1

Assessment Report
Critical Evaluation of ESG Strategies in the Australian Financial Sector
 2

Table of Contents
Task 1: Understanding Recent Regulatory Action in Finance for ESG (80 Marks)......................................3
A. Issues Around Definitions.....................................................................................................................3
Introduction to the Australian Sustainable Finance Institute (ASFI) and Taxonomy Development
Project....................................................................................................................................................3
Assessment of two international ESG taxonomy frameworks..............................................................3
Three recommendations for ASFI based on international frameworks.................................................4
B. Regulatory Action Against "Greenwashing".........................................................................................4
Overview of ASIC’s Greenwashing Enforcement Actions....................................................................4
A critical review of the enforcement action...........................................................................................5
Three recommendations for the financial services sector......................................................................6
C. Introduction of Audited ESG Reporting................................................................................................6
Overview of ISSB and AASB standards for climate-based financial disclosures.................................6
Australian Treasury's Role in ESG Regulations....................................................................................7
Comparison of climate disclosure requirements with ESG factor (gender-based reporting):...............8
Three recommendations for ISSB..........................................................................................................9
Task 2: Reflective Writing on Developing an ESG Financial Services Product.........................................10
5. References................................................................................................................................................11
 3

Task 1: Understanding Recent Regulatory Action in Finance for ESG

A. Issues Around Definitions

Introduction to the Australian Sustainable Finance Institute (ASFI) and Taxonomy Development Project

The Australian Sustainable Finance Institute (ASFI) is a non-profit organization that has focused
on maintaining alignment of the financial system of Australia to sustainability goals. It was established in
the year 2021 to focus on the promotion of sustainable investment practices in Australia and enhance the
overall flow of capital towards socially beneficial and environmentally feasible activities across different
sectors in Australia (Australian Sustainable Finance Institute, n.d). ASFI's mission is to restructure the
Australian financial services system to increase funding towards activities that lead to a sustainable,
resilient, and inclusive Australia (Australian Sustainable Finance Institute, n.d.).
The Australian Taxonomy Project is one of the core activities which ASFI undertakes to fulfil
both the mission and vision of the institution (Billio et al., 2024). Based on international sustainable
finance classifications, the Australian Taxonomy cluster works on developing a comprehensive and easily
applicable sustainable finance classification system that meets the practical needs of Australia’s economy
and environment while maintaining its compatibility with the rules and norms appreciated on the global
stage.
Assessment of two international ESG taxonomy frameworks

Two primary International ESG taxonomy frameworks are green bond principles and EU
taxonomy. The EU “green taxonomy” is a concept that defines environmentally sustainable economic
activities for the European Green Deal. The concept is intended to counter greenwashing and help
investors make sound sustainable investments (Billio et al., 2024). It includes activities concerning six
environmental objectives and was launched in July 2020 (Chiaramonte et al., 2022). The GBP
recommend for referral to issuers a clear procedure and information on features of Green Bonds that may
be understood by investors, banks, underwriters, arrangers, placement agents and others. The Green Bond
Principles (GBP) have a primary aim of helping firms finance green sustainable projects that can achieve
a carbon-free economy and protect the environment (Chiaramonte et al., 2022).
Assessment of two international ESG taxonomy frameworks

Two major global ESG classification systems are green bond principles and EU taxonomy. The
EU’s ‘green taxonomy, categorizes certain activities as ecological on the European Green Deal’s
economically sustainable list. The purpose of its creation is to prevent greenwashing and help investors
make wise sustainable investment choices (Billio et al., 2024). The management statement deals with
tasks related to six environmental goals, and the new program was launched in July 2020. Guidelines for
the Green Bond Principles (GBP) help to encourage absolute transparency, disclosure standards, and
 4

integrity in the development of the Green Bond market by giving a step-by-step guide on how to proceed
with the issuance of Green Bonds (Chiaramonte et al., 2022). The GBP outlines a simple mechanism and
information for issuers so that investors, banks, underwriters, arrangers, placement agents, and others can
understand the concept of green bonds. The primary purpose of the Green Bond Principles (GBP) is to
help companies mobilize funds for green and sustainable projects that would lead to a low-carbon
economy and the creation of a green economy (Chiaramonte et al., 2022).
If we compare these frameworks with the development of an Australian taxonomy, it will be
evident that there are certain critical similarities and differences. Morningstar (n.d.) indicated the EU
taxonomy presents the necessary and sufficient conditions for appraising sustainability, while the
Australian Taxonomy Framework is still in the process of its construction to indicate the parity standards
(Coelho et al., 2023). Both aim at investor trust and openness, but the European Union taxonomy is more
prescriptive and selective than the Australian methodology. Similarly, an analysis of the GBP Framework
shows that it can enhance both the European Union and Australian frameworks by offering a uniform
method for green financing.
Three recommendations for ASFI based on international frameworks

Recommendation Description
Industry-Specific Introduce ESG standards differentiated by sectors of focus as addressed in the
ESG Criteria EU Taxonomy, including energy, agriculture, and technology. This will create
relevance and reliability when evaluating sustainability in various sectors (DLA
Piper, 2023).
Flexibility in Form an array of classes and sub-classes all categorized under ESG with flexible
Definitions definitions to accommodate the change in ESG standards (Harvard Law School
Forum on Corporate Governance, 2023). This will help ASFI to continue
growing concerning the best practices and trends observed in the international
context regarding sustainable finance (Crespi & Migliavacca, 2020).
Cross-Sector Government social business industrial, civil society and other relevant parties
Collaboration should work together. This approach will help to improve the comparability of
ESG disclosures and ensure that all stakeholders have the same perception of
sustainability objectives (Crespi & Migliavacca, 2020).
B. Regulatory Action Against "Greenwashing"

Overview of ASIC’s Greenwashing Enforcement Actions

The Australian Securities and Investments Commission (ASIC) is an independent government

agency established by the ASIC Act of 2001 to regulate Australia's business, financial services, markets,
 5

and consumer credit sectors. ASIC is presently concentrating on increasing its greenwashing techniques
and conducting enforcement steps to prevent financial institutions from misrepresenting their
environmental credentials (de Silva Lokuwaduge & de Silva, 2020). One of the key cases related to
ASIC's greenwashing enforcement proceedings is the Asset, in which ASIC stated that false
representations were made concerning sustainable investment products (Australian Securities and
Investments Commission, 2023). ASIC accused Northern Trust of making false representations in its
advertisements that its funds were more environmentally conscious than they were in reality. This case is
just an example of how ASIC combats against greenwashing which induces the development of the
distrust of investors and declines the financial market’s credibility (Australian Government Attorney-
General's Department, n.d.).
The enforcement actions taken by ASIC branches from several fundamental reasons. The
increment in environmental, social and governance investments has essentially stimulated the
development of significant increment in products that are claiming sustainability (Australian Securities
and Investments Commission, 2023). This inherently leads to the development of increment in the
challenges associated with deserving genuine efforts from mere marketing tactics by the consumers.
Moreover, ASIC is also focused on protecting the investors from misleading clean that can ultimately lead
to improper investment decisions (de Silva Lokuwaduge & de Silva, 2020). The actions taken by the
regulator are the predominant part of the broader efforts for the establishment of a transparent framework
for ESG disclosures and reporting ensuring that the financial product is marked as green and sustainable
based on strict criteria.
Critical review of the enforcement action

As evident from ASIC’s activities, the commission takes an active approach to enforcing the law.
However, several issues and criticisms about its actions have been identified. Misleading disclosures
constitute one of the major challenges. Different financial institutions induce the development of
engagement in male practices which might not be considered to be overtly fraudulent but ultimately leads
to consumer misleading. For instance, terms such as ‘sustainable’ or ‘eco-friendly’ are often undefined,
creating significant confusion regarding what these products provide. This vagueness can lead to
consumers making decisions based on perceived impact, which may not be accurate or even inflated. It
leads to the development of misalignment of consumer expectations which ultimately causes significant
reduction in the satisfaction of the consumers when the expectations are not met. In other words is causes
greenwashing of the consumers which is associated with giving a false expectation of eco friendliness and
sustainability.
Another factor to consider is that the reporting standards vary when it comes to ESG scores and
metrics. Currently, there are no standard rules governing the implementation of these strategies, making it
 6

hard for regulators such as ASIC to ensure compliance. Some organizations may apply different
approaches to evaluate their ESG outcomes, and this can create some confusion for investors (Dye et al.,
2021). This variability may also benefit corporations practicing greenwashing since they can use the
flexibility of rules and regulations to advance false information.
Moreover, the enforcement actions are equally limited in addressing the systemic issue of
greenwashing that may involve multiple entities. Though cases like Northern Trust indicate certain
violations, they do not address the overall problem of deficient investment ESG consciousness or the lack
of systemic changes and improvements in ESG reporting (Dye et al., 2021). Unless these systemic
challenges are adequately addressed, the actions that have so far been taken by ASIC may fail to deliver
long-term results in eliminating cases of greenwashing.
Three recommendations for the financial services sector

Recommendation Description
Improving Enhance the clarity and accessibility of ESG disclosures by providing detailed
Transparency in information on ESG practices, metrics, and outcomes. This will help investors
ESG Disclosures make informed decisions and foster trust in financial products (Gholami et al.,
2022).
Standardizing ESG Develop and implement consistent reporting frameworks and metrics across
Reporting to the industry. This would create a uniform basis for evaluating ESG
Reduce performance, reducing the risk of misleading claims and enhancing
Greenwashing comparability among financial products (Gholami et al., 2022).
Risks
Strengthening Implement robust internal auditing processes to regularly assess and verify
Internal ESG Audit ESG claims and practices. Strengthening these mechanisms ensures
Mechanisms compliance with regulations and fosters a culture of accountability within
organizations.

C. Introduction of Audited ESG Reporting

Overview of ISSB and AASB standards for climate-based financial disclosures

The ISSB is a standalone organization responsible for creating and endorsing IFRS SDS. The
ISSB was founded in 2021 after two discussions about global sustainability standards, the Foundation's
potential role in its creation, and modifications to the IFRS Foundation Constitution permitting a new
board dedicated to sustainability standards (Mohamed Buallay et al., 2023). Likewise, the Australian
Accounting Standards Board (AASB), a body under the Australian Government, is responsible for
 7

creating and upkeeping financial reporting regulations for commercial and public sector entities in
Australia, the AASB contributes to the development of international financial reporting standards and
helps engage the Australian community in global standard setting (Mohamed Buallay et al., 2023). The
ISSB and the AASB have established standards regarding climate-related financial disclosures that act as
a basis upon which companies declare their sustainability impacts. These standards are designed to
improve the reliability and consistency of information that entities provide concerning climate change
risks and opportunities:
1. Transparency and accountability - The rule makes it mandatory to stimulate the integration of
climate related information disclosure and promotion of accountability for environmental impact,
which includes disclosure of emissions data and sustainability report development. It helps in
improving investors confidence and inducing the development of better public perceptions
(Naeem et al., 2022).
2. Risk management - This rule is focused on mitigating any identified climate related risks
including transitional and physical risk through the integration of feasible risk assessment and
scenario analysis for improving resilience and reducing financial loss (Naeem et al., 2022).
3. Alignment with financial reporting - This rule highlights the importance of integrating climate
disclosure in the financial reports for helping to develop comprehensive performance evaluation
by utilising integrated reports and annual disclosure (Mohamed Buallay et al., 2023).
4. Materiality assessment - This rule emphasizes on the importance of analysing the significant
climate related issues for relevance to stakeholders and organisational operations by using
materiality assessment and stakeholders surveys for inducing the development of focused to
reporting on critical issues and enhancing relevance for the investors and stay holders who are
interested in the impact areas.
Australian Treasury's Role in ESG Regulations

The Australian Treasury has significant duties when it comes to the formulation as well as
the enactment of ESG regulations (Australian Government Attorney-General's Department, n.d.). It is
expected to help the government create a favorable environment for finance and investment that is
sustainable. The Treasury's key responsibilities include:
1. Policy development - this is associated with development of collaboration with the stakeholders
for stimulating the establishment of policies to promote accountability and transparency in the
ESG disclosures (Poyser & Daugaard, 2023).
2. Regulatory oversight - This responsibility indicates the focus on overseeing the bodies and
agencies like AASB and ASIC for insurance compliance and disclosure requirements in
consideration to ESG which helps in increasing credibility of sustainability reporting. The
 8

Australian treasury essentially ensures enforcement of the regulations for mitigating

greenwashing practices.
3. Stakeholders engagement - This is associated with the development of engagement with
nongovernmental organisations, industry participants and stakeholders for gathering feedback
regarding ESG regulations for development of more relevant and efficient regulations (Poyser &
Daugaard, 2023).
Comparison of climate disclosure requirements with ESG factor (gender-based reporting):

While climate-based financial disclosures and gender-based reporting may seem to overlap to an
extent in the grand framework of ESG reporting, they are different and serve different purposes (Poyser &
Daugaard, 2023). The primary similarities includes:
1. Climate reporting and gender based reporting both focuses on transparency associated with
relevant information regarding practices and impact.
2. Both reporting infrastructures are based on the principles of materiality assessment which means
that they are required to evaluate the materiality. Climate reporting is focused on analysing the
materiality associated with the climate related issues for the stakeholders while gender based
reporting makes it necessary to analyse significant gender issues impacting operations.
3. Both are governed by regulatory frameworks where climate reporting is governed by ASIC and
ASSB for climate related compliance and disclosure while gender based reporting is subject to
anti discrimination laws and equality laws including the workplace gender equality act.
However the primary differences between climate reporting and gender reporting includes the following:
1. Climate reporting focus area is to address environmental risks, mitigate sustainability issues and
emission problems while gender based reporting is concentrated on representation of the gender
equally, ensuring the development of inclusive treatment and advancement of the individuals
belonging to different genders.
2. The metrics and standards involved are also significantly different considering that climate
reporting primarily involves quantitative metrics associated with sustainability performance and
emissions while gender reporting includes qualitative measures like workforce policies and
diversity initiatives.
3. Stakeholders priorities are also significantly different in case of climate reporting and gender
based reporting where investors increasingly consider climate risk in investment decision in
climate reporting and gender equality is viewed waste on ethical governance lenses and corporal
Social Responsibility in gender based reporting.
Three recommendations for ISSB

Recommendation Description
 9

Broaden the Scope of Expand the range of organizations required to report ESG data, including
Mandatory ESG small and medium enterprises (SMEs) and non-listed companies. This
Reporting ensures a more comprehensive approach to sustainability practices across all
sectors and encourages greater accountability (Chiaramonte et al., 2022).
Develop Sector- Create tailored reporting standards for different industries, addressing the
Specific ESG unique ESG challenges and metrics relevant to each sector (Chiaramonte et
Reporting Guidelines al., 2022). This will promote clarity, relevance, and consistency in
disclosures, allowing stakeholders to make informed comparisons and
decisions.
Enhance Foster stronger partnerships among international and domestic regulatory
Collaboration bodies to harmonize ESG reporting standards (Chiaramonte et al., 2022). This
Between Global and reduces discrepancies and confusion, improves compliance efforts across
National Regulators borders, and ensures that organizations meet both global and local
requirements effectively.
 10

Task 2: Reflective Writing on Developing an ESG Financial Services Product

Collaborating with Shal and Shub on this project has been a worthwhile and pleasant endeavor.
At first, we scheduled a meeting at the library to explore possible subjects and establish our strategy.
During our initial meeting, Shal and I met face-to-face and worked together to select the topic and plan
the presentation's layout. We separated the slides and allocated particular questions to each team member
to guarantee a fair distribution of tasks. Shal showcased a pleasant and relaxed demeanor, setting a
positive atmosphere for our collaboration. I quickly put together the slides I was assigned and distributed
them to the group for input and to make sure we were all on the same page.
Subsequentyly, Shub contacted to talk about a possible shift in subject matter, sharing fresh
concepts he believed could have a greater effect. After suggesting a different idea, I listened to his point
of view and ultimately agreed that the revised topic could improve our presentation. As a team, we
collectively chose to shift focus to the new topic, so I started modifying my slides and content to match
the revised direction. We scheduled a second meeting to go over the slides of each member and make sure
there is cohesiveness in the presentation. This conversation enabled us to tackle any unanswered queries
and refine our project to deliver a unified and engaging end result.
Working with Shal and Shub has been a very positive experience as they have been extremely
friendly, supportive, and communicative during the collaboration. Even though it was my first experience
collaborating with them, we swiftly established a robust working relationship founded on respect and
transparent communication. I am happy with how well we worked together as a team and how easily we
adjusted to changes, showing flexibility and dedication to our common objectives. We have also chosen to
stay connected after the project and have organized a dinner to celebrate our strong teamwork once this
semester is over. In general, this project has not only improved my ability to work together with others
but also facilitated the development of important professional connections.
 11

5. References

Australian Government Attorney-General's Department. (n.d.). Modern Slavery Reporting.

https://www.ag.gov.au/crime/people-smuggling-and-human-trafficking/modern-slavery

Australian Securities and Investments Commission. (2023). ASIC commences greenwashing case against
ActiveSuper. https://asic.gov.au/about-asic/news-centre/find-a-media-release/2023-releases/23-
215mr-asic-commences-greenwashing-case-against-activesuper#!page=10&type=media
%20releases

Australian Securities and Investments Commission. (2023). ASIC issues infringement notice to Northern
Trust Asset Management for greenwashing. https://asic.gov.au/about-asic/news-centre/find-a-
media-release/2023-releases/23-344mr-asic-issues-infringement-notice-to-northern-trust-asset-
management-forgreenwashing#!page=2&type=media%20releases

Australian Sustainable Finance Institute. (n.d.). Taxonomy. https://www.asfi.org.au/taxonomy/

Billio, M., Costola, M., Hristova, I., Latino, C., & Pelizzon, L. (2024). Sustainable finance: A journey
toward ESG and climate risk. International Review of Environmental and Resource
Economics, 18(1-2).

Chiaramonte, L., Dreassi, A., Girardone, C., & Piserà, S. (2022). Do ESG strategies enhance bank
stability during financial turmoil? Evidence from Europe. The European Journal of
Finance, 28(12), 1173-1211.

Coelho, R., Jayantilal, S., & Ferreira, J. J. (2023). The impact of social responsibility on corporate
financial performance: A systematic literature review. Corporate Social Responsibility and
Environmental Management, 30(4), 1535-1560.

Crespi, F., & Migliavacca, M. (2020). The determinants of ESG rating in the financial industry: The same
old story or a different tale?. Sustainability, 12(16), 6398.

de Silva Lokuwaduge, C. S., & de Silva, K. (2020). Emerging corporate disclosure of environmental
social and governance (ESG) risks: An Australian study. Australasian Accounting, Business and
Finance Journal, 14(2), 35-50.

DLA Piper. (2023). The anti-ESG movement: Balancing conflicting stakeholder concerns and
inconsistent regulatory regimes.
https://www.dlapiper.com/en-au/insights/publications/2023/02/the-anti-esgmovement-balancing-
conflicting-stakeholder-concerns-and-inconsistent-regulatoryregimes
 12

Dye, J., McKinnon, M., & Van der Byl, C. (2021). Green gaps: Firm ESG disclosure and financial
institutions’ reporting Requirements. Journal of Sustainability Research, 3(1).

Gholami, A., Sands, J., & Rahman, H. U. (2022). Environmental, social and governance disclosure and
value generation: is the financial industry different?. Sustainability, 14(5), 2647.

Harvard Law School Forum on Corporate Governance. (2023). Trends in ESG litigation and enforcement.
https://corpgov.law.harvard.edu/2023/08/10/trends-in-esg-litigation-and-enforcement/

Mohamed Buallay, A., Al Marri, M., Nasrallah, N., Hamdan, A., Barone, E., & Zureigat, Q. (2023).
Sustainability reporting in banking and financial services sector: a regional analysis. Journal of
Sustainable Finance & Investment, 13(1), 776-801.

Morningstar. (n.d.). Morningstar on what the critics have right and wrong about ESG investing.
Responsible Investor. https://www.responsible-investor.com/morningstar-on-what-the-critics-
have-rightand-wrong-about-esg-investing/

Naeem, N., Cankaya, S., & Bildik, R. (2022). Does ESG performance affect the financial performance of
environmentally sensitive industries? A comparison between emerging and developed
markets. Borsa Istanbul Review, 22, S128-S140.

Poyser, A., & Daugaard, D. (2023). Indigenous sustainable finance as a research field: A systematic
literature review on indigenising ESG, sustainability and indigenous community
practices. Accounting & Finance, 63(1), 47-76.