
The EU’s ‘taxonomy regulations’ which the European Commission referred to as the “cornerstone” of its sustainable finance framework were an early attempt to answer this question.
The regulation, it said, allows “financial and non-financial companies to share a common definition of economic activities that can be considered environmentally stable.”
It aims to create a “common language and a clear definition of what is ‘sustainable.’”
Leigh sang the same tune, adding there was a need for international interoperability, crucially among regional partners.
The same intention was clear in the federal government’s Invested: Australia’s Southeast Asia Economic Strategy to 2040 which, he said, “includes a recommendation focused on expanded work with Southeast Asian partners on high-quality, interoperable sustainable finance classifications and climate-related disclosure rules.”
Within Australia, regulators are hoping the same can be achieved through mandatory climate-related financial disclosure regulation.
In January, the government released an exposure draft on the first phase of the reporting standards which, pending finalisation, are set to come into effect by mid-year.
The goal of sustainability reporting goes beyond binding the hands of environmental bad actors. According to Leigh, strong reporting standards will incentivise broader investment.
The federal government is developing a sovereign green bond program that will help finance public environmental investments. According to Treasury, the bonds could “mobilise additional climate-aligned capital, deepen sustainable finance markets, and signal the Government’s commitment to climate, energy, and other environmental goals.”
In 2021, the EU issued $14 billion in green bonds, marking the biggest single issuance since the first bond was offered in 2007. After a decade of slow growth, the market exploded and has since spread to South America and beyond.
Broader transparency measures would also help the government to underwrite further investment in renewables, said Leigh.
“While investments in renewable energy in Australia are going from strength to strength, there is still significant progress to make on our renewable energy targets,” he said.
“If we can improve transparency and get the settings right, then we can drive investment in the technologies required for the climate transition, at the scale required.”
Private investors will have an outsized role to play in the transition, said Leigh, who referred to how public attitudes have shaped institutional practices in times of crises like the GFC and the Great Depression.
Granting investor appetites for the sustainability transition, the next question is ensuring a climate return on investments made.
So-called ‘impact accounting’ is one frontier on which some progress is being made. As reported by Accounting Times, the idea is that accounting professionals will develop a “financial language” to attach dollar value to otherwise non-monetary, environmental behaviours.
Carbon accounting was the first manifestation of this practice, the challenge is expanding the practice to other environmental outputs, thereby making them more actionable for “boards of directors, investors, and C-suite decision-makers.”
Leigh concluded by saying: “Measuring, standardising, and harmonising data to understand risks and inform decisions will lead to a cleaner and fairer future, for Australia and for our region.”
