Towards common climate-related financial disclosures for comparison and pay

Treasury has released a consultation paper that seeks initial views for the design and implementation of standardised, internationally-aligned requirements for disclosure of climate-related financial risks and opportunities in Australia. This will impact the reliability and validity of climate exposure disclosures and risk assessment for investment and executive remuneration purposes.

Views are also sought on other matters relevant to climate disclosures, such as necessary changes to ensure Australia’s financial reporting bodies can keep pace with the expansion of international standard-setting priorities on climate and sustainability reporting.

Climate-related risk is a reality that a number of boards are grappling with, including increasing international regulation and disclosure.  The reality is that the flow of capital internationally is taking on board climate risk and the Australian regulators (Treasury) will shortly draft disclosure regulations.

Internationally the TCFD leave scope for regulations to vary across regions.  ISSB aims to fill the gaps by providing standardisation and comparability to provide global baseline of sustainability related disclosure standards.  So Treasury and the AASB are engaging with international bodies and there is the potential that the draft ISSB standards may be adopted or modified by the Australian Accounting Standards Board due to new federal legislation.

The use of standardised, internationally-aligned reporting requirements around governance, strategy, risk management, target and metrics including greenhouse gases seeks to address the need for consistency, reliable reporting around climate-related risks, and forward-looking data (targets, emissions pathways).

The consultation raises a number of questions around global standardisation. There are also some interesting questions around materiality of climate risks, assurance on reporting, judgements around materiality and whether reporting should be subject to independence and quality management standards.  For climate related disclosures there already exists report frameworks including NGER (National Greenhouse & Energy Reporting) CERT (Corporate Emission Reporting Transparency) Initiative & Climate Active’s Carbon Neutral Standards.

The consultation paper also raises the vexed question around penalties which operate hand in glove with disclosure requirements.  That is, civil penalties ensuring that markets are adequately informed and to provide remedies for misleading and deceptive conduct including continuous reporting obligations.

Those captured will not just be large listed companies (including financial institutions) but potentially those that are not publicly listed where they can impact the management of systemic risk.

Timing – 17 Feb deadline for consultation submissions

Implementation – Potentially commencement in 2024 for FY25.

The Treasury consultation paper can be accessed HERE.

© Guerdon Associates 2024
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