Time for an Australian sustainable finance taskforce

Published in The Sydney Morning Herald on 22 July 2018.

ASIC commissioner John Price.
ASIC commissioner John Price.Photo: Jeremy Piper

ASIC commissioner John Price left a Sydney audience in no room for doubt last month when he confirmed company directors risked personal liability if they didn’t consider climate change risks.

But ASIC’s message was about much more than climate change. Commissioner Price spoke of a fundamental change in how companies are evaluated and for them to conduct their business in a socially responsible manner. He confirmed ASIC is part of international discussions about reporting of environmental and sustainability risks and is closely monitoring international developments like the European Commission’s Action Plan on Financing Sustainable Growth.

Make no mistake, the sustainable finance agenda has taken off around the world and Australia will miss out if we don’t move fast. The UN Environment Inquiry has found some 267 sustainable finance measures in 53 jurisdictions.

Take Britain, for example. Since last October, Britain’s Conservative government has finalised a Clean Growth Strategy, an Industrial Strategy, a 25 Year Environment Plan and launched a new Green Finance Institute.

The Bank of England has released a paper on climate change and the macroeconomy, broadened its prudential supervision of climate risk to include banks and formed a network of central bankers for Greening the Financial System.

Let’s be clear about what Britain’s Conservative government is doing.

It has nurtured winners, via the Industrial Strategy. It has shown its colours (green over brown). And it has picked fuel sources. The Clean Growth Strategy aims to “phase out the use of unabated coal to produce electricity by 2025”. It hailed April 21, 2017 as the first day since 1882 that the UK didn’t use any coal for 24 hours.

Europe’s agenda is more ambitious. The European High-Level Expert Panel on Sustainable Financeand the European Commission’s Sustainable Finance Action Plan seek to steer capital towards sustainable investments and protect the financial system from sustainability risks like climate change.

Next on the EC’s agenda is updating responsibilities for directors and fiduciaries, new prudential and reporting requirements and better transparency about so-called “sustainable” or “green” products for consumers.

This last move is key given alleged greenwashing of products and financial markets, and is bolstered by draft EU proposals to classify what “sustainable” and “green” actually mean.

Australia has lagged behind global efforts on climate change and sustainable finance. Our regulators are now on the front foot after decisive interventions by APRA and ASIC. The Council of Financial Regulators has formed a climate risk working group.

But regulatory interventions and leadership from a patchwork of companies won’t be enough. To maximise the opportunities for employment and growth as the world transitions to a greener economy, Australia needs a coherent, national response.

The Australian government has a huge opportunity to work with industry and civil society to turbocharge a sustainable finance agenda at home, and connect it to what is happening abroad.

They can do this by appointing an Australian Sustainable Finance Taskforce. It could be a hybrid of the UK, EU and Canadian examples, comprising no more than 10 members assisted by a secretariat from the Department of Prime Minister and Cabinet, and be chaired by someone with public and private sector experience, including in international trade and investment.

The taskforce should be asked to report back within 12 months. This would be after the next federal election. Successful initiatives abroad have been apolitical and conceived as joint enterprises between government, regulators, business, academia and civil society.

The taskforce should play close attention to how the sustainable finance classification system is finalised in Europe. International compatibility will be beneficial, and strengthen the chances of an EU-Australia trade deal since all EU trade deals have a chapter on sustainability. The EU-Japan trade deal finalised last week is the first to have a clause on the Paris Climate Agreement.

There was a time when Donald Horne accused Australians of being adaptable but unimaginative, of living “on other people’s ideas”. Truth be told, Australia could do a lot worse than do exactly that right now. Complementary initiatives in the EU, UK, Canada, China, Indonesia, the G20 Sustainable Finance Study Group and the United Nations Environment Program ensure we have well-chiselled ideas that could be repurposed for an Australian sustainable finance agenda.

Travers McLeod is chief executive of the Centre for Policy Development (CPD).  Sam Hurley is policy director of the Centre for Policy Development (CPD).

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