Introduction

This research report, a collaborative initiative between ISS STOXX and the Australian Sustainable Finance Institute (ASFI), assesses the interoperability between the Australian Sustainable Finance Taxonomy and the EU Taxonomy. The project explores how existing EU Taxonomy data can support entity-level analysis under the Australian framework. Findings indicate that the two taxonomies align more closely than expected, offering opportunities for financial market participants to leverage established data. Key objectives include advancing market understanding of cross-taxonomy alignment and examining practical applications for investors and corporates.

Importance of interoperability

With over 65 national and regional taxonomies currently operational or under development globally, the risk of market fragmentation and incomparability is significant. Establishing a basis for interoperability, particularly between European and Asia-Pacific capital markets, is essential to mitigate barriers to low-carbon financing. Understanding these overlaps helps lower transaction costs, strengthens greenwashing risk mitigation, and streamlines reporting processes for portfolios exposed to multiple jurisdictions.

Implementation of the activity mapping and DNSH and MSS comparison

The report finds substantial overlap at the activity level. Of the 61 green and transition activities defined under the Australian Taxonomy for climate change mitigation, 52 activities (85.2%) were successfully mapped to at least one equivalent or comparable EU Taxonomy activity. The strength of these mappings varied, with 17% identified as exact matches and 35% as strong proxies. However, certain sectors unique to the Australian economy, such as specific minerals, mining, and metals activities, currently lack equivalent activities in the EU framework.

DNSH and MSS application

Notable differences exist in the application of Do No Significant Harm (DNSH) and Minimum Social Safeguards (MSS). While the EU Taxonomy treats these as mandatory prerequisites for alignment, the Australian Taxonomy adopts a more flexible, voluntary approach to reporting. ISS STOXX developed customised performance, controversy, and commitment-based screens to evaluate compliance under the Australian framework. Performance-based screens generally yielded lower alignment rates (e.g., 14% for biodiversity protection) compared to controversy-based screens, which focused on identified incidents rather than preventative procedures.

Analysing alignment at the entity and portfolio level

The study compared eligibility and alignment for the ASX 300 and STOXX 1800 portfolios. For the STOXX 1800, baseline alignment results were highly consistent, with a difference of only 0.04 percentage points between the two frameworks. Conversely, the ASX 300 showed lower eligibility under the Australian Taxonomy (12.3%) compared to the EU Taxonomy (21.4%), largely because 23.9% of the portfolio consists of mining entities for which no EU proxy currently exists. The report suggests that filling these data gaps could increase observed eligibility and alignment levels.

Entity-level revenue alignment findings

Three case studies illustrate the practical application of the mapping methodology. Company A, an Australian energy firm, showed that while 48% of its revenue was eligible, alignment fell to approximately 5% due to strict technical screening criteria for electricity distribution. Company B, a Nordic energy firm, achieved a high baseline alignment of 91% as its renewable operations matched both frameworks closely. Company C, a German real estate firm, demonstrated how the voluntary nature of the Australian DNSH criteria could result in a higher alignment figure (96.5%) compared to the EU framework (8.5%) if DNSH screenings were not applied.

Outlook

Ongoing collaboration between jurisdictional and market-based taxonomy custodians is critical to building consensus on green and transition finance definitions. Future efforts should focus on advancing common parameters for taxonomy design, including credible benchmarks and social safeguards. A robust multi-framework approach that combines EU Taxonomy data with proprietary sustainability datasets can help close remaining data gaps and support practical cross-taxonomy assessments for global investors.

Appendix A: Methodological approach

The project utilised four main components: activity mapping, proxy strength evaluation, DNSH and MSS comparison, and entity/portfolio analysis. Mappings were categorised as exact, strong, sufficient, or weak based on the degree of alignment between technical screening criteria. The analysis leveraged revenue as the primary key performance indicator due to its wider availability compared to capital expenditure or operating expenditure data.

Appendix B: ISS STOXX datasets leveraged for DNSH and MSS screens

The assessment incorporated data from five distinct ISS STOXX solutions: Corporate Rating, Norm-Based Research, Country Screening, Climate Physical Risk, and Environmental and Social Raw Data. These datasets provided the foundational information required to model performance-based and controversy-based screens across various environmental and social objectives.