ASX 200 embraces the Sustainability Committee | Limited places remain in climate course

Thursday, 15 February 2024


    This month, we present exclusive analysis of board charters, revealing a 10 per cent rise in the prevalence of Sustainability Committees among ASX 200 listed companies. The research led by Herbert Smith Freehills for the AICD also shows an increase in companies specifically referencing ‘climate’ in board charters and the board skills matrix.

    The AICD’s new online short course, Climate Governance for Australian Directors, opened for registrations this month, with now limited places remaining. 

    Also in this newsletter:

    • AICD’s response to Australia’s mandatory climate reporting consultation
    • TNFD commences as 320 companies pledge to report
    • ‘Greenhushing’ trend is global, EU recommends 90 per cent net emissions cut by 2040, among other market updates.

    The rise of sustainability committees in ASX 200

    New analysis of board committee charters undertaken by Herbert Smith Freehills (HSF) for the AICD reveals 82 companies (41 per cent) on the ASX 200 now have a dedicated sustainability committee – indicating their growing prevalence in 2024. This is a 10 per cent increase since HSF last undertook similar research in 2021.

    The new analysis also shows 74 per cent of the ASX 50 (37 companies) have incorporated environmental considerations into their board charters, a quarter more than in 2021, while 20 per cent of Australia’s largest companies make direct references to ‘climate change’. Among the ASX 200, 52 per cent of companies refer to the ‘environment’ in their board charters (a 14 per cent increase from 2021), and 16 per cent now directly reference ‘climate change’.

    The findings suggest a broader trend towards a more deliberate integration of environmental sustainability accountabilities within board governance structures. The analysis will be published as part of the AICD’s second Climate Governance Study due for release in March 2024. Read the article.

    AICD’s new climate governance short course – limited places remain

    The AICD has opened registrations for a new 'Climate Governance for Australian Directors' online short course, designed to equip directors with contemporary climate governance knowledge and skills. The four-week short course is delivered live online in two-hour weekly virtual classrooms. It covers essential areas including climate science, risk and strategic opportunities, mandatory climate reporting, and stakeholder expectations. Places are filling fast. Directors looking to participate in the course can register here.

    The AICD's Introduction to Climate Governance e-learning module has been completed by well over 2000 directors since launching in December last year. The introductory primer on climate governance is complimentary for AICD members. Learn more.

    AICD supports mandatory climate reporting but calls for improvements to draft laws

    This month, the AICD made a submission in response to Treasury’s release of exposure draft climate-related financial disclosure legislation. The AICD supports the introduction of mandatory climate reporting, which is internationally aligned and meets the policy objectives of comparable disclosures in support of Australia’s climate change goals.

    The complexity of the reforms is significant, however, and require material changes to Australia’s corporate reporting framework. It is critical that the liability settings for directors and companies under the regime incentivise high-quality and useful disclosures. The AICD’s submission identifies serious concerns with key aspects of the draft legislation, including drafting that departs from the stated policy intent:

    • The three-year ‘regulator only’ enforcement period is too narrow (currently limited to scope 3 emissions and scenario analysis) and should be expanded to include all forward-looking disclosures, including transition plans. Disclosures reproduced outside of the sustainability report should also be covered by the transitional relief mechanism.
    • Director declarations, currently proposed as an unreserved statement of compliance, should be suitably qualified and require directors to provide sign-off where they have ‘reasonable grounds to believe’ that climate disclosures comply with the Australian Sustainability Reporting Standards and Corporations Act. This is critical to reflect the lack of reasonable assurance available for climate disclosures (currently not required until 2030) and inherent complexities with a novel area of disclosure.
    • Reporting thresholds for Group 3 entities are too low, risking high compliance costs for smaller entities having to undertake new proposed climate risk materiality assessments that are not proportionate with their climate impact.
    • NFPs that are reporting entities under the Corporations Act are captured by the regime (while registered charities are excluded), despite little consultation with the sector to date.

    The AICD’s submission was informed by extensive consultation with members, AICD policy committees, industry and market stakeholders, and legal advisers (including a legal opinion by King & Wood Mallesons). A copy of the submission is available on the AICD website.

    The AICD’s Directors’ Guide to Mandatory Climate Reporting, developed with Deloitte and MinterEllison, is being updated to reflect the latest policy proposals from Treasury and remains a key resource for directors to ready their organisations for the new reporting requirements.

    Market developments update

    ‘Greenhushing’ trend established internationally

    The latest 2023/24 net zero report from consultancy South Pole confirms a global trend towards 'greenhushing', where companies knowingly decrease climate communications to avoid being accused of greenwashing. Released in January, the report includes survey data from over 1,400 companies in 12 countries, including Australia. It found 58 per cent of companies across major sectors planned to decrease external climate communications despite a majority (81 per cent) also acknowledging the value of communicating net-zero goals.

    Meanwhile, ASIC has again included ‘greenwashing’ among its 2024 enforcement priorities. “We expect boards to engage directly on sustainability claims – whether they are aspirational statements, targets, active stewardship commitments or investment descriptions,” said ASIC’s deputy commissioner Sarah Court in a speech this month.

    TNFD begins with 320 organisations across the globe committing to make nature disclosures

    The Taskforce on Nature-related Financial Disclosures (TNFD) reached a milestone with 320 organisations across 46 countries committing to begin making nature-related disclosures against the TNFD recommendations, which were released in September 2023. Among the participants are publicly listed companies and over 100 financial institutions, which represent a combined market capitalisation of US$4 trillion and assets under management of US$14 trillion. Organisations pledging to adopt the TNFD recommendations will publish TNFD-aligned disclosures as part of their annual corporate reporting. The early adopters span various sectors and regions, with 134 (42 per cent) from the Asia-Pacific region. Read more.

    EU urged to embrace 90 per cent emissions cut by 2040, while UK opposition waters down its green investment plan

    The European Commission proposes a 90 per cent emissions reduction target for the European Union (EU) by 2040 compared to 1990 levels. The recommendation stems from an impact assessment aimed at establishing an EU-wide and economy-wide target. This follows an EU December 2023 agreement on Corporate Sustainability Due Diligence Directive (CSDDD) which will apply to large EU companies with over 500 employees and a net worldwide turnover of at least €150 million, and non-EU companies with at least €150 million net turnover generated in the EU. Importantly, this will apply to Australian companies with an EU presence that meet this threshold.

    In the UK, the debate is quite different. The UK opposition leader Keir Starmer has reportedly walked back a 2021 green investment plan policy, reducing spend from £28bn to £4.7bn a year. 

    Australian government seeks to introduce fuel emissions standards ‘as soon as possible’

    The Australian government has announced its intention to introduce legislation for a New Vehicle Efficiency Standard (NVES) by 1 January 2025. Transport emissions are the third-largest source of emissions in Australia, making it a focus for the government as it seeks to meet its legislated 43 per cent by 2030 emissions reduction target. Key aspects of the proposed NVES include incentivising car manufacturers to meet efficiency benchmarks by ensuring all new vehicles sold meet specified standards. Manufacturers will be able to sell vehicles with higher emissions but will need to offset these sales with low or zero emission vehicle sales, and will be required to maintain the average efficiency of their vehicle fleet below yearly targets or face penalties.

    Minister for Climate Change and Energy, Chris Bowen, and Minister for Transport, Catherine King, jointly announced the government's preferred model for the NVES, marking the beginning of another round of public consultations, which will extend until 4 March 2024.

    In brief

    • First round of grant funding from the Powering the Regions Fund announced, with $200 million going to steel manufacturers.
    • TPT extended: The UK’s Transition Planning Taskforce’s mandate has been extended to October 2024.
    • A round-up of 2023 climate data shows most of the world’s population, emissions and GDP are now covered by net zero targets, and there are more than 40 climate taxonomies in play, among other notable developments.
    • Corporate transition: Reclaim Finance releases a guide to corporate climate transition plans, with advice for avoiding greenwashing pitfalls.
    • New US Climate Envoy: The United States announces John Podesta will replace John Kerry as the US Climate Envoy.

    CGI International annual report

    CGI International's annual report highlights the growth of the Climate Governance Initiative, which has expanded to having a presence in 71 countries in three years. The report outlines the initiative's progression from a concept aimed at creating a forum led by board directors, to a network of 30 Chapters focused on promoting climate action in boardrooms worldwide. It also notes that CGI Chapters collectively engage with over 100,000 business leaders globally.

    The AICD is the host of the CGI Australia Chapter, which was launched in 2021. Governed by an Advisory Council of majority non-executive directors, CGI Australia actively contributes to global discussions on climate governance principles and developments.

    Read the CGI’s first annual report

    For the calendar:

    • 20-21 March 2024: AICD’s upcoming annual Australian Governance Summit includes a session on ‘Powering the Future: The Energy Transition and Climate Governance’, featuring John Lydon GAICD (Co-Chair, Australian Climate Leaders Coalition), Dr Larry Marshall FAICD (Director, Fortescue), and Karen Moses FAICD (Director, Orica; Charter Hall). Explore the program.
    • 8-10 October 2024: The Australian Government will host the first Global Nature Positive Summit in Sydney. Read more.
    • 11-24 November 2024: COP29 United Nations climate conference in Baku, Azerbaijan. Learn more.
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