Mandatory climate and other ESG-related disclosure frameworks are rapidly developing and being adopted in countries across the globe.

The Australian government this week released a consultation paper on the development of an Australian climate risk disclosure framework. The framework would aim to provide consistency and transparency in reporting and align Australian reporting requirements with standards being adopted globally.

Submissions are open until 17 February 2023.

What is the disclosure framework

The Australian disclosure framework would “ensure large business and financial institutions are providing more information and greater transparency on how they are responding to climate change and supporting the transition to net zero” emissions, according to the media release from the Treasurer the Hon Dr Jim Chalmers MP.

The idea is that more information will be publicly available to businesses and investors, measured in a way that is consistent with other international frameworks.

Consultation paper

The paper begins by asking what the costs and benefits are of Australia following the lead of other countries in implementing a climate-related financial risk disclosure framework, and poses questions for consideration on other important topics.

What standards should apply?

The consultation paper looks at the important question of what standards should apply.

Should Australia align our climate reporting requirements with the global baseline draft standards of the International Sustainability Standards Board (ISSB) or Taskforce on Climate-Related Disclosure (TCFD) recommendations?

We are aware that the ISSB has issued two Exposure Drafts, with an aim to create a global baseline for investor-focused sustainability reporting that local jurisdictions can build into their own local requirements. Those standards are expected to be finalised early 2023.

In the meantime it is recommended that companies may choose to adopt the standards voluntarily before they are finalised. ASIC has encouraged, in the meantime, for listed companies to continue reporting voluntarily under the TCFD framework, while the ISSB climate standards develop.

Other questions

The paper poses a series of other consultation questions such as:

• What size and scale of businesses should be included in the initial reporting phase in the financial year 2024-2025.
• Should reporting be included in other existing periodic reporting requirements or form the basis of a standalone report.
• As the reporting around climate disclosures needs to be regulated, what level of assurance is required and who should give it e.g., a financial expert.

Australia already has some emissions reporting frameworks for greenhouse gas emissions, so one question is how much that should be reflected in a new emissions reporting requirement, especially when compared with international standards. The paper proposes utilising a common baseline of metrics so that there is consistency between disclosures, for example, industry-specific metrics.

The proposed reporting requirements may need to be consistent with the definitions and disclosure requirements under the Corporations Act e.g., ‘reasonable grounds’ requirements and disclosures of uncertainties and assumptions. Concepts like continuous disclosure and fundraising documents would also need to be addressed under the new reporting requirements.

Finally, the paper considers whether the ambit of climate reporting should include related concepts like sustainability, and the costs and benefits of exclusively digital reporting.

Sustainable Finance Strategy

Treasury will also prepare a sustainable finance strategy to improve Australia’s engagement with “green finance markets” and sustainable finance opportunities.

Public consultation will be open available later regarding the strategy’s key measures which include “the development of new standards or taxonomies for sustainable investment, further initiatives to reduce greenwashing and strengthen ESG labelling, and more ambitious participation in global forums to support climate and sustainable finance frameworks and investment”

Implications

At Dentons we are working with clients across the globe in relation to reporting requirements. This is increasingly impacting companies that operate across borders, as well as in-country.

Whether mandatory or not, collecting data on climate risk, impact and other ESG considerations are becoming business as usual requirements, and increasingly important factors in mergers and acquisitions, or decisions about who to do business with.

Financial institutions, large corporations and accountants should follow these developments closely.

For more on what is happening globally on climate and ESG disclosures see the article below:

Dentons - ESG Reporting – an update on the direction of travel