Investors welcome internationally aligned proposed mandatory climate reporting regime

Mandatory, internationally aligned climate reporting standards will enhance the comparability and credibility of information from Australian companies and provide investors with consistent data about company-level climate exposure and risk management, the Australian Council of Superannuation says. 

Climate-change related risks are financial in nature, deeply embedded across the economy and a significant challenge for Australian companies and investors, including superannuation funds. ACSI members need information on their investee companies’ exposure to physical and transitional risks related to climate-change. Such information is integrated into investment processes and is used by investors in investment analysis, risk assessment, stewardship activities and investment due diligence.

“Capital markets are global, and investors have a strong appetite for consistency and comparability across jurisdictions. At the same time, climate change is a global issue, requiring an international response to systemic risk. By aligning Australia’s mandatory climate reporting requirements with the International Sustainability Standards Board’s (ISSB) proposed standards, we can see how that systemic risk is being managed on a local level,” Louise Davidson AM, ACSI CEO says.

“If Australia doesn’t adopt this global baseline, we risk falling further behind international best practice. Below par climate reporting here will not only frustrate investors’ ability to get decision-useful information, it is also likely to create barriers to investment in low carbon emissions technologies.”

In its submission to the Federal Government’s Climate-related Financial Disclosure Consultation Paper, ACSI called for ASX300 companies, large unlisted entities and financial institutions with revenues of over $100 million to be the first group to be subject to mandatory requirements, with reporting to begin in 2024-25 financial year.  By the end of a two-to-three-year transition period, those requirements should apply economy-wide.

ACSI also calls for mandatory reporting to include scope 3 emissions, consistent with the ISSB approach.  There is growing consensus that scope 3 emissions represent significant market risk, with products and services that may be impacted by the transition to a low-carbon economy.  ACSI’s research shows that Scope 3 reporting is becoming more common and improving in quality.

“There are challenges in scope 3 reporting, including having to rely on disclosures by other organisations, such as those in a company’s supply chain, but mandatory reporting requirements will lift the standards and content across the market,” Ms Davidson says.

“The Government should work with market participants to better define and address any reporting challenges, and companies should be ensuring appropriate disclosure of data gaps and methodology.”

ACSI strongly believes Australian company directors should already be focussing on financially material issues such as climate risk and other sustainability matters as part of their duties and should not face increased liability risks under mandatory climate reporting.

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