Australia is developing its climate reporting rules. As the process moves into the detail of policy proposals, we look forward to working with Treasury on key elements to support implementation, including clarity on the implementation process, application of reporting requirements to different entity types including asset owners and fund managers, and detail and timing of guidance and supporting materials.
Senior Manager of Policy, Amy Quinton says:
“Australia is broadly on the right track when it comes to mandatory climate disclosures; the sooner investors can get a reliable and comprehensive picture of climate risks and opportunities for the companies they hold, the sooner they can efficiently put capital to work decarbonising the economy.
“Building on the global ISSB standards is the right way to go; it’ll streamline the process for companies, for investors, and for anyone trying to navigate a rapidly changing economy, locally or internationally.
“Australia also has a chance to make a really valuable contribution to best practice for reporting the likely impact of climate change’s damage and disruption, which markets currently under-price.
“Australia’s unique exposure to physical risk in combination with our skilled and sophisticated financial and regulatory workforce means we should be helping set global standards.
“Investors have already helped Treasury understand their important perspective and we’ll keep working with government as the rules are developed and refined.
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Executive Summary
Process and next steps
We recommend that Treasury, AASB and regulators prioritise working together to clearly communicate policy process, timing and responsibilities for delivering reporting standards, regulatory framework and guidance ahead of scheme commencement. This is necessary to build investor and stakeholder confidence in how proposed elements and roles and responsibilities come together to deliver a robust and fit for purpose disclosure regime.
Coverage – reporting entities and phasing
We welcome Treasury’s timebound roadmap for implementation, including proposed coverage of private companies and process for establishing comparable arrangements for government entities. We recommend:
- Phase in should occur over a maximum three year period (instead of four years), with the final year no later than 2026/27. Commencing reporting earlier for Groups 2 and 3 with additional transitional reliefs where necessary is preferable than to delay commencement all together.
- Extend Group 1 to capture ASX300 and equivalent sized unlisted companies, and adjust Group 2 thresholds accordingly; and revise Group 1 thresholds for asset owners and asset managers to a minimum of $5b to reflect Treasury’s intention of capturing larger entities in Group 1 and similarly review thresholds for Group 2 and 3.
- Test application of proposals to asset owners and fund managers to ensure they are fit for purpose and engage with investors on how the proposals apply to different entity types.
Reporting content
Institutional investors welcome the development of internationally aligned climate-related risk disclosure requirements in Australia. Ensuring clear, mandatory requirements adopting and building on ISSB standards will help to align regulation with industry expectations and global standards.
Scenario analysis
- We recommend reporting entities disclose climate resilience assessment against at least three future states to ensure adequate consideration of the range of plausible scenarios, one of which must be consistent with 1.5°C (rather than the broader range in the Climate Change Act), and one aligned with a high warming scenario. We also note the importance of considering not only temperature outcomes but also differences in risks and opportunities between an orderly vs delayed disorderly transition scenario.
- Provide guidance with reference to existing materials on the importance of considering a range of scenarios, and disclosing inputs, assumptions and limitations of scenarios.
Transition planning and climate-related targets
Noting Treasury’s proposal for further consultation on transition planning via the sustainable finance strategy consultation, we support Treasury establishing arrangements for developing and disclosing transition plans which supports a whole of economy just transition aligned with limiting global temperatures to 1.5°C. This would include introducing best practice regulatory guidance and minimum requirements for transition plan disclosure in Australia. This should build on the ISSB baseline, draw on international examples, and involve close consultation with finance sector representatives, industry experts and the wider community.
Risks and opportunities
IGCC encourages Treasury and the AASB to ensure physical risk considerations receive adequate attention in the context of Australian reporting standards and guidance. There is an opportunity to position Australia as a leader on climate disclosure related to physical risks, which is much less developed internationally than transition risk disclosures.
Metrics and Targets
GHG emissions:
- Ensure company emissions are measured based on both equity share (for comprehensive coverage of risk) and operation (for management and performance tracking) under the GHG Protocol Corporate Standard, or that they explain why an only one approach is appropriate in the circumstance.
- Provide industry targeted guidance, support and resources for emissions reporting, particularly for scope 3 emissions (including financed emissions), as well as scope 1 and 2 emissions.
Industry based metrics:
Industry-specific metrics in addition to sector neutral metrics are important to support disclosure of relevant and comparable information. We recommend Treasury and the AASB consider opportunities to include industry based metrics from the outset where practical and engage in ISSB work on metrics based on SASB and support a common baseline of metrics and supporting guidance, including on physical risk metrics and targets.
IFRS S1 – General Requirements for Disclosure of Sustainability-related Financial Information
We recommend Treasury and the AASB consider IFRS S1 carefully as part of its climate- first approach to ensure general provisions intended to underpin climate-related reporting are incorporated in Australian standards.
Guidance and supporting information
We welcome Treasury’s emphasis on the need for supporting information. Guidance and supporting resources will be critical to support implementation and communicate regulatory expectations for new reporting requirements. This should be developed in consultation with industry in time for scheme commencement.
Reporting framework
We support integration of company climate reporting within company’s financial reporting package, including critical elements in the annual report. In consultation with investors we recommend review of proposals for full reporting in annual reports to ensure they are fit for purpose for different reporting entitles captured by the regime.
Assurance
IGCC supports expansion of assurance coverage over time. We note existing concerns about market readiness and proportionality of proposed scope and timing of mandatory assurance.
We recommend assurance should be further consulted on and phased in following implementation of AASB standards and release of draft IAASB standards.
Modified legal liability settings
We acknowledge the need for Treasury to respond to concerns regarding legal liability for reporting in relation to forward looking statements and scope 3 emissions. We recommend additional regulatory guidance and capacity building around application of ISSB standards within Australian regulatory settings, including with regard to the modified legal liability settings proposed by Treasury.
Download our Submission