Australian Sustainable Finance Taxonomy: Market Insights From World-first Pilot Program

The Australian Sustainable Finance Institute (ASFI) has released its report 'Unlocking Private Capital for the Transition: Market insights from the practical application of the Australian Sustainable Finance Taxonomy' (Report), detailing market insights from the Australian Sustainable Finance Taxonomy (Taxonomy)'s practical application, as well as a survey of ASFI members about the implementation and future evolution of the Taxonomy including key barriers to uptake.

In a world first, Australia is testing the Taxonomy in practice with some of the country's largest financial institutions: ANZ, Commonwealth Bank, Clean Energy Finance Corporation, HESTA, Metrics Credit Partners, Moody's Ratings, NAB, Rabobank, Rest and Westpac.

Drawing on analysis from assessing the Taxonomy through practical application and a survey of ASFI members representing more than A$16.5 trillion in assets, the Report captures how the Taxonomy framework can help direct finance toward credible transition and environmental resilience outcomes.

Four critical market insights

Through its implementation pilot and comprehensive survey of financial institutions, ASFI has identified four critical insights that reveal both the Taxonomy's significant potential and the practical challenges that must be addressed to unlock private capital at scale.

These insights, drawn from real-world application and extensive stakeholder engagement, provide a roadmap for strengthening the Taxonomy's effectiveness and ensuring it delivers on its promise to mobilise the investment needed for Australia's climate transition and are summarised below.

Strong market value, but guidance is required

The Taxonomy offers strong value to the market, with survey participants identifying its potential to improve clarity and comparability, reduce greenwashing risk and direct capital towards transition aligned activities. However, widespread uptake beyond labelled debt requires further market guidance and regulatory involvement to address challenges, including uncertainty around evidentiary requirements, data limitations, and assurance expectations.

Urgent need for adaptation and resilience expansion

Of financial institutions surveyed, 80% favoured expanding the Taxonomy to climate adaptation and resilience - a low-cost, high-impact way to unlock capital and reduce government budget pressure for disaster recovery. The inclusion of adaptation and resilience criteria for buildings and key infrastructure would support a low-carbon built environment resilient to physical risks, whilst strengthening the Taxonomy's value case for the insurance sector.

International engagement is essential

Australia's ability to access international green capital and expand export markets for green commodities depends on strong interoperability with global standards. The Taxonomy is world-leading in defining transition finance, paving the way for capital to flow into sectors critical for Australia's prosperity such as green mining, metals, and agriculture. Active participation in multilateral and bilateral processes would strengthen Australia's ability to influence international sustainable finance standards.

Enduring governance arrangements are required

Of financial institutions surveyed, 80% favoured a shared public-private governance model, vital for ensuring credibility and usability. The absence of long-term institutional arrangements is hampering private sector confidence to invest in the systems and infrastructure needed to support Taxonomy-aligned finance. Proactive government partnership is required to ensure legitimacy, consistency with the Sustainable Finance Roadmap, certainty regarding ongoing refinement, and market confidence through regulatory engagement.

Recommendations to Government

ASFI consider that early market engagement indicates "a strong appetite to apply the taxonomy across finance", and has provided three recommendations to the Federal Government to help avoid the slow uptake experienced by comparable international regimes. These recommendations are:

• Expand the Taxonomy to adaptation and resilience as an immediate priority, aiming to unlock private investment in climate adaptation and resilience and reduce budget pressure arising out of disaster recovery and public investment;
  
• Step-up international engagement to shape emerging international standards in Australia's interests (particularly for key green export sectors such as mining and agriculture), support global market recognition, and increase our ability to access favourable international green capital; and
  
• Establish enduring Taxonomy governance arrangements that enable ongoing public-private cooperation for Taxonomy implementation, expansion and international engagement - ensuring the Taxonomy's credibility and encouraging private sector investment in its systems and infrastructure.

To implement these recommendations, ASFI recommends the establishment of a Taxonomy Governance Board or Steering Committee, which would provide strategic oversight and enable continuous feedback loops between market and regulators, evidence-based regulatory guidance on evidentiary requirements and assurance expectations, and responsive evolution of the Taxonomy ensuring it remains credible, usable, and aligned with Australia's sustainability goals.

Looking Ahead

As the pilot program continues, and support from financial institutions grows, organisations should consider the Taxonomy's potential impact on their operations and prepare for its potential integration into regulatory and policy instruments. ASFI continues to collaborate with partners in China, the UK, Singapore and other jurisdictions to strengthen interoperability and ensure Australia's sustainable finance frameworks are recognised by global investors seeking transparent, comparable sustainability standards.

The success of the Taxonomy will ultimately depend on coordinated action across government, regulators and the financial sector to translate these market insights into practical outcomes that mobilise the private capital needed for Australia's climate transition.

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