Investors are getting clearer sight of how Australian listed companies factor climate change into their operations, with a growing number of ASX200 companies integrating climate considerations into their financial statements and pricing carbon to test business resilience. The findings come in the Australian Council of Superannuation Investors (ACSI) annual research, Promises, Pathways and Performance: Climate Change Disclosure in the ASX200.
The research also shows that many ASX200 companies are in a strong position to meet new mandatory climate disclosures. The adoption of the Taskforce for Climate-related Financial Disclosures (TCFD) has more than doubled in the past five years with 82% of companies using the framework.
The vast majority of the ASX200 now have net zero commitments, and importantly, most have also set interim targets, which are crucial if investors are to understand the credibility of the company’s ambition. Despite this improvement in transparency, gaps remain in the depth and breadth of climate reporting, with some companies only partially reporting and 18% of the index provide very little reporting on their climate risks at all.
“It is positive to see companies move away from ‘check the box’ reporting and provide investors with greater detail on how climate change considerations are being integrated into strategy and key business decisions.” said Louise Davidson, ACSI CEO.
“We have seen significant improvements in climate reporting in the last few years, but transitioning to a low-carbon future remains a huge challenge. To meet it, company climate plans need to be credible and backed by science.”
Key findings:
- Large companies leading the way on net zero commitments: 131 ASX200 companies (66%) have made a net zero commitment, an 8% increase on 2023. Eighty-two percent of the market capitalisation of the ASX200, representing approximately $2.2 trillion, is invested in companies that have set net zero ambitions.
- Integration of climate considerations into financial statements: 29% of ASX200 (58 companies) disclosed how climate change is considered when evaluating their financial performance and position.
- More companies identifying physical risk: 66% (132 companies) undertook and disclosed analysis of their exposure to physical risks arising from climate change – a 12% increase. Of these, 97 companies disclose a range of acute and chronic risks, however, quality and depth of disclosure remains a challenge for investors seeking to assess these risks.
- TCFD framework has become the market standard: 82% of ASX200 companies (163 companies) are reporting against or have committed to report against the TCFD framework. The adoption of TCFD has more than doubled in the past five years, up 120% since 2019.
- Companies continue to factor carbon prices into investment decisions: 21% (41 companies) of the ASX200 disclosed that they use an internal carbon price when making investment and capital decisions – consistent with last year. Only 15% of companies (31) publicly disclosed the value of the carbon price used, with significant variations and ranges used.
- Using carbon prices to test business resilience has increased: 35 companies test business resilience by integrating carbon prices into climate scenario analysis or use a carbon price to budget for their carbon offset strategy – a 9% increase from last year.
- Offsets use and holdings remain opaque: There is a dearth of reporting on carbon offsets use, holdings and quality. ASX200 companies take a range of approaches to offsets, with disclosure varying significantly.
- Just Transition reporting increases: 33 companies now reference the need for a just and equitable transition. A further 16 have committed to deliver a just and equitable transition or have disclosed targets to achieve a just transition – predominantly in those sectors most exposed to the transition such as energy and mining.
The results come ahead of expected implementation of the Australian Government’s mandatory climate financial disclosures.
“Mandatory climate reporting will provide investors with clearer information about Australian companies’ exposure to climate risk. Many companies are well placed to meet that challenge although there is still a minority that will have work to do,” said Ms Davidson.
For the first time, this research has also considered listed companies’ integration of climate into financial statements. Twenty-nine percent of companies disclosed how climate change is considered when evaluating their financial performance and position, which is a positive step. Many of these assessments remain qualitative, but moving from words to numbers will be necessary if investors are to understand the potential financial impact of climate change.
It is also positive to see growing numbers are also reporting how they intend to address the requirements of a just transition, particularly in the most exposed sectors.