On 22 February 2023, the AICD made a submission to the Commonwealth Treasury on its Climate-related financial disclosure consultation.
The AICD submission was informed by extensive engagement with members (including the AICD policy committees), legal experts, other peak bodies and civil society groups. The key points of the AICD submission were:
- The AICD strongly supports the policy objective of establishing a climate reporting framework that provides for high quality, useful disclosures which aligns with the ISSB as the global baseline on climate reporting, and which supports the attainment of Australia’s climate change goals.
- The move to ISSB-based mandatory reporting is a significant one, representing a major shift in current Australian market practice. This adjustment will require significant upskilling for both report preparers, assurance professionals and the directors who are ultimately required to sign off on the disclosures.
- Because of the particularities of Australian law, including the lack of existing safe harbour provisions, Australian companies and directors have significantly more liability exposure than their international counterparts when making representations to the market, particularly forward-looking statements. In light of this, policy settings should be adjusted to incentivise good faith, fulsome disclosures on a best endeavours basis, without removing appropriate accountability.
- Preserving the legal status quo creates a material risk that disclosures will fail to meet market expectations and undermine the desired policy objectives. In our view, policy settings must support the phase in of the standards and the major shift in reporting practices that a mandatory regime would entail. Proportionate liability and appropriate accountability will support more comprehensive and comparable climate disclosures.
- The AICD considers that the initial tranche of reporting entities should cover those companies with the largest carbon footprint, namely the ASX 200, large private companies and public sector entities, emitters which report under the National Greenhouse and Energy Reporting Scheme (NGERS), and financial institutions with assets or assets under management (AUM) equal to or greater than $5 billion.
- The impact of the climate reporting standards will be influenced by the extent to which disclosures can be assured. As such, the AICD supports the need for climate disclosures to be subject to the highest standard of assurance that is reasonably achievable, noting that current data and capability gaps are likely to mean that grades of assurance will need to be phased-in.
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