Towards Cross-Taxonomy Alignment: Insights from Examining Interoperability between the Australian and EU Sustainable Finance Frameworks 

Sustainable finance taxonomies are used in global capital markets to identify and allocate capital towards economic activities deemed sustainable or activities that support the transition to a more sustainable economy. However, the emergence of growing numbers of taxonomies can pose risks of fragmentation and increased incomparability.

This report finds that the Australian Sustainable Finance Taxonomy and the EU Taxonomy align more closely than might be expected. This alignment creates an opportunity to leverage existing EU Taxonomy data to support assessments under the Australian Sustainable Finance Taxonomy for financial market participants. 

The Australian Sustainable Finance Institute (ASFI) and ISS STOXX tested this opportunity by comparing the two taxonomies at the activity, company, and portfolio levels. The resulting report finds that existing EU Taxonomy data can help companies and investors assess alignment with the Australian Taxonomy and reduce duplication of efforts in aligning with multiple taxonomies.

Key Takeaways

• Most Australian Taxonomy activities have a comparable activity in the EU Taxonomy. The analysis mapped 52 of the 61 Australian Taxonomy green and transition activities covered by the study to at least one comparable EU Taxonomy activity. This means 85% of the Australian Taxonomy activities assessed have a corresponding EU Taxonomy activity that can support alignment analysis. 
• Existing EU Taxonomy data provides a strong foundation for Australian Taxonomy assessments. More than half of the Australian Taxonomy activities assessed had a strong or exact EU Taxonomy proxy. Existing EU Taxonomy data can therefore reduce the need for investors to collect or estimate new activity-level information for every company. 
• Portfolio-level results were highly consistent across both frameworks. The portfolio analysis produced very similar results under the Australian and EU taxonomies. For the STOXX 1800 portfolio, baseline alignment differed by only 0.04 percentage points. This suggests existing EU Taxonomy data can provide a useful starting point for assessing portfolio alignment under the Australian Taxonomy. 
• The current approach does not capture all Australian Taxonomy activities. Some activities covered by the Australian Taxonomy, including minerals, mining, and metals activities, do not have equivalent activities in the EU Taxonomy. As a result, the current approach may understate Australian Taxonomy eligibility and alignment, particularly for Australian portfolios.
• Environmental and social safeguard assessments can materially affect alignment assessments. Different approaches to assessing environmental and social safeguards produced different alignment outcomes. These differences reflect both the type of information used in the assessment and the different ways the Australian and EU taxonomies apply these requirements.