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Australia's first mandatory climate disclosures offer new insights into how organisations are assessing and responding to physical climate risks. Susan McHattie GAICD and Dr Stella Whittaker examine what the disclosures reveal about adaptation, and the practical steps boards can take to strengthen resilience and prepare for a changing climate.
The first cohort of mandatory climate disclosures gives Australian directors a valuable early dataset. Companies are becoming more confident describing their exposure to a warming, harsher climate. What the data show is that the next steps are less developed: quantifying physical impacts and preparing a costed adaptation strategy.
Among Group 1 companies in the first reporting cohort, relatively few disclose an identifiable adaptation strategy, and fewer again put a number on adaptation targets or investment. Mitigation disclosure, focused on reducing emissions and supporting the transition to a low-emissions economy, is comparatively mature. Adaptation disclosure, focused on building resilience and preparing for the physical impacts of climate change that cannot be avoided, has further to go.
That gap is worth closing. The current focus on mitigation, combined with shorter reporting time horizons, leaves company balance sheets – and Australia’s wider investment in decarbonisation – more exposed than they need to be.
Why adaptation lags mitigation
There’s a clear reason for this. Climate response in developed economies, including Australia, is built around mitigation – how quickly emissions can be reduced to avoid the worst outcomes. That focus has shaped a generation of governance practice, from targets to disclosure frameworks to investor expectations.
The evidence for a second, complementary task is now substantial. Current experience of physical hazards such as floods and fires, the prevalence of high-warming scenarios in company risk assessments, and Australia’s National Climate Risk Assessment all point the same way: alongside a low-emissions economy, Australia needs an economy that adapts.
Risk doesn’t stop at the reporting boundary
Reporting time horizons can push physical risk out of view. Many Group 1 early reports cite operational resilience measures – insurance, business continuity planning, asset maintenance, diversification and risk controls. These are legitimate and useful risk management responses. On their own, though, they manage exposure rather than change the underlying physical system. The residual physical cost doesn’t disappear.
The difference shows up clearly in two examples:
Repricing a flood-exposed home helps may reduce the risk to the homeowner and the insurer. Installing flood barriers, redesigning drainage or strengthening the building protects the asset.
Increasing lending criteria for areas more exposed and vulnerable to climate risk may reduce a bank's exposure. Financing resilience improvements reduces the underlying risk.
The first value of adaptation lies in the damage it avoids. That is, the flood that doesn’t destroy assets and communities, the infrastructure that stays operational, the ecosystem that keeps protecting a coastline.
Two ways of framing adaptation, and two reframes
Disclosure is a new and rapidly maturing area of practice, and boards have an important role in bringing a systemic, value-based lens to it. This is particularly evident in adaptation. Two habits of framing currently limit how far adaptation is taken up in strategy.
The first is treating adaptation as a purely public good. In reality, about 80% of Australia’s asset base sits in private ownership, which makes adaptation a shared responsibility rather than a task for government alone. Boards can reframe adaptation as core to protecting and growing the assets they already oversee.
Second, boards can look for where adaptation creates new value: new products, services and markets that a changing climate is opening up. Working through what value is at risk, what value needs protecting, and what value can be created shows a second dimension to adaptation: it isn’t only a cost, but it becomes an economic opportunity in its own right.
What the opportunity looks like
In practice, that opportunity touches most parts of the economy. People need resilient ways to live, work and play. More resilient buildings and infrastructure need designers, materials and finance. More resilient agriculture and food systems need regenerative production, technology, data and advisory services. First Nations-led organisations have pathways to economic development and leadership when Caring for Country is valued. Insurers need risk intelligence and interventions that reduce losses. Investors need investible projects. Governments need policy, planning, procurement and financing settings that can bring these pieces together.
Building this out calls for adaptation strategies, targets, investment and partnerships, developed alongside mitigation.
Where boards might start
Drawing on Dr Whittaker’s research and the Climate Value Framework, six enabling conditions and associated questions boards can ask, support this shift:
Adaptation awareness and capability. Boards can seek out information to build their own literacy in adaptation and adaptation investment options and clarify the board’s role.
Adaptation strategy, targets and measures. Boards can ask management for an adaptation strategy with targets and measures, linked to the next version of the Australian Sustainable Finance Taxonomy.
Engagement with policy and government. Boards can ask whether interactions with government, advocacy groups, banks and investors are helping policy incentivise adaptation investment.
Codesigned, bankable projects. Boards can ask how capital allocation decision making models and framework account for adaptation opportunities.
Market engagement across the capital stack, including insurers. Boards can ask management how finance, investment and insurance are supporting new value creation in adaptation.
Common language, measurement and tools. Boards can ask management whether government, research and advocacy bodies are building adaptation and adaptation-finance tools that are fit for purpose.
The dividend: people, planet, prosperity
Effective adaptation can deliver benefits that extend beyond resilience. It can improve outcomes for people by supporting safety, affordability, livelihoods and access to essential services. It can benefit the environment through healthier ecosystems, more resilient landscapes and reduced pressure on natural resources. And it can enhance prosperity by protecting productive assets, supporting investment and innovation, and helping organisations and communities remain viable under changing conditions.
Authors
Susan McHattie GAICD is an independent advisor and author of the Climate Value Framework, to be published.
Dr Stella Whittaker BHons, MSc is the Climate Transition & Resilience Lead at Haskoning Australia, and a global expert in Adaptation Finance.
Further resources
For insights from the first year of mandatory climate reporting, see the AICD's Board insights from Australia’s first mandatory climate disclosures, which analyses emerging disclosure practices.
For guidance on the role of climate adaptation and mitigation in strategy and reporting, see A Director’s Guide to Mandatory Climate Reporting (particularly Box 3.15).
Questions for the board
In future risk, value and disclosure discussions, useful questions for some boards depending on the specific circumstances of the organisation can include:
What value is at risk?
What investments will protect it?
What is our role, and how do we partner with government, finance and insurers?
Where does our adaptation create new value?
What investment will secure it?
Do our actions do no significant harm?
Are we directing capital towards a more resilient future?
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