This development is a departure from the financial sector's expectations that Mulino would tackle lingering issues from his predecessor, Stephen Jones. A major task left unfinished is the second tranche of reforms aimed at improving financial outcomes. However, the initiative to standardise sustainability labelling, initially outlined in the Treasury’s 2023 sustainable finance strategy, has already been unfolding over the past year.
The consultation phase invites public feedback on whether to extend the labelling to all financial products or limit it to those claiming to be 'sustainable', 'ethical', or 'responsible'. The former could provide broader insights into the environmental impact of financial products, while the latter would highlight products appealing to environmentally conscious investors. Chalmers and Mulino stressed that a transparent labelling structure is crucial for empowering investors and consumers to confidently engage with sustainable products and combat greenwashing.
Australia's initiative emerges as similar international efforts encounter obstacles. The European Commission's Green Claims Directive, meant to regulate increasing green labels and demand evidence-backed environmental claims, faces challenges from the European People’s Party due to concerns over potential high compliance costs. In the European Union, there are around 230 sustainable labels, with proposals to restrict new public labelling unless they are EU-level initiatives.
The Australian proposal also considers adopting a 'principle-based' approach similar to the UK's, offering issuers more flexibility in substantiating environmental claims. However, substantial regulatory guidance may be required to adopt such a regime domestically. This approach is already partially supported by the Australian Sustainable Finance Institute’s newly released Sustainable Finance Taxonomy, a voluntary guideline co-funded by the government intended to enhance credible sustainability claims.
The public consultation on Australia's sustainability labelling framework is scheduled to run from 18 July to 29 August, providing stakeholders an opportunity to shape future policy direction. As these discussions proceed, the government aims to craft a regulatory environment that responsibly balances consumer transparency and industry flexibility.
