Australian sustainable finance taxonomy (Version 1 - 2025)
The Australian Sustainable Finance Taxonomy (2025) provides a framework classifying economic activities aligned with environmental sustainability goals, particularly climate mitigation. It includes performance-based criteria for key sectors such as agriculture, mining, energy, construction, and transport, facilitating sustainable capital allocation, consistent reporting, and transition planning, thus supporting Australia’s transition to a net-zero emissions economy.
Please login or join for free to read more.
OVERVIEW
Background and purpose
The Australian Sustainable Finance Taxonomy (Version 1, 2025) provides standardised criteria for classifying economic activities that contribute substantially to climate and environmental sustainability objectives. Initiated in 2023 by the Australian Sustainable Finance Institute (ASFI) and Treasury, it addresses climate change mitigation primarily through green and transitional financial categories. The taxonomy aims to guide investment towards achieving Australia’s net-zero emissions goals, enhancing transparency, comparability, and investor confidence.
Taxonomy methodology
Activities within the taxonomy are classified based on clear environmental objectives, including climate change mitigation, adaptation, biodiversity protection, sustainable water use, pollution control, and circular economy transition. Classification involves three steps: identifying activities essential for Australia’s net-zero transition, applying technical screening criteria based on credible emission reduction scenarios, and ensuring compliance with minimum social safeguards and Do No Significant Harm (DNSH) principles. Criteria include clear thresholds, notably emissions intensity benchmarks, aligned with 1.5°C trajectories such as those outlined by the IEA and CSIRO.
Using the taxonomy
The taxonomy is structured for use at activity and entity levels. At the activity level, it aids financial institutions, corporations, and government entities to identify sustainable investment opportunities and green-labelled financial products. At the entity level, it facilitates disclosure of the proportion of revenues, capital expenditures (CapEx), and operational expenditures (OpEx) aligned with sustainable objectives. Key metrics for disclosure include the percentage of taxonomy-aligned revenues, CapEx, and OpEx, enabling consistent measurement of corporate alignment with environmental goals and credible transition planning.
Demonstrating taxonomy alignment
Alignment with the taxonomy can be demonstrated through compliance with Technical Screening Criteria (TSC) for climate mitigation, adherence to DNSH criteria, and minimum social safeguards. Clear disclosure requirements ensure transparency in alignment claims. For retail financial products, DNSH and social safeguards can be evaluated at the product rather than individual transaction level. Green debt issuance aligned with emissions intensity thresholds recommends using mid-tenor thresholds for determining eligibility, with grandfathering provisions for debt under ten years.
Agriculture and land
Given agriculture’s significant emissions (17.9% nationally), the taxonomy recommends improved nutrient and soil carbon management, agroforestry, renewable energy use, and methane reduction practices. Activities must not convert natural forests or drain wetlands.
Minerals, mining and metals
Covering lithium, copper, nickel, and iron ore, the taxonomy sets clear emissions intensity thresholds aligned with global best practice. Recommended actions include renewable energy, zero-emission vehicles, and low-carbon fuels. Post-2030, iron ore criteria require downstream emissions mitigation.
Manufacturing and industry
This sector includes alumina, aluminium, cement, iron, steel, hydrogen, ammonia, nitric acid, and low-carbon liquid fuels. Clear emissions intensity thresholds are established, with recommended measures including electrification, fuel substitution, carbon capture and storage (CCS), and low-emission process innovation.
Electricity generation and supply
The taxonomy prioritises renewable energy generation and sets emissions intensity thresholds (below 100gCO₂e/kWh by 2030). Eligible technologies include solar, wind, hydropower, bioenergy (subject to feedstock criteria), battery storage, and grid improvements supporting renewable energy integration.
Construction and buildings
Criteria target significant emissions reductions through energy-efficient construction, retrofitting existing buildings, and integrating renewable energy. Standards include emissions thresholds, energy ratings (e.g., NABERS, Green Star), and sustainable construction materials.
Transport
The taxonomy promotes zero and low-emission transport solutions across passenger, freight, rail, maritime, and aviation sectors. Technical criteria include emissions thresholds per kilometre travelled and adoption of electrified, hydrogen-powered, or sustainable liquid-fuelled vehicles.
Do no significant harm
DNSH criteria ensure activities meeting emissions thresholds do not adversely impact biodiversity, water resources, pollution, climate adaptation, or circular economy goals. Detailed guidance is provided for assessing potential negative environmental impacts.
Minimum social safeguards
Activities must adhere to minimum social protections, aligning with international standards, including labour rights, human rights, community consent, and equitable outcomes. Compliance ensures environmentally sustainable activities also achieve social responsibility standards.
Overall, the taxonomy systematically supports Australia’s sustainability commitments by providing transparent, consistent, and measurable criteria for investment decisions, transition planning, and reporting across critical economic sectors.
