The Australian government’s new rules for climate disclosures, as proposed today, provide many of the elements investors will need to efficiently allocate capital in the transition to a resilient, net zero economy.
- The government has proposed a roadmap for disclosure and assurance including a phase-in timeline, with the rules applying to the largest companies from July 1 2024 and expanding to smaller companies over the following three years.
This timebound roadmap is welcomed for allowing entities to build capacity and prepare for their obligations. It will put early emphasis on the larger companies which are likely to have the greatest risks and opportunities as well as the greatest capability to understand and disclose their exposure.
- The rules will also apply to private companies, which is appropriate given that climate risks and opportunities exist throughout the economy, not just the public markets. Comparable arrangements will be developed for government entities.
- Investors rely on the enforceability of disclosure laws, which is fundamental to the dependability of company’s reports and an important protection against greenwashing.
The government has proposed a three-year period during which only ASIC will have the right to bring proceedings related to disclosures of Scope 3 emissions and forward-looking statements. It is positive that ASIC can exercise this right without the restriction of safe harbours for forward-looking statements, and that investors and other stakeholders resume their full rights after the temporary relief period.
- Investors will be closely examining the government’s limited requirement for companies to apply climate scenarios. It is positive that companies will be required to disclose against a scenario consistent with the Climate Change Act’s 1.5°C goal, but stakeholders will also need reporting that considers current trajectories and the wide range of plausible scenarios.
- On Scope 3 emissions, the government’s proposed timeline for phased-in reporting may allow Australian companies to fall behind international best practice.
Although investors recognise that Scope 3 emissions data may not be reliable or feasible in 2024/5, the first year of the reporting regime, the proposed rules would allow the final group of companies to still omit Scope 3 emissions reporting as lateas 2027.If reliable data exists, companies should be required to incorporate it, noting if and when it does not exist.
- The proposed rules for reporting transition plans are a starting point to help investors efficiently allocate capital to the projects and companies that mitigate the risks and seize the opportunities associated with climate change.
Investors strongly support enacting a clear domestic framework for developing and disclosing credible company climate transition plans, building on the ISSB baseline and international best practice.
- The proposed Australian rules are largely aligned with the baselines released overnight by the International Sustainability Standards Board (ISSB).
This will help Australian companies remain attractive in global capital markets, and streamline the reporting process for companies and investors that work across multiple jurisdictions.
Download Treasury’s climate-related financial disclosure consultation paper.
The Investor Group on Climate Change is engaging closely with the Australian Government and industry to support Australia’s adoption of globally consistent, comparable, reliable and verifiable climate risk disclosure requirements commencing in 2024.
Quotes from Rebecca Mikula-Wright, CEO of the Investor Group on Climate Change
“The governments’ plan for new climate reporting rules will help Australian companies remain attractive in global capital markets while providing investors, regulators, and stakeholders with a comprehensive understanding of the economy’s climate risks and opportunities.
“Building on the global ISSB Standards will help alleviate the reporting and assessment burden for entities that operate across multiple jurisdictions, streamlining their disclosure requirements and fostering consistency.
“High quality, enforceable climate reporting will be part of the economy’s protections against greenwashing.”
More Background on the ISSB Standards Released Overnight
The International Sustainability Standards Board (ISSB) release sets a global baseline for standardised mandatory climate-related disclosures, aligned with the Taskforce for Climate-related Financial Disclosures (TCFD) recommendations.
The ISSB also announced it will create a Transition Implementation Group to support companies that apply the Standards and launch capacity-building initiatives to support effective implementation.
Through the ISSB’s extensive consultation process, the standards have garnered unprecedented support from business sectors, government and regulators.
Consistent, comparable, standards-based, and decision-useful disclosures that address systemic climate risk and opportunities have important benefits:
- They promote efficient global capital flows, because investors have a reliable understanding of a business’ risks and opportunities,
- They help companies remain integrated and attractive in global capital markets,
- They streamline the reporting process for companies who must report into multiple jurisdictions,
- They help governments and other stakeholders develop a reliable understanding of the overall risks and opportunities across the economy.
Investors therefore welcome progress in Australia, New Zealand and in major markets around the world including in Asia, Europe, the United Kingdom and United States to implement mandatory disclosure requirements aligned with and building on the ISSB Standards.
The ISSB encourages domestic jurisdictions adopting the ISSB global baseline to take a “building blocks” approach to enhance disclosures at a local level. Among key priorities for investors is to ensure a clear domestic framework for developing and disclosing credible company climate transition plans, building on ISSB’s baseline and international best practice.