Australia’s new sustainable investment rulebook is the first globally to comprehensively define what sorts of mining activities will be eligible for green financing.
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Its inaugural taxonomy – which comes after two years of consultations led by the Australian Sustainable Finance Institute (ASFI) with the government and the finance sector – is the latest addition to the growing number of similar rules in 47 jurisdictions, including China, the European Union and Singapore.
In a press release, ASFI stated that the framework will be piloted by the country’s largest banks and pension funds, including ANZ, Commonwealth Bank of Australia, National Australia Bank, Westpac, Rabobank, Hesta and Rest Super.
While the 2020 EU taxonomy is widely regarded as the “gold standard” for green finance, gaps in its coverage of certain high-emitting sectors have spurred other countries to develop their own iterations in recent years.
In 2023, Singapore – which remains heavily reliant on natural gas – became among the first in the world to allow transition activities involving fossil fuels, such as abated fossil gas and managed coal phase-out, to qualify for financing under certain circumstances.
Similarly, Australia – a major producer of many mineral commodities – is looking to fill the regulatory vacuum for the mining and metals sector worldwide with its sustainable finance framework, which is also the only known one to set expectations for engagement with Indigenous peoples.
In its first phase, the taxonomy will focus on four metals: copper, lithium, nickel and iron ore. The first three are minerals deemed critical for the transition away from fossil fuels, while iron ore is Australia’s single largest mineral export. Australia’s rules also cover agriculture, manufuacturing, electricity, construction and transport.
Under its framework, mining activities can be classified as “green” if they meet certain emissions intensity thresholds “consistent with a credible pathway to net zero”.
To qualify as a transition activity, the mining site must implement eligible decarbonisation measures to move towards a 1.5°C aligned pathway, such as through the electrification of a company’s vehicle fleet or switching from diesel generation to renewables to power its operations.
The Australian taxonomy explicitly ruled out the eligibility of captive coal-powered mining sites for sustainable financing.
This stands in contrast with Indonesia’s green finance rulebook, which has drawn flak from environmental groups for its categorisation of investments into off-grid coal plants used to power facilities that process transitional metals, like nickel, cobalt and aluminium, as a credible transition activity.
Australia’s work has drawn interest from Indonesia and other major mining economies like Chile, Canada and South Africa, according to ASFI chief executive Kristy Graham. “They are watching what we do and are very interested in where it will land. They want to use it as the basis for the work they plan to conduct,” she told a local media outlet.
Earlier this year, the EU proposed widening its existing taxonomy to include activities linked to the mining and production of lithium, nickel and copper. Brazil and Chile are also developing similar criteria that adopt an emissions intensity reduction approach that takes into account the downstream emissions of these metals, which make up the bulk of the mining sector’s emissions.
The International Energy Agency estimates that total demand for transition-related minerals will grow by over 3.5 times the current levels to reach 3.5 billion tonnes by 2050, in order to support renewable energy infrastructure that would keep global warming to under 2°C in line with the Paris Agreement.
However, multiple recent media reports have raised questions about whether there are sufficient safeguards to ensure the extraction of transition minerals does not encroach on conservation sites and local communities’ livelihoods.
Earlier this month, an investigation by Greenpeace found that the Indonesian government had given out 16 nickel mining licenses in Indonesia’s marine biodiversity hotspot Raja Ampat – 10 of which were located within conservation areas and four on islands too small to be mined legally. Public uproar has led President Prabowo Subianto to revoke four mining permits in the region, which is home to 75 per cent of the world’s coral species and about 2,500 fish species.
Potential lift in sustainable debt market
Graham stated in the press release that the taxonomy’s inclusion of the minerals, mining and metals sector ensure the taxonomy was “internationally credible and locally relevant” in order to “unlock global finance for Australia’s key green and transition sectors.”
Guy Debelle, the former deputy governor of Australia’s central bank and co-chair of the technical body behind the taxonomy, said it offered a “science-aligned guide” for investors to confidently direct capital to the decarbonisation of the country’s economy.
In a brief published on Monday, Sustainable Fitch noted that the more detailed sectoral guidance allows hard-to-abate sectors to tap on the sustainable debt market to raise funding for their decarbonisation initiatives.
This could lead to a corresponding rise in domestic labelled debt issuance, which “could deepen liquidity in Australia’s sustainable finance market,” its analysts wrote. Outside of Australia, the taxonomy could also serve as “a science-based reference for sectors and activities that have typically been excluded from sustainable finance taxonomies, such as mining and agriculture.”
