Climate Governance Initiative Australia Newsletter March 2023

In this edition, we cover the recent release of a Climate Governance Initiative (CGI) Australia short primer on ‘Gearing up for mandatory climate reporting’ and climate highlights from the 2023 AICD Australian Governance Summit (AGS), including ASIC chair Joe Longo’s keynote address where he warned companies on greenwashing and emphasised that boards should already be thinking about how to embed climate reporting requirements. We also cover new research on Australian institutional investors’ 2050 net-zero emissions targets, the debate on the Government’s Safeguard Mechanism reforms, and highlight a free director resource on biodiversity from the CGI International network.

Save the date! Following on from the success of the inaugural Climate Governance Forum in 2022, which saw around 1400 directors and senior leaders attend, we will be hosting this year’s edition on Friday, 11 August at the Hilton Sydney. Program details to follow.

Gearing up for mandatory climate reporting – new resources

Every organisation will be impacted by climate change and the move to a decarbonised economy. Australian directors need to understand climate and sustainability risks, not just to oversee the preparation of corporate reports, but more fundamentally as responsible stewards of the long-term health and sustainability of their business.

In collaboration with CGI Australia partners, Deloitte and MinterEllison, this short primer provides directors with a high-level snapshot of what they need to know about forthcoming regulatory obligations. It covers:

• What climate reporting standards are being proposed;
• Risks and opportunities from mandatory reporting;
• Legal risks for directors to consider;
• Actions boards can take now to get ready;
• Key questions directors can ask to determine the level of organisational preparedness.

Mid 2023, we will release, ‘A director’s guide to preparing for mandatory climate reporting in Australia’ that will provide more detailed guidance for directors on how to oversee high quality disclosure.

For further information, check out our free webinar recording, Preparing for new climate reporting and disclosure standards, featuring David Armstrong MAICD (Audit Committee Chair, NAB), Karen McWilliams GAICD (Business Reform Leader, Chartered Accountants Australia New Zealand), and Christian Gergis GAICD (Head of Policy, AICD).

Climate highlights from 2023 AICD Australian Governance Summit (AGS)

Climate was a prominent theme at the recent AGS. Catch up on highlights here.

• Keynote Presentation – Patricia McKenzie FAICD – The AGL board chair made the case for proceeding carefully on climate action, especially on the exit from coal. She noted shareholders had endorsed AGL’s new strategy by voting in support of the Climate Transition Action Plan at the 2022 AGM, giving the board a clear mandate to proceed.
• Climate Change: Risk & Opportunity – Panelist Geoff Summerhayes GAICD (Chair, Zurich Insurance; Steering Committee of the Climate Governance Initiative Australia) commented that Australian capital was going offshore for sustainable investment opportunities. Tony Goldner MAICD (Executive Director, Taskforce for Nature-related Financial Disclosures) noted we have only scratched the surface on the possibilities with nature-based solutions to climate.
• Greenwashing and climate disclosures – In a keynote speech, ASIC Chair, Joe Longo highlighted ASIC’s first ever court action on alleged greenwashing against Mercer, alleging it greenwashed its investment options to fund members. Ahead of mandatory disclosure, Longo said “boards should already be thinking about how to embed robust corporate governance practices.”
• Mandatory climate reporting – AICD CEO Mark Rigotti flagged the AICD’s support for mandatory climate reporting but said there also needed to be tailored liability settings to encourage fulsome disclosure. This week, Mr Rigotti recommended the government could include safe harbours for directors on forward-looking disclosures or limit enforcement action to regulators and exclude class action law firms. The legal risks have also been echoed by the Australian Banking Association, Insurance Council of Australia and Business Council of Australia.

Other climate governance news

• “The State of Net Zero Investment” (Investor Group on Climate Change) –  IGCC’s annual analysis found that 70% of Australian institutional investors have made public 2050 net-zero emissions targets, with 57% of those applying to the whole portfolio and 13% applying to part of the portfolio. 80% of asset owners have set a net-zero target across all or part of their portfolio. Other findings include:
  • 53% of investors now complete annual TCFD-aligned reporting, with 26% planning to over the next year.
  • 36% of investors have already published climate action plans with another 38% actively considering it.
  • 22% of investors have assessed physical risk across their whole portfolio, but only 9% have implemented a response to increase resilience.
• “Super funds failing to engage with fossil fuel companies on net zero” (AFR) – Climate activist group, Market Forces, alleges that five of Australia’s biggest super funds are failing to use their influence over fossil fuel companies they invest in to drive climate action despite their own ambitious environmental goals, leaving them vulnerable to greenwashing legal action.
• “Crossbench push Albanese government for ‘absolute cap’ on carbon emissions” (The Guardian) – Independent MPs Allegra Spender and Zali Steggall are pushing the government to include an absolute cap or an explicit objective that emissions must come down under the Safeguard Mechanism. In a parliamentary inquiry report, Senator David Pocock called for a legislated carbon budget of 1,233 million tonnes of emissions between 2021 and 2030 as an absolute cap.
• “If we’re serious about cutting emissions, we’ll act now and adjust as we go” (Sydney Morning Herald) – In an opinion piece, AGL board director and former chair of the Energy Security Board, Dr Kerry Schott AO, notes the increased price of carbon credits and “cumulative effect of cutting emissions at a rate of almost 5 per cent a year will become increasingly material, and represents a potential multi-billion-dollar impost for liable businesses if they do not act in-house.”
• “Historic global agreement reached on the high seas” (Government media release) – The Hon Tanya Plibersek MP, Minister for the Environment and Water, announced an Australian-backed Biodiversity Beyond National Jurisdictions treaty (High Seas Treaty) to conserve the world’s high seas and ensure they are used sustainably was agreed to at the UN. The treaty builds on the Government’s work at the Montreal Biodiversity COP15 where Australia led negotiations for a high-ambition Global Biodiversity Framework – protecting 30 per cent of the oceans by 2030.
• “Gross Domestic Climate Risk” (Cross Dependency Initiative) – Cross Dependency Initiative (XDI) analysis has calculated the physical climate risk to the built environment in over 2,600 territories. Victoria, New South Wales, and Queensland rank highest for Aggregated Damage Ratio in the Oceania region. XDI notes the importance of the pricing physical climate risk in financial markets given the assets at risk, the vulnerability of global supply chains, and the need for climate resilience to inform investment.

Catch up on CGI International resources

• Biodiversity as a Material Financial Risk: What Board Directors Need to Know – CGI and the Commonwealth Climate and Law Initiative have released a new update highlighting the material financial risks and opportunities related to biodiversity loss. It also provides key questions for directors to ask management.