1. About this guidance

This guidance supports consistent interpretation and application of the Australian sustainable finance taxonomy for issuing use-of-proceeds debt instruments. It clarifies terminology, processes and disclosure expectations for issuers, investors and reviewers. It is voluntary, not a certification standard, and complements existing frameworks such as ICMA Green Bond Principles and Climate Bonds Standard.

2. The Australian taxonomy in use-of-proceeds debt

Taxonomies classify activities contributing to environmental objectives and improve transparency and comparability in sustainable finance. The Australian taxonomy focuses on climate change mitigation across 71 activities in six sectors aligned with 1.5°C pathways. It distinguishes green activities, transition activities and decarbonisation measures, supported by technical screening criteria (TSC), Do No Significant Harm (DNSH) criteria and Minimum Social Safeguards (MSS).

Alignment enhances investor confidence by ensuring proceeds fund credible low-emissions or enabling activities. The taxonomy does not mandate labelling (e.g. green or transition bonds), leaving issuers to determine appropriate labels under market standards. It also accommodates sustainability-labelled instruments combining environmental and social allocations.

3. Allocations and expenditures

Eligible allocations include physical assets, capital expenditure (CapEx) and operating expenditure (OpEx) linked to taxonomy-aligned activities or decarbonisation measures. CapEx may cover construction, upgrades or R&D supporting emissions reduction, while OpEx includes maintenance, monitoring and training costs, excluding general running costs.

Public and private issuers can allocate proceeds through bonds, loans, grants or incentives. Planned assets must demonstrate alignment with TSC through commitments or design evidence. This framework ensures proceeds are directed to activities contributing to emissions reduction or enabling decarbonisation.

4. Disclosing alignment with the Australian taxonomy

Issuers must disclose which taxonomy components they align with, particularly TSC (mandatory for alignment claims) and optionally DNSH and MSS. Three disclosure scenarios range from full alignment (TSC, DNSH, MSS) to TSC-only claims, with transparency required in all cases.

Alignment can be disclosed at activity or issuance level, without a minimum allocation threshold. Pre-issuance disclosures should outline expected alignment and criteria used, while post-issuance reporting should detail allocation to aligned activities and compliance with criteria. Non-aligned activities must be clearly identified. These practices improve comparability and investor clarity.

5. Applying technical screening criteria

TSC define performance thresholds, including emissions or energy intensity, aligned with a 1.5°C pathway. Green activities must meet these thresholds, while transition activities (limited mainly to buildings) include sunset dates requiring eventual compliance with green standards.

Decarbonisation measures allow emissions-intensive activities that do not meet TSC to access financing for improvements. Only specified measures qualify as aligned in such cases. Thresholds may be static, linear or stepped depending on sector, requiring issuers to demonstrate current or future compliance, often through CapEx plans.

6. Applying do no significant harm criteria

DNSH criteria ensure activities contributing to one environmental objective do not harm others, covering biodiversity, water, pollution and circular economy outcomes. Requirements may be generic or activity-specific and often apply to new or expanded projects.

Issuers must assess applicability using taxonomy guidance and demonstrate compliance through environmental due diligence processes. DNSH aligns with Australian laws and international standards, including environmental impact assessments and pollution controls, strengthening risk management and sustainability credibility.

7. Applying minimum social safeguards

MSS criteria ensure alignment with social protections, including corporate governance, human rights and First Nations’ rights and cultural heritage. These apply at the entity level and rely on existing policies and due diligence processes.

Issuers must evidence compliance through governance frameworks and social risk management practices. MSS aligns with Australian legal requirements and international standards, supporting responsible financing and social risk mitigation in taxonomy-aligned activities.

8. Grandfathering provisions

Grandfathering provisions maintain taxonomy alignment for existing issuances when criteria are updated. Activities aligned under earlier versions remain valid until maturity, provided issuance terms are unchanged.

For transition activities, proceeds must be allocated before sunset dates. New or refinanced activities must comply with updated criteria. For pooled allocations, existing activities retain alignment, while new additions must meet current standards. These provisions balance flexibility with credibility and ensure continuity in sustainable finance markets.