ASX200 ramps up climate goals, but major gaps remain

The majority of the ASX200 is ready for mandatory climate reporting, with nearly 70% of the index now reporting against the Taskforce for Climate-related Financial Disclosures (TCFD) framework, according to new research by the Australian Council of Superannuation Investors.   

The annual research, Promises, pathways & performance: Climate disclosures in the ASX200, comes as communities around the globe feel the impact of extreme weather. The research shows net zero pledges are increasing, with 61% (121 entities) of the ASX200 having now publicly committed to net zero, up from 48% the year before. Large companies are moving faster and, by value, 80% of ASX200 market capitalisation now sits in companies committed to net zero. However, not all net zero commitments are equal, and significant gaps in detail, depth, comparability and credibility remain.  

By managing and reporting climate risks against the TCFD, companies provide investors with decision-useful, comparable and consistent information.  When the TCFD was released in 2017, just 10% of companies reported against the framework.  Now, the majority of the ASX200 reporting against it shows the index is mature enough for the Federal Government’s planned, and very welcome, introduction of mandatory climate reporting.   

“Mandatory climate reporting, aligned to the TCFD, will not only provide investors with comparability, it will also bring Australia into line with jurisdictions abroad,” said Louise Davidson, ACSI CEO. 

“It will focus the minds of the 30% of ASX200 companies that continue to provide limited information on climate risk to the market. It’s time all companies realise that they, along with the entire economy, face climate risks that they must manage.”  

The research shows an increasing level of detail from companies about the targets they are setting, and there has been a 25% jump in companies putting in place medium-term emissions reduction targets. 

“Net zero targets don’t mean much without the detail of how companies plan to transition their operations, so we’re pleased to see more companies detailing targets to meet long-term goals” Ms Davidson said. 

“Investors need to be assured that net zero commitments are robust. We have been very clear on this in company meetings, where we’ve been strongly encouraging improvement in the management and disclosure of climate risks – and opportunities – for years.” 

While the improvements are welcome, as the window to keep warming to 1.5°C above pre-industrial levels is closing, investor expectations are increasing.  Notable disclosure gaps remain, including about how companies are dealing with Scope 3 emissions. Just a small minority account for all their emissions – Scopes 1, 2 and 3.  Greater transparency and granular detail is required on management of transition and physical risks under different climate scenarios and on the use of carbon offsets. 

While nearly half of the index refers to carbon offsets in their climate strategies, just 29% of companies refer to the intention to first reduce emissions through abatement and use offsets only for residual emissions.   

“This research does show a maturing system, which is heartening, but there is a very long way to go, and not a lot of time before Australia must complete its transition to a low-carbon economy if there’s a hope of keeping warming to 1.5°C,” Ms Davidson said.   

Key findings  

  • TCFD reporting is at a record high, with nearly 70% of the ASX200 (135 companies) using the framework to guide their climate disclosures – a 31% increase on the year before.  
  • 61% of the ASX200 have made net zero commitments, compared to 48% last year.  
  • Australia’s largest companies have committed to the transition, with 80% of the market capitalisation of the ASX200 having set targets to transition their companies to net zero emissions.  
  • Medium-term (from 2026-2039) emission reduction targets have increased by 26% since last year. A 9% decline in short-term targets (to 2025) is due to a combination of changes in the ASX200 index and to companies having met their short-term targets. Fourteen percent of companies with net zero commitments have no interim targets, which calls into question the credibility of their net zero commitments. 
  • Scope 3 targets remain rare, with only 43 companies, or 22% of the ASX200, setting some form of Scope 3 target. However, 110 companies reported Scope 3 emissions, so their next step must be to develop strategies to reduce those emissions. 
  • 41 companies from the ASX200 have disclosed using a carbon price in investment and capital decision-making, an increase of 41% from last year.
  • Forty-nine percent of companies make some reference to carbon offsets in their climate strategies, but disclosure on the quantity, type, projects and hierarchy of their use is limited.  Just 29% of companies refer to the intention to first reduce emissions through abatement and use offsets only for residual emissions.
  • 118 companies (59% of the ASX200) undertake scenario analysis, a significant increase on last year’s 88 companies (44%). Importantly, 91 of those companies use a 1.5°C or below 2°C Paris-aligned scenario.
  • However, despite its importance in testing future business resilience to transitional and physical climate risks, the reporting of this scenario analysis often lacks quality and depth, with just 61 of the 118 companies disclosing more than a basic assessment.   

This research relies on information publicly reported by ASX200 companies up to 31 March 2023 including annual reports, sustainability reports, TCFD and climate reports, company websites and ASX announcements. We have not independently verified this information. Additional context was drawn from ACSI’s ongoing engagement with directors of ASX200 companies. 

For additional information please contact: 
Cath Sullivan
Manager, Media and Public Affairs
Australian Council of Superannuation Investors
P: +61 (0)429 295 789

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