The release of the Australian Sustainable Finance Initiative’s roadmap this week marks a significant shift in the way Australian financial institutions are approaching their commitment to sustainability.
It represents a move away from the “negative screen” approach to managing sustainability, such as choosing not to fund certain types of activity, to a more impact-based approach.
Among the 37 recommendations in the document is a commitment by banks to offer revenue contingent loans, another to support the development of a sustainable capital market and an agreement to promote “climate risk mitigation efforts”.
Other commitments include an agreement to develop product design principles that incorporate sustainability, finance the regeneration of real assets and to report on household financial stress.
Eighty organisations were involved in developing the document. Steering committee members include representatives from Commonwealth Bank, NAB, Westpac and Bank Australia. Working groups included representatives of the big four banks, Citi, HSBC Australia, Teachers Mutual Bank and CUA
The roadmap sets out a plan “to connect capital to a sustainable and prosperous Australia by transforming the financial system to one that is better prepared to face future risks and shocks”.
In particular, it aims to direct capital to where it will deliver a transition to a net zero, resource efficient and inclusive economy.
It seeks to align the financial system to the Sustainable Development Goals, the transition to net zero emissions by 2050, the Paris Agreement commitments, the Sendai Framework for Disaster Risk and the Convention on Biological Diversity.
It sees the financial system facilitating the changes required to meet these commitments.
Recommendations range from broad issues, such as embedding accountability for sustainability into senior leadership, to more specific items, such as a requirement to use the Task Force on Climate-Related Financial Disclosures reporting framework.
On the commitment to develop revenue contingent loans, the roadmap says Australia’s financial system participants will develop such loans as a mechanism to support individual and community resilience to acute shocks, as well as chronic threats to climate and health.
The product design recommendation calls on financial institutions to work with regulators to “embed sustainability into standards to drive system-wide practice”.
The development of sustainable capital markets would involve “removing roadblocks to commercialising impactful technologies” and working with regulators to develop sustainable benchmarks.