ASFI launches physical risk inclusion in sustainable finance taxonomy

The Australian Sustainable Finance Institute (ASFI) has launched a scoping project to expand Australian Sustainable Finance Taxonomy to climate change adaptation and resilience.

Investing in a Climate Resilient Australia report noted as physical climate risks intensify, investing in adaptation and resilience will be central to Australia's long-term economic and fiscal stability.

"While the Australian Taxonomy's initial development phase focused on climate change mitigation, rising physical risks make adapting and building resilience to climate change an increasingly urgent priority," the report read.

"By providing credible, usable guidance to identify activities and measures that support adaptation and resilience, an expanded taxonomy can help mobilise capital to address Australia's climate resilience investment gap."

The report noted at present there is no consistent way for governments, businesses or financial institutions to translate priorities for climate adaptation and resilience into activity-level definitions and criteria that can support investment and mobilise capital at scale.

"Expanding the Australian Taxonomy to adaptation and resilience would give actors across the economy a common basis for identifying investments that make a credible contribution to Australia's national adaptation priorities," ASFI executive manager of standards and practice Nicole Yazbek-Martin said.

"An expanded taxonomy would also help align actors across lending, investment, insurance and public financing, turning individual resilience actions into a more coordinated response at scale."

For institutional investors the report noted the taxonomy would help inform due diligence, capital allocation, investment mandates and portfolio reporting. It would also help improve market transparency which would in turn improve market signals and investor demand.

The scoping project is overseen by a Steering Committee comprising representatives from financial institution funders and government observers including IFM Investors, National Australia Bank, Insurance Australia Group, Allianz Australia, Clean Energy Financial Corporation and Australian Prudential Regulation Authority.