Investors release plan to establish mandatory financial disclosure on climate risk in Australia

29 June 2021

29 June 2021 A plan for Australia to adopt a mandatory financial disclosure for climate change risks over the next four years has been released by major investor networks to help cut red tape for business and protect national economic stability.

The roadmap details the actions Australian financial regulators and the Federal Government can take to build on existing work and further ensure there is clear and consistent reporting from companies, investors, banks and insurers that will produce investable disclosure and ensure financial markets can properly price and act on the physical and transitional risks of climate change.

The plan, Confusion to clarity: A plan for mandatory TCFD-aligned disclosure in Australia, has been developed by three founding partners of the Investor Agenda: CDP, the Investor Group on Climate Change (IGCC) and the Principles for Responsible Investment.

The final recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) and growing expectations by Australian regulators has resulted in a significant increase in voluntary disclosures by companies and financial institutions, with 60 companies in the ASX200 adopting the TCFD framework.

However, institutional investors have reported that the quality and consistency of these company disclosures is severely lacking, leading to the under-pricing of climate risks in the market. At the same time companies and financial organisations have been left to navigate the complex and technical elements of such reporting, creating significant business burden.

Many jurisdictions have been addressing the gaps in voluntary disclosure, and removing the complexity for business, by moving to robust and comprehensive mandatory regimes, including New Zealand, the United Kingdom and Hong Kong among others. Failure to align Australian reporting expectations with other major jurisdictions implementing mandatory regimes would leave Australian companies and investors subject to multiple regulatory frameworks further increasing regulatory complexity and confusion.

Steps to move Australia to mandatory climate disclosure include:

• The Australian Prudential Regulatory Authority, Australian Securities and Investments Commission, Commonwealth Treasury and the ASX Corporate Governance Council issuing strengthened guidance and taking other regulatory and legislative steps to establish a clear TCFD-aligned mandatory disclosure signal to market participants.
• Progressively extend coverage across all major financial institutions and companies over time, starting with the ASX300 and large unlisted entities as a priority.
• Increasing the minimum expectations for climate-related reporting over time through the regime on issues like scenario use and reporting metrics, backed by additional regulator guidance on specific aspects and ongoing review.

Under the investor plan, this regime would be established under an initial “if not, why not” approach moving to a strict mandatory system by 2024.

The implementation would be guided by a joint taskforce including representatives from investors, business and the major accounting bodies under the oversight of the Council of Financial Regulators, consistent with the recommendations of the Climate Change Authority.

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