Last month the Government issued its response to the 2017 Senate Economics Reference Committee report Carbon risk: a burning issue . In its response, the Government outlined its view that law reform is not necessary in order for directors and companies to adequately disclose the financial impacts of climate change. Why? Because the law currently provides a framework for disclosure on these matters.
The NFP sector has undergone significant change since the release of the Principles in 2013. Regulatory reform, disruption to funding patterns and an increasingly complex operational environment have reshaped the sector in many ways. The AICD is undertaking a consultation to review the Principles and ensure they reflect the new challenges and opportunities facing governance leaders in the NFP sector.
The response says, “The financial disclosure requirements contained in the Corporations Act 2001 are principles-based and provide a flexible framework for financial disclosure”.
All of this means that the Government consider that a disclosure framework covering climate change risks already exist. It then follows that potential liability exists for directors that do not adequately address these requirements in a way most relevant to their organisation.
The Government, in its response, agreed in principle with two of the six Committee recommendations, namely:
- The Government encourages the Australian Securities and Investments Commission to review its guidance material to ensure it continues to provide appropriate principles and high level guidance that stakeholders can apply in meeting their disclosure obligations under the Corporations Act 2001; and
- The Government encourages the ASX Corporate Governance Council to continue to keep the Principles and Recommendations and the guidance material under review to ensure it provides an appropriate framework and to ensure the corporate governance of ASX listed entities remains best practice.
The remaining 4 recommendations – relating to law reform to create mandatory reporting obligations as well as the need for the government to develop a stable and consistent climate change policy - of the Senate Economic References Committee were noted in the Government response.
The Government response also welcomed the release of the Final Report of the Financial Stability Board Task Force on Climate-related Financial Disclosures (TCFD) and encouraged all stakeholders to carefully consider the recommendations.
The TCFD recommendations along with its implementation guidance were released in June 2017, and in Australia we are already seeing it gaining momentum. The recommendations have been referenced in a number of annual reports of large listed entities, with the supporters list rapidly growing. Thus far, Australian organisations such as BHP, ANZ, AGL, NAB, Westpac and Aurizon are amongst those large corporates which have signed up. The Australian Prudential Regulation Authority (APRA) has also expressed its support for the TCFD recommendations.
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