In December 2016, the European Commission (EC) established a High-Level Expert Group (HLEG) to provide advice to the Commission on how to:

• Steer the flow of public and private capital towards sustainable investments
• Identify the steps that financial institutions and supervisors should take to protect the stability of the financial system from risks related to the environment
• Deploy these policies on a pan-European scale.

In March 2018, based on the recommendations of the HLEG, the EC outlined its Action Plan on Financing Sustainable Growth, which included the following action points:

• Establishing a classification system for sustainable economic activities
• Creating standards and labels for green financial products
• Fostering investment in sustainable projects
• Incorporating sustainability when providing investment advice
• Developing sustainability benchmarks
• Better integrating sustainability in ratings and research
• Clarifying institutional investors and asset managers duties
• Incorporating sustainability in prudential requirements
• Strengthening sustainability disclosure and accounting rule making
• Fostering sustainable corporate governance and attenuating short-termism in capital markets

In response to the EC Action Plan, researchers from the University of Technology, Sydney (UTS), working on behalf of Climate-KIC Australia, conducted a series of interviews with senior representatives of the Australian finance “ecosystem” to ascertain whether they thought adopting the EC actions could help realise Australia’s sustainable finance potential.

Based on their analysis of the responses of their interviews, the UTS team made 16 recommendations covering:

• Coordination and leadership
• Consistency and coherence
• Transparency and disclosure and
• Culture behaviour and responsibility

Notable recommendations of the UTS study include:

• Recommendation 1.1

Create a taskforce or committee-led process to advise on a sustainable finance action plan for Australia – this recommendation has largely come to fruition with the creation of the industry-led Australian Sustainable Finance Initiative (ASFI).

• Recommendation 2.3

In accordance with their mandates, Australian regulators (ASIC, APRA and ACCC) should collaborate to set, monitor and enforce appropriate use of minimum standards around the labels, ratings, standards and indices permitted in the Australian market – Creating clear (and internationally agreed) definitions and metrics across the entire environmental, social and governance (ESG) spectrum is a critical step for unlocking the potential  of sustainable finance.

• Recommendation 3.1

Reporting requirements should make it mandatory to integrate ESG risks and opportunities into financial performance analysis – while not yet implemented in Australia, international momentum for mandatory sustainability disclosures is growing.

• Recommendation 4.3

Regulators to work together to improve and standardise, where practical, governance and risk management systems for all participants in the finance system: listed companies, banks, superannuation funds, asset management firms and financial advisors to encourage long-term decision-making – Australian Government Regulatory bodies such as ACCC, APRA and ASIC have all started to factor climate change into their regulatory frameworks.

The UTS report Unlocking Australia’s Sustainable Finance Potential provides a useful roadmap for growing sustainable finance in Australia – some of which have been implemented, and some that almost certainly will be implemented in coming years.

1. A sustainable financial system offers improved financial system resilience and stability to manage short term shocks and the long-term transition to a low carbon, resource efficient and socially inclusive economy.
2. All stakeholder participants indicated that consistent policy signals were important. Participants lamented or highlighted the distortion created by a legacy of inconsistent climate and energy policies and an absence of a clear sustainability agenda from the Federal Government.
3. All stakeholder groups identified corporate governance frameworks and processes as an important lever for enabling sustainable finance.
4. All stakeholder groups thought that social and environmental purpose should be incorporated into corporate governance frameworks.
5. Financial Institutions, market participants and observers all felt it was important to increase the transparency of company reporting and suggested integrated reporting as a means to ensure reporting was connected to comparable financial metrics. They agreed that ESG reporting should be mandated for listed companies and institutional investment funds.
6. Stakeholder participants were generally in favour of engaging investors in a form of participative decision-making and that all funds should be directed to consult their beneficiaries regarding their values regarding investment decisions.
7. Stakeholder participants highlighted how an increasing proportion of consumers were demanding sustainable assets and this could be amplified by getting larger corporations and funds to influence the market. Financial and investment advisors should be instructed to offer environmental and social products.
8. There was a general concern about the lack of sustainable finance products in the domestic market.
9. Stakeholders reported a general malaise or lethargy in the market regarding the adoption of sustainability in finance. Peak bodies highlighted how distorted information, such as regarding sustainable asset underperformance, had created market confusion.