Companies that comprise the ASX200 are ramping up efforts on climate reporting, with nearly 75 per cent of the index committing to or reporting against the Taskforce for Climate-related Financial Disclosures (TCFD) framework. That’s up from 66 per cent last year, and well beyond 2017’s 10.5 per cent.
What’s more, 61 per cent of the index has now made a commitment to net zero emissions, compared to just 48 per cent a year ago. This represents 80 per cent of the market capitalisation of the ASX200 having set a net zero commitment.
ACSI’s latest longitudinal research, Promises, pathways & performance: Climate disclosure in the ASX200, shows that with strong encouragement from investors, the management and disclosure of climate risks and opportunities is continuing to mature elsewhere across the index as well, including uplifts in targets across sectors. This reflects the growing acceptance that climate change presents a material financial risk to the entire ASX200.
While these improvements are positive, there is still further work required to ensure that investor expectations of company reporting on climate risk and opportunity are met.
The federal government’s planned (and very welcome) introduction of mandatory climate reporting will help investors in managing portfolio-level climate risk with comparable and consistent market-wide financial climate reporting. It will also focus the minds of the 30 per cent of ASX200 companies that continue to provide only limited information on climate risk to the market.
This focus from policymakers, regulators, investors and other stakeholders reflects the fact that time is running out to keep warming to 1.5°C above pre-industrial levels. Frequent, intense weather-related disasters around the globe illustrate the growing societal and financial cost of overshooting this target.
We recommend that all companies should use offsets as a last resort, after exhausting all other efforts to decarbonise.
Despite improvements across the market, not all net zero commitments are equal, and significant gaps in detail, depth, comparability and credibility remain. This makes it difficult for investors to assess how resilient a company might be in the transition to a low-carbon economy and how aligned its approach is to the goals of the Paris Agreement.
It’s a similar story with transition plans and emissions targets. Greater transparency is also required on carbon offset use and management of transition and physical risks. Just a small minority of companies account for all of their emissions: scopes 1, 2 and 3 within their targets.
Last year, our research found too many companies made net zero commitments without short, medium and long-term emissions reduction targets. Interim targets provide crucial details about the company’s planned trajectory and underpin how the commitment will be met. This year, while we found a pleasing 26% jump in the setting of medium-term targets, 14% of companies with net zero commitments still have not set any interim targets at all.
And, though carbon offsets form part of many companies’ climate strategies, disclosure on the quantity, type, projects and hierarchy of their use is limited. While 48 per cent of companies make some reference to offsets, only 29 per cent refer to a hierarchy – that is, state their intention to first reduce emissions through abatement and use offsets only for residual emissions. We recommend that all companies should use offsets as a last resort, after exhausting all other efforts to decarbonise.
There is clearly a long way to go, but there are clear signs that many listed companies are now focusing on the net zero transition, and that most recognise its importance to their long-term success. With the continuing focus of investors and others, I am confident that next year’s research will reveal fewer reporting gaps and much more detailed disclosures. I certainly hope this will be the case, given the scale of climate change and the urgency of addressing it.
Louise Davidson is chief executive of the Australian Council of Superannuation Investors.