Apr – Jun 24 Sustainable Finance Quarterly Publication
It is with great pleasure that Emma Herd and I share with you the EY Oceania Climate Change and Sustainability Services (CCaSS) Quarterly Sustainable Finance newsletter. This newsletter is aimed to inform you about all the things that are going on in the Sustainable Finance space in New Zealand, Australia and globally, and to share notable updates as well as our latest thought leadership.
There have been a number of developments over recent months, including some highlights covered here and others covered in more detail below.
Key updates:
This update is published on a quarterly basis. This edition covers the period from April 2024 to June 2024.
International
The International Sustainability Standards Board (ISSB) published its digital sustainability taxonomy to enable investors to analyse sustainability-related financial disclosures efficiently. The ISSB taxonomy has been designed to be consistent with the IFRS Accounting Taxonomy so that companies can provide a holistic digital financial reporting package to investors. ?
The Taskforce on Nature-related Financial Disclosures (TNFD) and the European Financial Reporting Advisory Group (EFRAG) have published a correspondence mapping document, which aims to support comparability of the nature-related disclosures outlined in the TNFD’s recommended approach and the European Sustainability Reporting Standards (ESRS).
The Network for Greening the Financial System (NGFS) published a cover report and two technical documents on Sustainable and Responsible Investment (SRI) in central banks’ portfolio management. The reports pose recommendations for improving SRI practices amongst central banks, focusing on how central banks can integrate net-zero considerations into their investments in equity, corporate and sovereign bonds.
UN Principles for Responsible Investment (PRI) has released a guide introducing the topic of biodiversity to asset owners. The guide explains the relevance of biodiversity to investors and outlines approaches that asset owners can adopt in their stewardship and disclosures.
The International Carbon Registry (ICR) in Iceland has initiated a pilot biodiversity program to create a framework for issuing voluntary biodiversity credits, utilising blockchain technology, for its electronic platform. The program will focus on priority areas and species, encouraging the involvement of Indigenous Peoples and local communities.
The Sovereign Bonds and Country Pathways Discussion Paper, released by the Institutional Investors Group on Climate Change (IIGCC), advocates for the integration of sovereign bonds into net-zero investment strategies. The paper discusses the role institutional investors can play in influencing a fair transition to a low-carbon economy by holding diversified and long-term portfolios that are representative of global capital markets.
The Forum for Insurance Transition to Net Zero (FIT) is a new United-Nations-led multi-stakeholder forum to support the acceleration and scaling up of voluntary climate action by the insurance industry and key stakeholders. Initial priorities for the FIT include developing a net-zero transition plan framework for insurance market participants and advancing frameworks for net-zero insurance metrics.
Analysis by the International Energy Agency (IEA) estimates that in 2023, clean energy added around US$320bn to the world economy, representing 10% of global GDP growth. Further, the research suggests that clean electricity accounted for around 80% of new capacity additions to the world’s electricity system in 2023.
Nature degradation could cause a 12% reduction to UK GDP in the years ahead, according to analysis conducted by the Green Finance Institute (GFI). The analysis shows that nature-related risks are as detrimental to the economy as climate risks.
The United States will likely need to capture and permanently store approximately 400–1,800 mtCO2?annually to meet its net-zero commitments by 2050. To accommodate the rapid growth of carbon capture and storage industry, the US is looking to significantly expand its infrastructure to transport CO2 over the next decade. This funding opportunity announcement will provide future growth grants under the CO2 Transportation Infrastructure Finance and Innovation (CIFIA) program. Funding will go towards eligible projects that help expand CO2 transportation infrastructure, such as direct air capture facilities. ?
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Australia and New Zealand
In the 2024-35 budget announcement, Treasury has introduced various measures to the Climate Change, Energy, Environment and Water portfolio. Measures include a review of the Australian Carbon Credit Unit scheme, implementation of the Nature Positive Plan, consumer benefits to support the energy transition, as well as multiple water-related measures.
On 19?June 2024, the Australian government released the Sustainable Finance Roadmap, setting out its vision for the implementation of key sustainable finance reforms and related measures. The roadmap includes three pillars and 10 priorities which seek to mobilise the significant private capital required to achieve net zero, modernising our financial markets and maximising the economic opportunities associated with energy, climate and sustainability goals.
In the first round of public consultation on the development of an Australian sustainable finance taxonomy, ASFI is seeking feedback on:
The Second Emissions Reduction Plan (ERP2) will be published at the end of this year. It will outline the actions that we intend to take to reduce emissions in New Zealand during the second emissions budget period (2026 – 2030). The Government has now released its ERP2 consultation document including the seven key policies which the Government believes will have the greatest impact on reducing emissions, focusing on electrification, CCUS, transport, agriculture and waste.? The consultation closes 21 Aug 24. This consultation has been supported by the release of a climate change strategy, setting out the approach for delivering on New Zealand’s climate goals. The strategy focuses on sustainable finance through the development of credible markets and nature-based solutions.
New Zealand’s Financial Markets Authority (FMA) released a consultation on the proposed class exemption to provide relief from disclosure requirements for certain green, social, sustainability and sustainability-linked bonds. If granted, the exemption would allow issuers to make offers of bonds that have identical rights, privileges, limitations and conditions to existing quoted bonds, except for some differences, including a different interest rate. Feedback for this consultation closed on 30 April and is pending response from the FMA.
The Centre for Sustainable Finance (CSF) and the Climate Bonds Initiative (CBI) have released a report which provides a set of recommendations for the design and development of a Sustainable Finance Taxonomy for Aotearoa New Zealand. This comes as the New Zealand Ministry for the Environment is seeking advice on the design of a national taxonomy for sustainable finance. The Ministry is working with the CSF’s Independent Technical Advisory Group (ITAG) to provide non-binding advice and recommendations to the government on the design of a taxonomy.
The New Zealand External Reporting Board (XRB)?and Financial Markets Authority (FMA) have published a readers guide to navigating climate statements, following the final date that climate reporting entities with an accounting period ending 31 December 2023 were required to prepare and lodge climate statements on the Climate-related Disclosures (CRD) register. This guide is intended for anyone interested in understanding the basics of the CRD regime, such as primary users of climate statements, existing and potential investors, lenders and other creditors.
A Renewable Energy Certificate (REC) is a market-based instrument that represents the property rights to the environment attributes of renewable electricity generation. As RECs are often used to support organisations’ decarbonisation efforts, this publication presents the considerations that organisations in New Zealand should make when evaluating the potential use of REC’s particularly as the climate-reporting landscape is evolving.
The yearly survey conducted by the Investor Group on Climate Change (IGCC) suggests that investor sentiment on Australia’s climate policy has significantly improved in recent years. In 2021, approximately 70% of investors cited policy and regulatory uncertainty as a barrier, dropping to just 40% in the latest report based on 2023 data.?
The Australian government has issued AU$7bn of its inaugural green bond, in a major milestone for Australia’s sustainable finance market. Money raised from the bond will be allocated to eligible green projects which contribute to mitigation and adaption and/or improved environmental outcomes. The Australian Office of Financial Management’s (AOFM) bond issue was over?subscribed with more than AU$22bn in bids from 105 investor institutions across Australia, Asia, Europe and North America.
The Australian government announced AU$1bn in new funding to help unlock domestic solar photovoltaic (PV) manufacturing across the entire supply chain.
The Clean Energy Finance Corporation (CEFC) announced its single largest transaction since it began investing, with a AU$490mn commitment in Australia’s net-zero future via the Rewiring the Nation Fund (RTN). RTN Fund investments, made on behalf of the Australian government, are intended to reduce the funding costs of grid transformation.
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The views expressed in this article are the views of the author, not Ernst & Young. This article provides general information, does not constitute advice and should not be relied on as such. Professional advice should be sought prior to any action being taken in reliance on any of the information. Liability limited by a scheme approved under Professional Standards Legislation.
Sustainability | ESG | Reporting | Governance | Strategy | Ex Big-4
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