Taxonomy could be a tailwind for sustainable finance

Australia’s newly launched sustainable finance taxonomy will bring new confidence to the space — and could lead to debut sustainable issuance from sectors yet to be involved in the market.

That’s the view of David Simmons, an Executive Director of Sustainable Finance at ANZ, who told ANZ Institutional Insights there was hope the new guidance would provide a boost for participation in the sector.

“I wouldn't say we're expecting a drastic change in the size and shape of the market,” he said. “But I think there will be a tailwind as a result of the release.

“We’re hoping it will give confidence to issuers that maybe didn't have that before the taxonomy, particularly in cases where it provides guidance to areas that lacked any previously.”

Speaking ahead of the Australian Sustainable Finance Summit in July, where the taxonomy is expected to be a key theme of discussion, Simmons said guidance that covers non-traditional sectors could promote debut market activity.

“It's conceivable — assuming the prospective borrower is suitable, has a robust ESG strategy and plan for a low-carbon future — it could lead to labelled debt in spaces we haven't seen before,” he said.

Bronwyn Corbet, Executive Director of Sustainable Finance at ANZ, said the clarity those industries received from the taxonomy provided a clear path to “work toward”.

“There's now something on paper for those companies, if they are serious and want to attract different investors or go to different markets,” she said. “These are clear guidelines and boundaries.”

The guidance in the taxonomy is likely to become a central tenet for sustainable finance in the long term, according to Corbet.

“I think we have confidence the taxonomy will be a central element for this type of activity moving forward,” she said. “Therefore, we expect to see sustainable finance participants start adopting it early.”

Clarified

Released in June, the Australian Sustainable Finance Taxonomy is a classification system that aims to clarify what kind of market activity can be publicly labelled as sustainable. The Australian Sustainable Finance Institute (ASFI) worked with a range of industry bodies, including Treasury, to develop the criteria. Work began on the taxonomy in July 2023.

It’s hoped the guidelines will “make it easier for capital allocators to find opportunities which support the transition”, ASFI Chief Executive Officer Kristy Graham told Institutional Insights in December.

Similar systems are already in place, or under development in economies like Singapore, Canada, and the European Union. Australia’s taxonomy was designed with some of these systems in mind, in order to support cross-border market activity.

Corbet said that interoperability was a “really important” element of the system.

“It was pleasing to see the taxonomy developed in consultation with the other jurisdictions,” she said. “In many ways it opens up the Australian market for offshore participants, bringing the investment the local sector is looking for.”

According to BloombergNEF data, total global sustainable debt issuance grew to $US373 billion in the first quarter of 2025, down 23 per cent year on year, but up compared to the final quarter of 2024. It was the weakest first quarter, in terms of volume, since 2020.

Simmons said broad headwinds, including ongoing global geopolitical uncertainty, were weighing on the sector — and taxonomy was a welcome, positive development.

“While there has been some moderation in the sector through 2025, labelled bonds are still an active part of the global market,” he said. “That’s important to remember.”

The release of the taxonomy had attracted a lot of questions for ANZ from clients, Corbet said — and she is expecting to receive “a lot more feedback” over the next few months.

“The whole thing is about getting the industry to support each other and move together,” she said.

Based on conversations with customers to date, Simmons said the clarity provided by the taxonomy had been positively received.

“Our hope is that it takes away some of the concerns about whether certain assets or activities are going to be acceptable to the market,” he said. “The hope is that that will lead to a little bit more issuance.”

Puzzle

Simmons said there was hope the taxonomy’s coverage of the Australian market — and the robust consultation process that led to its creation — would help alleviate the impact of some of the headwinds in the market.

“It's a really important piece of the puzzle,” he said. “It should at least give some confidence to issuers unsure about entering the market that there is a locally accepted framework for what meets sustainable criteria.”

Paired with a recovery in broader sentiment, sustainable finance has a role to play well into the future, according to Simmons.

“It's a long-term game,” he said. “We would expect sustainable finance continues to be a major part of the debt market moving forward.”

Simmons said he expects the taxonomy to begin impacting how sustainable issuance is put together in the near term.

“If an issuer were to come to the bond market seeking a green label in Australia today, and there wasn’t a reference to the taxonomy, there might be some questions as to why,” he said.

The green loan principles that guide how issuers manage green-labelled debt were updated in March to include a recommendation issuers should consider alignment of their green projects to local taxonomies where they exist.

“There will be a growing expectation for the taxonomy to become a key reference point for the market moving forward,” Simmons said.