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The summer period has again underscored the scale and complexity of climate risk in Australia. Scientists have described recent conditions as ‘climate whiplash’, with flooding and cyclones in some regions and extreme heat and heightened bushfire risk in others, placing pressure on infrastructure, insurance markets and emergency response systems.
For boards and directors, these impacts can be compounding – affecting communities, workforce safety, asset resilience and supply chains. The energy transition itself presents growing governance challenges. Below, the Australian Energy Market Operator (AEMO) CEO Daniel Westerman provides an update on how the transition is unfolding, and what current planning signals suggest for the decades ahead.
Also in this newsletter:
- Productivity Commission recommends expanded Safeguard Mechanism
- AUASB releases illustrative sustainability assurance reports and aligns assurance pathways for voluntary reporters
- WEF releases new climate governance principles incorporating nature
- Market updates: Origin extends life of Eraring power station; New ACSI Governance Guidelines; Europe scaling back sustainability reporting requirements; ASIC flags sustainability reporting risks in 2026 outlook.
AEMO insights on Australia’s energy transition
Australia’s energy transition will require around $128 billion in investment by 2050 and the closure of around two thirds of the remaining coal fleet by 2035, according to the AEMO’s Draft Integrated System Plan (ISP).
The ISP sets out AEMO’s optimal development path (ODP) for the National Electricity Market, which covers southern and eastern states, identifying the least-cost mix of generation, storage and transmission needed to replace retiring coal, meet rising electricity demand and deliver emissions targets. By 2050, this pathway includes around 120 GW of grid-scale wind and solar, 40 GW of storage and hydro, 14 GW of flexible gas generation, and around 6,000 km of new transmission.
AEMO’s CEO warns that delays to key transmission projects would increase costs for consumers and risk slowing progress toward 2030 targets, reinforcing the importance of timely delivery to support reliability, resilience and the energy transition. Read the article.
Productivity Commission releases reports on the net zero transition and circular economy
The Productivity Commission has released two major reports examining Australia’s pathways to a lower-cost net zero transition, and the circular economy.
Key recommendations from the net zero transformation inquiry include expanding the Safeguard Mechanism to cover more facilities, introducing a market-based policy to drive electricity sector decarbonisation after 2030, and accelerating approvals for renewable energy and transmission infrastructure. The report also highlights growing climate risks to housing and infrastructure, reinforcing the importance of adaptation and access to credible climate risk information.
The Australian Financial Review reports modelling by consultancy RepuTex, which suggests without changes to the current threshold, more than 50 facilities could ‘fall out’ of the Safeguard Mechanism over the next decade as their emissions decline.
The circular economy inquiry highlights opportunities to improve materials efficiency through regulatory reform, stronger product stewardship and better coordination across governments. The Commission’s recommendation to establish a national product stewardship scheme for small-scale solar PV systems has been taken up by the federal government, which announced a $25 million pilot program to establish national collection sites for end-of-life solar panels and household batteries.
AUASB releases illustrative sustainability assurance reports and aligns assurance pathways for voluntary reporters
The Auditing and Assurance Standards Board (AUASB) has released illustrative sustainability assurance reports to support consistent audit practice under Australia’s mandatory climate-related financial reporting regime.
The AUASB has also confirmed that voluntary sustainability reports prepared under the Corporations Act during the transition period will be subject to the same assurance pathway as mandatory reporters, aligning obligations for entities that choose to report early.
Key updates:
- Through ASSA 2025-10, voluntary sustainability reports prepared during the transition period (reporting years beginning between 1 January 2025 and 31 December 2027) will follow the same phased assurance requirements as mandatory reporters.
- Entities voluntarily reporting at the same time as Group 1 entities will therefore be subject to Group 1 assurance phasing.
- Legislative amendments passed last November extend limited immunity to all sustainability reports, including voluntary and ‘relief condition’ reports prepared within the three-year limited immunity period.
- Voluntary sustainability reports must include an additional director’s declaration confirming the report is intended to be treated as a voluntary sustainability report.
Image credit: World Economic Forum/Pascal Bitz
WEF updates climate governance principles to include nature
At its Annual Meeting in Davos, the World Economic Forum (WEF), working with the Chapter Zero Alliance (formerly the Climate Governance Initiative network), released an updated set of guiding principles for climate governance, now explicitly incorporating nature.
The white paper, Guiding Principles for Climate and Nature Governance, streamlines the previous eight WEF climate governance principles into four guiding principles, supported by three foundations covering skills and knowledge, stakeholder collaboration and culture.
AICD’s recent Nature enters the boardroom study, produced with the University of Sydney Business School, found that some Australian boards are beginning to integrate nature within climate oversight, recognising the interdependence of the two. However, oversight of nature-related risks remains fragmented and disclosure uneven, with four in 10 respondents saying their organisations have no formal arrangements in place.
Market developments
Policy and regulation
- Sustainability reporting and audit quality are among the key issues ASIC is monitoring across Australia’s financial system: In its 2026 outlook, ASIC highlights that as mandatory climate and sustainability reporting expands, there is an increased risk of misleading or incomplete disclosures.
- New ACSI Governance Guidelines available: ACSI released updated Governance Guidelines in January 2026, setting out investor expectations for board oversight of material sustainability risks. The guidelines emphasise environmental factors that can affect long-term value, including climate change, nature and biodiversity impacts, and circular economy risks and opportunities. They highlight expectations for credible strategy, governance and disclosure where these issues are material to a company’s business and risk profile.
- Origin Energy has confirmed the extension of the Eraring power station to 2029: The 2880-megawatt Eraring power station, Australia’s largest, will operate until at least 2029, due to ‘energy security’ risks linked to slower-than-expected delivery of replacement renewable generation, storage and transmission infrastructure. The company highlighted the supply-chain constraints, planning bottlenecks and broader market dynamics that have delayed progress towards NSW’s 80% renewables target.
- East coast gas reservation: The federal government has outlined plans to introduce a domestic gas reservation mechanism to protect east coast supply. To be developed in consultation with industry, the policy is intended to moderate prices and support energy security during the transition. Gas producers would be required to reserve at least 15% of extracted gas for domestic use. The scheme is expected to commence in 2027 but would apply to any new contracts entered from 22 December 2025.
- Coal power generation falls in China and India for the first time since the 1970s: Analysts attribute the falls to rapid renewable deployment and slower demand growth, following a prolonged period of coal capacity expansion in both countries.
Companies and disclosure
- 70% increase in companies awarded top sustainability reporting scores, CDP reports: Australian company Brambles is among the global cohort achieving a top-tier sustainability disclosure under CDP’s 2025 assessment. CDP, which runs a global environmental disclosure system, reported a 70% increase in companies globally receiving ‘A’ scores this year, reflecting disclosure quality and governance across climate change, forests and water security. While overall participation in the scheme declined in 2025, CDP said the rise in top scores points to improving reporting maturity and board-level oversight, alongside continued investorand supply-chain demand for environmental data.
- European Parliament greenlights deal to scale back EU corporate sustainability reporting rules: In December, the European Parliament approved a provisional agreement between its members and EU governments to scale back corporate sustainability reporting requirements. The move aims to reduce regulatory burden but has raised concerns about reduced transparency. This month, an EFRAG study found most investors fear simplified sustainability reporting standards through the EU Omnibus proposals, could dilute decision-useful information.
- China to support ISSB-aligned climate standard: Global investors have welcomed China’s move to support ISSB aligned climate disclosure standards. The development is seen as improving comparability, transparency and cross border capital confidence.
- New York officially implements greenhouse gas reporting for 2026: The regime expands climate disclosure obligations for large companies operating in the US state. The new reporting rules increase board-level accountability for climate governance and data oversight.
- Companies file voluntary climate reports in California despite suspended law: Some companies continue to submit voluntary climate disclosures in California even though parts of the reporting law are suspended. Responsible Investor reports this reflects investor expectations and preparation for potential future enforcement.
Climate change and impacts
- Australian insurers declare catastrophe as Victorian bushfire losses mount: Australian insurers warn that rising physical climate risks are placing increasing pressure on premiums, insurance availability and long-term insurability. The catastrophe declaration applies to bushfires that have burned across 18 local government areas.
- 2025 among world's three hottest years on record, WMO: Last year was the planet's third warmest on record, according to the World Meteorological Organization. EU scientists have also confirmed average temperatures have now exceeded 1.5 degrees Celsius of global warming for the longest period since records began.
- Rising tree death rates in Australian forests tied to climate change: New research shows increasing tree mortality across all Australian forest types, driven by heat stress, drought and more frequent fires. Scientists warn this undermines biodiversity, carbon storage and ecosystem resilience.
For the calendar
Climate Governance for Australian Directors (Online Short Course, next available March 2026): An interactive four-week course designed to build director capability on climate governance, climate reporting and board oversight of transition planning.
Introduction to Climate Governance (Free for AICD member online module): Available anytime. A self-paced module providing an overview of directors’ duties, climate risks and opportunities.
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