Climate control

There is growing international focus on climate governance and ESG reporting — and the AICD is working to support directors. NFP regulation is also a priority, writes Louise Petschler GAICD.

Supporting climate governance

Climate change remains a key focus for Australian boards, investors, stakeholders and regulators. In AICD’s most recent national Director Sentiment Index survey, released in April, Australian directors listed climate change as the most pressing issue for federal government focus in the short term (the next three years) and the long term (next 10 years). As the new government forms in Canberra, climate policy will be a key focus. For directors, governance expectations and new international frameworks are continuing to evolve, making this an important area for director development and education (see full DSI results at bit.ly/DSIApril).

The AICD has lifted its focus on climate governance and as part of supporting members is hosting the Australian Chapter of the Climate Governance Initiative (CGI). We are pleased to announce CGI’s inaugural Climate Governance Forum will be held on 1 August, in-person in Sydney and online. This event will bring together directors, experts and regulators to discuss climate change governance (register at bit.ly/CGIforum).

The CGI is a global network of non-executive directors and experts, which aims to engage, educate and support directors in climate governance. AICD partners in the Australian chapter include MinterEllison, Herbert Smith Freehills, Deloitte, PwC and Pollination. Under the CGI banner, we aim to have regular briefings and updates available for directors through the CGI, drawing on global and domestic developments. (Email cgi@aicd.com.au to subscribe to the monthly Climate Governance member update and see breakout for links to recent resources.)

Climate Governance Initiative Australia recently announced a cohort of esteemed Australian directors on its steering and advisory committees. The steering committee includes Maxine Brenner, Ming Long AM GAICD, Geoff Summerhayes GAICD, Michael Ullmer AO FAICD and Dr Katherine Woodthorpe AO FAICD — with founding partner organisations.

The director advisory committee will guide content and focus. It includes Penny Bingham-Hall FAICD, Jillian Broadbent AO, Bruce Carter FAICD, Michael Coleman FAICD, Ken Dean FAICD, Naomi Edwards FAICD, Joe Morrison, Dr Don Russell, Diane Smith-Gander AO FAICD and David Thodey AO FAICD.

The International CGI network is supported by the World Economic Forum and CGI chapters commit to promoting the WEF Climate Governance Principles (see bit.ly/CGIAustralia).

Climate disclosure — draft international standards

The International Sustainability Standards Board (ISSB) was established at the 2021 United Nations Climate Change Conference (COP26) to develop a comprehensive global baseline of sustainability disclosures for capital markets.

In March, the ISSB released draft standards around climate-related disclosures. These drafts set the tone for global standards on disclosure and reinforce the need for Australian directors to familiarise themselves with the evolving landscape around climate governance.

Two exposure draft standards have been released — one on sustainability-related financial information and the other on climate-related disclosures. The sustainability-related standard establishes the scaffolding on which future, more specific, sustainability standards will be built. It sets out an “‘intentionally broad” definition of what entities will be required to report, and applies to the disclosure of material information about significant sustainability-related risks and opportunities.

The climate-related standard applies to the disclosure of significant climate- related risks and opportunities arising from the physical risks from climate change, and risks associated with the transition to a low-carbon economy. Under the draft framework, companies would also be required to disclose information about emissions-reduction targets, including the objective of the targets as well as information about how they compare with those prescribed in the latest international agreement on climate change. (More information on the draft standards can be found at bit.ly/3sq69cI).

The standards could have major implications for how reporting takes place, including the role of the directors’ report, operating and financial review (OFR), and potentially financial statements. They are intended to work alongside accounting standards in IFRS jurisdictions such as Australia. Adoption (voluntary, mandatory or targeted) in Australia would be subject to domestic consultation and consideration, including by policymakers and accounting standard bodies.

Regardless of Australia’s approach, the international standards could drive significant new investor and public expectations around governance, measurement of greenhouse gas emissions, disclosure of metrics including emissions targets and the undertaking of scenario analysis.

The ISSB is consulting on the Exposure Drafts until 29 July and aims to release final standards by the end of 2022, after which they would be ready for adoption. The AICD is preparing a submission on the drafts and welcomes member views at policy@aicd.com.au

NFP governance

Since the release of the 2021 Not-for-Profit Governance and Performance Study last November, the AICD has been hosting roundtables with directors alongside our study partner CBA. The roundtables have focused on key themes from the annual study, including financial impacts of COVID-19, the increase in directors being remunerated and the lack of merger activity.

Attendees at the events highlighted two other areas of interest related to the study. The first area relates to directors of organisations whose clients are “at risk”, including aged care, services to children and disability providers. Directors are focused on the governance challenges of ensuring appropriate and quality care in safe environments. Recent Royal Commissions have shone a light on failures to meet these standards, including poor governance oversight. Non-executive directors have noted the challenge of gaining sufficient detail on the quality of care without getting too far into the operations of the organisation.

The second area is the board’s role in purpose. Most of the 2021 study respondents reported their NFP to be very successful in achieving its purpose. In director discussion, however, a more nuanced view emerged. Roundtable attendees discussed the difficulty in robust measurement against purpose, and reliance on simple or anecdotal feedback.

AICD NFP sector lead Phil Butler will be consulting with sector directors to develop supporting resources on these topics.

Take a deep dive into the Not-for-Profit Governance and Performance Study dashboard at aicddashboard.com.au/

Climate governance resources for directors

• Climate Governance Forum, 1 August.
• Director Guide to Climate Risk Governance — Climate governance guide covering key concepts, board assessment tools and the director’s role in climate governance
• Climate Governance Insights — AICD’s recent study into Australian director attitudes and approaches to climate governance 
• PwC Briefing: What net zero actually means for your board (May 2022) 
• MinterEllison briefing: Greenwashing — An emerging risk for boards (Jun 2022) 
• AICD briefing: COP26 — What’s next for boards? (Nov 2021) 

Regulatory reform priorities

The AICD advocates for fair, fit-for-purpose and modern regulations that support diligent directors in governing for growth. Our FY22 reform priorities include:

• Modern,fit-for-purpose corporate and governance law
• Balanced director liability settings that reflect the role of the board
• NFP regulation that supports and sustains good governance outcomes
• Sustainability reporting settings that are clear, consistent and reflect stakeholder needs