Investors can expect more standardised climate information from large Australian listed and unlisted companies in the new year, after a bill that sets out mandatory climate risk disclosure rules passed the Senate.
Close to two years since the first public consultation on the disclosure framework, Treasurer Jim Chalmers said on Wednesday that the passage of Treasury Laws Amendment (Financial Market Infrastructure and other measures) Bill will assist investors in managing climate risks.
The Australian Accounting Standards Board is also expected to soon issue “internationally‑aligned [sustainability] standards”.
“These critical reforms provide investors and companies the clarity and certainty they need to support the net zero transformation and further strengthen Australia’s reputation as an attractive destination for international capital,” Chalmers said in a media release.
A change in the final legislation is that the reporting entities will now be required to disclose climate resilience assessments against both global temperature goals set out in the Climate Change Act 2022. These are a low (1.5°C) and high warming (> or = 2.5°C) scenarios, according to law firm Herbert Smith Freehills.
Reporting entities need to evaluate how these two scenarios sit alongside their existing scenario analysis and consider whether there are streamlining opportunities, the firm said
ASIC on Thursday also said it will release information and guidance on the mandatory climate-reporting duties for businesses and responsible entities once the bill receives Royal Assent.
In its recently released 2024-25 corporate plan, the corporate watchdog said it will establish a new team dedicated to guiding, supervising and assessing relief claims from businesses under the new climate-reporting obligations.
Funds not off the hook
While investors like super funds are the intended beneficiaries of more rigorous climate-reporting rules in the beginning, they also need to get their own house in order as the legislation will soon apply to them after a phase-in period.
Reporting timelines for the three groups of entities proposed in the draft exposure were unamended. While Group 1 reporting will commence from 1 January 2025, asset owners (with $5 billion assets under management or more) fall under Group 2, which will need to report on a financial year commencing between 1 July 2026 and 30 June 2027.
Broadly, investors welcomed the bill’s passage as a step towards the right direction. Proxy group the Australian Council of Superannuation Investors (ACSI) said while most of the ASX200 companies already disclose their management of climate risks, a universal reporting framework will allow for better comprehensibility and comparability.
“The passage of this legislation signals the clear role investors, companies and the broader market have in the road to decarbonisation,” said ACSI CEO Louise Davidson.
But the group have previously raised concerns that since asset owners and managers need to report on their portfolio emissions (while other entities focus on operational emissions), there will be significant time lags as they will need to source the sustainability data from their invested companies first.
Not to mention that some portfolio companies could be located in jurisdictions that have not or will not adopt the ISSB standards, potentially compromising funds’ own sustainability data.
The legislation’s establishment coincided with the release on Thursday of an ASIC report on its greenwashing interventions in the 15 months to June 2024.
The period saw two federal court proceedings against Active Super and Vanguard, eight infringement notices adding up to more than $123,000, and 37 corrective disclosure outcomes.
ASIC urged funds to use verifiable, precise language when making ESG claims, fully substantiate claims made about proxy voting or direct engagement, have better control of external managers’ actions, and abide by their screening and exclusion standards.
“Our surveillance indicates there is ample room for improvement and we strongly encourage product issuers and their advisers to focus on the quality of disclosures and the data underpinning them,” said ASIC commissioner Kate O’Rourke.
“Sustainability-related information, like any other, should be accurate, based on reasonable grounds and be easily understood by investors.”
Editor’s note: Investment Magazine will be hosting upcoming roundtables with asset owners in Sydney and Melbourne on the topics of climate risk, ESG and biodiversity. To participate or for more information please contact senior content and relationship manager David Stratford david.stratford@conexusfinancial.com.au
