The Insurance Council of Australia (ICA) has submitted detailed feedback on the second public consultation for the Australian Sustainable Finance Taxonomy, a framework under development by the Australian Sustainable Finance Institute (ASFI).
The taxonomy is designed to align investment and financial activities with the country’s net-zero carbon emission targets and broader sustainability goals.
The ICA expressed strong support for the taxonomy, highlighting its potential to bring Australia’s financial system in line with global standards, including those of key trading partners such as the European Union, China, Canada, and New Zealand.
Consistency with international frameworks is seen as vital for enabling cross-border financial flows and maintaining global competitiveness.
The council said that the taxonomy could help insurers identify sustainable investments, guide underwriting decisions, and improve transparency in sustainability reporting. Such a tool, it argued, could provide a standardised framework for assessing sustainability across investment portfolios, facilitating more comparable disclosures within the industry.
A key concern raised by the ICA was the volume of data required to implement the taxonomy effectively.
Insurers, which typically group portfolios by product lines or geography rather than individual clients, may face difficulties classifying exposures by economic activity or customer type.
To address these issues, the ICA called for specific guidance to close data gaps and ensure consistent application across the sector.
The ICA offered detailed comments on the taxonomy’s proposed Technical Screening Criteria (TSC) for various sectors, including construction, transport, and disaster resilience.
The ICA supported criteria aimed at reducing operational and embodied emissions in buildings, as well as transitioning to renewable energy-based systems.
It recommended integrating resilience standards into the taxonomy, citing the increasing frequency of extreme weather events. Aligning with the National Construction Code’s resilience requirements and including voluntary resilience ratings were suggested as steps to better prepare homes and buildings for climate risks.
The ICA endorsed the taxonomy’s focus on transitioning to zero-emission transport options and scaling up supporting infrastructure. It emphasised the importance of resilient charging infrastructure for electric vehicles and investments in battery recycling.
Additionally, the ICA suggested using the taxonomy to direct investments toward low-carbon liquid fuels for hard-to-abate sectors like aviation and maritime transport.
The council called for expanding the taxonomy’s scope to include property sector resilience initiatives. These measures, it argued, could reduce disaster-related financial losses and align with sustainability goals.
The ICA also reviewed the taxonomy’s “Do No Significant Harm” criteria, which ensure activities aligned with the taxonomy do not negatively impact other environmental objectives.
It supported efforts to align these criteria with both Australian regulations and international standards, while recommending clear, objective language to ensure usability across sectors.
The ICA urged ASFI to periodically review the taxonomy as international standards evolve, ensuring continued alignment with key global markets.
It also highlighted the importance of practical tools and guidance to help insurers and other stakeholders implement the taxonomy effectively despite potential data limitations.
By addressing these challenges, the taxonomy could serve as a vital mechanism to accelerate Australia’s transition to a sustainable economy while maintaining international competitiveness in sustainable finance markets.
The finalised taxonomy is expected to shape investment strategies and sustainability reporting across industries, providing insurers and other financial entities with a framework to support national and global climate goals.
