Aug – Nov 24 Sustainable Finance Quarterly Publication
It is with great pleasure that @Emma Herd and I share with you the EY Climate Change and Sustainability Services (CCaSS) Quarterly Sustainable Finance newsletter for Oceania. 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.
Please join the Centre for Sustainable Finance and the EY's for an online quarterly briefing session on the key updates in this newsletter on Friday, 6 December from 1:30-2:30 NZT. The briefing will include a deep-dive on nature-related global and domestic developments. Please register here.
Key updates:
This update is published on a quarterly basis. This edition covers the period from Aug - Nov 2024.
International
After two weeks of intense negotiations, a increased climate finance goal was reached at the Conference of the Parties to the United Nations Framework Convention on Climate Change (COP29). Under the agreement, developed nations have agreed to triple finance to developing countries, from the previous goal of US$100bn annually, to US$300bn annually by 2035. The pledge also sets out the ambition to scale up finance to developing countries, from both public and private sources, to US$1.3tn per year by 2035.
Whilst some progress was made at the United Nations Biodiversity Conference 2024 (COP16), the millions pledged still fell a long way short of bridging the financing gap. According to WWF, COP16 saw just US$163mn in funding for biodiversity committed compared to the US$200bn estimated to be needed to reverse nature loss by 2030. Negotiations around the establishment of a wider new biodiversity fund for developing countries have been suspended.
At COP16, six global environmental organisations announced the formation of a coalition to scale climate and conservation outcomes using sovereign debt conversions. Debt-for-climate and debt-for-nature swaps can be used to unlock resources needed to conserve vital ecosystems; for example, Indonesia recently signed a deal with the US to reduce its debt repayments by US$35mn over the next nine years and re-direct payments towards reef conservation instead.
An estimated US$58tn of global GDP is estimated to be moderately to highly dependent on nature and its services, yet our economic system does not value these dependencies which has driven unsustainable exploitation of natural resources. The report suggests that by redirecting just 7.7% of negative finance flows, the funding gap could be reduced to deliver nature, climate and human benefits.
The report outlines a roadmap to establish the UK as a global transition finance hub. The roadmap is centered around three pillars for scaling a robust transition finance market: establishing clarity and credibility, scaling finance for transition activities and scaling finance for transitioning entities.
According to the report, significant progress has been made since the launch of the TPT in 2022 with an increased uptake of transition plans globally. A progress highlight is the inclusion of transition plan considerations in standards and regulatory requirements around the world, including the decision by the International Financial Reporting Standards (IFRS) Foundation to assume responsibility for the disclosure-specific materials developed by the TPT.
The Taskforce for Nature Related Financial Disclosures (TNFD) released a discussion paper that sets out draft guidance on nature transition planning for corporates and financial institutions. The document provides guidance on what a nature transition plan should include alongside how it should be presented and disclosed.
The funding will support the development of two “carbon capture clusters,” including the infrastructure to transport and store carbon. The funding is promised over the next 25 years and the projects are expected to start storing captured carbon from 2028.
The Action Agenda includes eight goals across four focus areas; banking for net-zero, investing in a sustainable future, financing net-zero and making sustainability more inclusive.
The Multi-Jurisdiction Common Ground Taxonomy (M-CGT) aims to enhance interoperability of taxonomies across the EU, China and Singapore. While the M-CGT is not legally binding, green bonds and funds that align with the M-CGT criteria can be considered by cross-border investors whose markets reference the taxonomies which are mapped to M-CGT, subject to applicable laws and regulations of each jurisdiction.
Australia and New Zealand
Recommended by LinkedIn
The Corporations Act 2001 has been amended to introduce a mandatory climate-related disclosure regime for Australian entities. The regime will commence as early as financial years beginning on or after 1 January 2025. Under this regime, entities in scope will be required to lodge a ‘sustainability report’ containing climate-related disclosures prepared in accordance with the ASRS Standards, which have now been issued by the Australian Accounting Standards Board (AASB). The sustainability report is prepared for the same reporting entity and the same reporting period as the related financial statements and must be released at the same time. See EY’s latest summary here.
The Australian Securities & Investments Commission (ASIC) released its report into the greenwashing misconduct interventions for the period 2023-24. Of note, a landmark case saw AU$11.3mn in civil penalties imposed on a financial institution for misleading consumers about the nature and characteristics of product offerings. ASIC urges businesses to prepare for mandatory climate reporting, and has established a dedicated sustainability reporting page. On its website to provide information about the new regime and how ASIC will administer it.
The strategy will clarify the government's priorities to increase the flow of sustainable and transition finance opportunities, including aligning with similar developments in other countries. It aims to create a cohesive framework, recognisable to international capital providers, and guide efforts in developing green taxonomies and innovative sector financing to accelerate private finance.
Across the 37 recommendations of the roadmap, an average of 2.8 out of 5.0 was achieved in 2024: an increase of 0.2 from 2023. There were several significant developments in the past year, most notably in public policy and regulation. Despite this progress, growth in sustainable finance flows has been modest and there is much work still to do; appetite to invest in the climate transition is strong, but project barriers persist.
The New Zealand External Reporting Board (XRB) issued a consultation on proposed amendments to the Aotearoa New Zealand Climate Standards 2024, which closed on 30 October 2024. The XRB has announced that three of the four proposed amendments have been approved: one-year extensions to the adoption provisions for scope 3 greenhouse gas (GHG) emissions disclosures, scope 3 GHG emissions assurance and financial impact disclosures. The proposal to delay transition planning by an additional year was not adopted.
The Agreement on Trade and Sustainability (ACCTS), between Costa Rica, Iceland and Switzerland, opens opportunities to New Zealand’s economy, while addressing climate change and sustainability challenges. The agreement removes tariffs on key exports, going further than traditional trade agreements by including natural renewable products, such as wool, in the list of environmental goods.
LPC discloses its nature-related impacts, dependencies, risks and opportunities in its first nature-related disclosures report; the first published example of its kind in New Zealand. The report aligns with the Taskforce for Nature-related Financial Disclosures (TNFD) and the Science-based Targets for Nature (SBTN) frameworks. A full list of TNFD early adopters can be found here.
EY Insights:
According to the report, protecting nature could save Aotearoa New Zealand more than NZD$270bn over the next 50 years. However, to reap these benefits, investment needs to increase by approximately 6.5 times to enable the transformation required. The report explores the enabling actions which could help unlock investment opportunities, including:
· The creation of a nature-positive labelling system to support entities to make credible claims about their products or activities, enabling products to be sold with a nature-positive premium
· Developing credible domestic carbon or biodiversity credit markets; there is an opportunity to add nature-based methods into New Zealand’s Emissions Trading Scheme (ETS)
· Introduction of mandatory nature-based compliance reporting
The report, Essential and still evolving: The global voluntary carbon market outlook , outlines the crucial role that carbon credits will continue to play in decarbonisation strategies. The future of voluntary carbon markets is being shaped by several key trends; increased regulation, a focus on removals and global co-operation. EY analysis finds that scaling up credit volumes will quickly exhaust available low-cost supply, driving rapid increases in credit prices to 2035 across all scenarios
Artificial intelligence is driving exponential demand for data centres, which are on track to consume 4% of the world’s total global electricity by 2026. With tech giants on the hunt for low-cost, low-emissions data centres to fuel the world’s insatiable demand for AI, New Zealand is well positioned to become a sustainable computing superpower. This article explores how New Zealand could maximise benefits by using mechanisms like sustainable finance to help us fill the infrastructure deficit, while creating local jobs and industries of the future.
The report finds that the coverage and quality of climate disclosures within financial services have improved since 2023. However, banks and insurers are less likely than other sectors to produce transition plans; 37% of banks, 36% of insurers and 17% of financial asset managers have produced a transition plan at the portfolio level, compared with the cross-sector score of 41%.
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.