There is arguably no sector more ingrained and entwined in the economy than the financial services industry. Everybody uses it.
Historically, economic theory and the legally enforced duties of companies have often prioritised profit and value creation for shareholders and servicing loyal customers, among the key objectives of any business. While these are certainly important, the financial services industry of the 21st century also recognises the contribution it can make in delivering outcomes and solutions that help address increasingly complex sustainability challenges. Challenges capable of disrupting the efficient functioning of the very communities in which it invests and operates.
Does the economy and the financial system allocate capital in a way that ultimately benefits the community and builds resilience? Does it work to protect peoples’ long-term savings? Can capital be allocated to provide a better future even more closely aligned to the needs of people, communities and the economy? In other words, how can the financial services industry make an even greater contribution to a prosperous, resilient, and sustainable society and economy?
Since 2019, financial services leaders in Australia have worked to develop a plan to transform Australia’s financial system to prioritise prosperity for all, meet 21st century sustainability challenges, and position Australia more competitively within international markets. This has included an exploration of how capital is traditionally allocated, and how it could be prioritised toward more sustainable enterprises and deliver enhanced outcomes that can further benefit society.
The Australian Sustainable Finance Initiative (ASFI) has drawn upon the expertise of 140 representatives from more than 80 organisations, including financial institutions, academia, regulators, government, civil society and non-profit organisations.
Through both technical and coordination working groups, ASFI has developed a roadmap for aligning Australia’s financial system with a sustainable, resilient and prosperous future for all Australians. This includes 37 recommendations to help the sector address such challenges as climate change, adaptation to extreme weather events, and rising inequality.
Released in November 2020, the ASFI roadmap represents a watershed moment highlighting both the significant potential and key role that financial system participants can play by embedding sustainability into their organisation’s strategy and leadership, as well as supporting an equitable and just transition of the economy toward achieving net zero emissions by 2050.
The roadmap is also focused on supporting the development of a sustainable finance taxonomy to better signpost the linkages between sustainability concepts and financial products that customers can choose to invest in.
Codifying such guidelines is a complex process.
What does ‘clean and green’ mean? How do you best define it? How do you measure sustainability outcomes?
To answer these questions, the ASFI roadmap centres around four key themes:
- Embedding sustainability into leadership.
- Integrating sustainability into practice.
- Enabling resilience for all Australians.
- Building sustainable finance markets.
Similar initiatives have emerged in other key jurisdictions. Sustainable finance roadmaps in Europe, the UK, Canada, China, Japan and New Zealand are symbolic of these tectonic shifts. Importantly, in Australia financial services participants have led this push for greater discipline and purpose to underpin the integrity of sustainable finance markets.
The COVID-19 pandemic has prompted society to think deeply about what matters most, including the contribution of business in our community. People now expect businesses to do more than make profits and generate shareholder value at any cost. The investment community recognises these market shifts and societal expectations to avoid harm, promote sustainable outcomes, and deliver both financial and community benefits.
Such timely discussions are not just about future-proofing, they are symbolic of the challenges facing society today. In the past two years, Australia has experienced unprecedented bushfires and floods in addition to the huge societal disruption posed by COVID-19. Climate-related events are impacting bank lending, insurance premiums and threaten the resilience of our built environment, essential infrastructure, even Australia’s unique biodiversity.
As of July 2021, the Australian Sustainable Finance Institute is set to become a permanent body to drive and coordinate the ongoing implementation of the ASFI Roadmap - AMP Capital is proud to support this important initiative as a founding member. We look forward to the ongoing collaboration with our financial services peers and playing our part in delivering both sustainability and investment outcomes for our clients and society.
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