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Australia’s sustainable finance transition simmering below the surface

Emma Herd
Emma Herd

The European Union has had a bit of a head start on Australia on greening its financial services sector.

This presents a huge opportunity for shared learning, Investor Group on Climate Change chief executive Emma Herd told The Fifth Estate after a sustainable finance event held by Climate-KIC Australia and the University of Technology Sydney on Monday.

Australia has a lot to learn from the EU’s sustainable finance journey, she said, which is a couple of years ahead. Critically, the EU released a roadmap for sustainable finance last year, and Australian finance sector organisations are currently pushing for something similar. 

One of Ms Herd’s key takeaways from the event was that sustainable finance is “simultaneously both technical and often quite unexciting, but potentially transformative as well” and in Australia expects to see more activity in this space.

However, Ms Herd said Australia’s policy environment is holding sustainable development finance back. 

“The challenge for Australia has really been the policy environment… it almost seems too reductionist to say policy has been an impediment. I mean, think about the last five years of climate change finance discussion in Australia, and it’s not that it’s been an impediment but that it’s been an active hindrance.”

As an example, she pointed to Minister for Resources Matt Canavan’s suggestion to Queenslanders seeking home loans or term deposits to boycott Westpac after it released a climate policy saying it would limit lending for new thermal coal projects to “only existing coal producing basins”.

Australia’s policy environment hasn’t stopped its financial services sector “smuggling through initiatives on sustainable finance while trying to keep its head below the parapet”.

Ms Herd said that despite the political situation, the industry itself is “keenly active” in driving sustainable finance. A collection of industry groups and big financial institutions launched a two-day forum last year – which was met with overwhelming interest, she said – after realising that they “couldn’t just sit around waiting for government on sustainable finance.”

“You have to look beyond the noise to see the real activity and the real appetite for sustainable finance. There is the will, it’s always been a question of finding the way forward.”

“It doesn’t mean it’s not happening it’s just happening in a more complicated, fragmented, and diffused way.”

She added that the Banking Royal Commission has been “the elephant in the room.” 

“We’re building on a strong history but while also having a lot of hard truths to face up to.”

Australia’s activity on sustainable finance so far, she said, is already largely informed by the international experience, including the EU. Australia has adopted number of international framework and is an active participant of a number of groups, such as the Task Force on Climate-related Financial Disclosures.

Her commentary was informed by analysis presented at the event by researchers from UTS Centre for Business and Social Innovation. 

The researchers have mapped the state of play for sustainable finance in Australia and compared it with the EU experience. The study confirmed that Australia is drawing heavily on international best practice and international benchmarks.

The study also found that Australia’s action on sustainable finance is being led from the bottom up rather than top down and that Australian initiatives “may be seen as less mainstream and more of a peripheral movement” compared to the EU. 

Members from the EU High-Level Expert Group of Sustainable Finance Ingrid Holmes from Hermes Investment Management and Michael Schmidt of Deka Investment also shed some light on some of the challenges associated with transitioning to a sustainable economy. 

Mr Schmidt pointed out that Germany has endured a comparable degree of policy uncertainty around the clean energy transition, with industry actively calling on the government to set a date for the transition so that it can plan accordingly. The nation finally agreed to end its reliance on polluting coal power stations by 2038 earlier this year. 

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One Response to “Australia’s sustainable finance transition simmering below the surface”

  • Fiona Reynolds, CEO of Principles for Responsible Investment (PRI), said: “Investors have a strong self-interest to support the development of a more sustainable financial system, which will ultimately help them to meet their objectives to minimise risks and maximise returns over the longer term. We look forward to working with investors, policy makers and partners to build on the recommendations of the Australian Fiduciary Duty Supported Roadmap, and the important work already underway in the UK and Europe to transition to a financial system which puts the interests of customers and beneficiaries first.”

    Simon O’Connor, CEO of Responsible Investment Association Australasia (RIAA), said: “The finance sector is increasingly recognising the connectivity between contributing to a better society and environment, and achieving strong financial performance. A more sustainable finance sector will better meet the expectations of the Australian and New Zealand people and underpin the emergence of a sustainable, fair and prosperous 21st century economy.”

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