Mandated sustainability related reporting
Mandated sustainability related reporting in Australia is currently quite limited, but the situation is likely to change quickly.
The only mandates which exist are related to specific federal acts, such as the Modern Slavery Act 2018, the Workplace Gender Equality Act 2012 and the National Greenhouse and Energy Reporting Act 2007. There is no overarching sustainability act, akin to the Corporate Sustainability Reporting Directive in the EU, to require companies (listed or not) to firstly make sustainability related disclosures, and secondly, to align them to a specific framework.
Sustainability related disclosures
Whilst ESG reporting is not currently mandatory in Australia, it would be incorrect to imply that listed companies are not making sustainability related disclosures. A recent and insightful report by KPMG analysed the extent to which the updated ASX Corporate Governance Council’s Recommendation 7.4: Reporting on Environmental and Social Exposures has been adopted. The report shows that 95 percent of ASIX listed companies have adopted recommendation 7.4. Of those reporting, 50 percent followed the GRI framework and 63 percent used the TCFD. The Integrated Reporting (IR) framework and Sustainability Accounting Standards Board (SASB) were also used (noting that 21 percent reported against more than one framework or standard). Whilst a 95 percent reporting rate is encouraging, KPMG found that over 25 percent of those entities reported no material exposure to environmental and/or social risk. As the report explains, such a lack of exposure seems unlikely given the World Economic Forum Global Risks Report 2022 identified the top five most severe risks on the global scale as environmental (climate action failure, extreme weather and biodiversity loss) and social (social cohesion erosion and livelihood crises). Furthermore, the majority of reports were not audited or reviewed by external parties, which might go some way to explaining the limited acknowledgement of perceived risk.
The landscape of ESG reporting in Australia is evolving
The global trends we have discussed in previous blogs are certain to influence Australian companies, both directly as a result of international subsidiary and/or investor structures, or indirectly by influencing Australian financial regulator and federal treasury policy development. As a KPMG report notes, the development of new global standards in particular is expected to see jurisdictions mandating their use.
Various financial regulation bodies in Australia are openly discussing the current and future state of ESG reporting. In 2017 the Council of Financial Regulators (CFR) established the Working Group on Financial Implications of Climate Change. The group is chaired by the Reserve Bank of Australia (RBA) and includes the other three CFR agencies – the Australian Prudential Regulation Authority (APRA), the Australian Securities and Investments Commission (ASIC) and the Australian Treasury. All members of the group are engaged in domestic and international forums on the development of best-practice climate related financial risk assessment (part of the ‘E’ in ESG) and the taxonomies and reporting frameworks which relate to them.
Sustainability and climate-related financial information
In August 2022, the CFR submitted a comment letter to the International Sustainability Standards Board (ISSB) on the proposed disclosure standards for sustainability and climate-related financial information. In it they express to the International Sustainability Standards Board (ISSB) on the proposed disclosure standards for sustainability and climate-related financial information. In it they express their in-principle report for the adoption of the Exposure Draft IFRS S1 (General Requirements for Disclosure of Sustainability-related Financial Information) and Exposure Draft IFRS S2 (Climate-related Disclosures) as reporting standards in Australia, though the caveat is given that a mandate would have to be the decision of the Australian Government.
In November 2021, then shadow treasurer and now federal treasurer Jim Chalmers commented that current climate related disclosure frameworks are ‘insufficient, inconsistent and inadequate’, and that like the RBA, the Labour Party would like to see disclosures that are ‘usable, credible and comparable’. In March 2022 Dr Phillip Lowe, governor of the RBA, commented that of climate-related financial risk disclosures ‘there is discussion here about whether it will be mandatory. I think in time it will be mandatory, just like the accounting standards are mandatory’.
A shift to mandatory disclosures in Australia is likely
The sentiments being expressed by politicians and financial regulators alike, in tandem with the development of reporting requirements in the APAC region signals that a shift to internationally aligned and mandatory disclosures in Australia is likely, if not imminent. Australian companies and those advising them must stay abreast of such developments and begin or continue the preparatory work involved in readying their businesses for compliance.
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