Treasury’s mandatory climate reporting consultation: AICD submission

Monday, 20 March 2023

Anna Gudkov photo
Anna Gudkov
Senior Policy Adviser

    The AICD has made a submission to Treasury’s climate disclosure consultation where we strongly support the establishment of a framework that provides for high quality disclosures aligned with the International Sustainability Standards Board (ISSB).


    • Existing legal liability settings are far stricter than jurisdictions such as the US, UK and Canada. This, coupled with ISSB’s detailed disclosure requirements, mean that Australian directors face significantly more liability exposure than their international counterparts.
    • The AICD has strongly argued that liability settings should be adjusted to incentivise good faith, fulsome disclosures on a best endeavours basis, without removing appropriate accountability.
    • To find out what the ISSB standards means for directors, download this climate reporting primer, and/or view our recent webinar.

    What would organisations be required to report?

    The Treasury consultation contemplates that the Australian climate reporting framework will be based on the ISSB standards, potentially commencing FY 2023/2024.  Key elements of the draft ISSB Climate disclosure standard (S2) includes:

    • Based on TCFD but goes further: S2 is structured around the TCFD topics of governance, strategy, risk management and metrics and targets. However, rather than leaving the content of specific disclosures to the disclosing entity based on recommendations and illustrative guidance, S2 mandates the making of specific disclosures.
    • Requires disclosure of current actions and impacts of climate change on the business, including scope 1, 2 and 3 emissions, financed emissions, the amount and percentage of assets and business activities vulnerable to climate risks and aligned to climate opportunities, capital deployment towards climate risk and opportunities, internal carbon prices and remuneration linked to climate.
    • Requires disclosure of anticipated future actions and impacts of climate change on the business, including anticipated changes to the business model and resource allocation, anticipated change to the business’ financial position and performance in the short, medium and long term, scenario analysis, and the disclosure of transition plans and climate targets.

    The ISSB is due to finalise S2 by the end of Q2 2023.

    What is the AICD’s position?

    As a starting point, the AICD strongly supports the establishment of a climate reporting framework that provides for high quality, useful disclosures which aligns with the ISSB as the global baseline on climate reporting, and which supports the attainment of Australia’s climate change goals.

    In terms of scope, the AICD considers that the initial tranche of reporting entities should cover those companies with the largest carbon footprint, namely the ASX 200, large private companies and public sector entities, emitters which report under the National Greenhouse and Energy Reporting Scheme (NGERS), and financial institutions with assets or assets under management (AUM) equal to or greater than $5 billion.

    Moving from voluntary TCFD-based reporting to mandatory ISSB-based reporting should not be under-estimated.  Reports on ASX200 current climate reporting practices reveal that a significant lifting of disclosure practices will be required to meet the heightened disclosure standards of the ISSB. For instance, in 2022 only 14 per cent of the ASX200 undertook a comprehensive measurement of scope 3 emissions including operational, upstream and downstream scope 3 emissions, only 18 per cent reported on anticipated impacts of climate risk, and only 21per cent undertook physical risk scenario analysis.  Further, there are significant data and capability gaps on climate inputs, methodologies and assurance which will need to be addressed. Plugging these gaps will take time and resources.

    In our view, a major issue for policy makers to address is crafting appropriate liability and enforcement settings. Critically, Australia’s existing legal framework differs from comparative jurisdictions such as the US, UK and Canada. In particular, Australia lacks safe harbour provisions for forward looking statements, has strict liability for misleading or deceptive conduct and has a system where regulators, rather than shareholders, are charged with enforcing directors’ duties. These factors, coupled with the detailed, often forward looking, disclosure required under the ISSB standards, means that, without policy adjustments, Australian directors have significantly more liability exposure than their international counterparts when making climate disclosures.

    Currently, forward looking statements are deemed to be misleading unless they are based on reasonable grounds. However, satisfying that test is particularly challenging in a climate context which requires the making of long-term projections on matters subject to significant data gaps and uncertainty. For instance, whilst S2 requires the disclosure of scenario analysis and transition plans, there is debate as to the appropriate inputs and methodologies for these processes.

    These legal risks have been a key reason behind the limited extent of climate disclosures in the Australian market and promise to encourage further “greenhushing” if left unaddressed.

    In our view, preserving the legal status quo creates a material risk that mandated disclosures will fail to meet market expectations and undermine the desired policy objectives. This is particularly the case in in circumstances where reasonable assurance (or even limited assurance) over climate disclosures is currently not provided.

    To address these issues, the AICD is advocating for proportionate liability settings to incentivise good faith, fulsome disclosures on a best endeavours basis, without removing appropriate accountability.

    Potential solutions we have put forward include a safe harbour for forward looking statements, safe harbour for scope 3 emissions, and regulator-only enforcement action during a transitional period. In addition, the AICD considers that the government should clarify the statutory tests for reasonable grounds and reliance on external advisers in the context of climate change.

    The AICD’s full submission can be found here.

    How can boards prepare?

    Directors need to start preparing themselves for the introduction of mandatory climate reporting, and the role they can play in oversighting management on this complex issue. The AICD has two key resources that can assist directors do this, including:

    • The Corporate Governance Initiative Australia’s short primer on climate reporting, which provides directors with a high-level snapshot of what they need to know about their forthcoming obligations; and
    • Our recent free webinar on climate reporting in which David Armstrong MAICD, NAB Audit Committee Chair, Karen McWilliams GAICD, Business Reform Leader, Chartered Accountants Australia & NZ, and Christian Gergis GAICD, Head of Policy, AICD discuss the forthcoming standards and how boards should prepare.

    We will also be producing a more detailed how to guide for mandatory climate reporting later this year, in collaboration with Climate Governance Initiative Australia partners, Deloitte and Minter Ellison.

    For members looking to build their climate capability more broadly, we encourage directors to visit the Climate Governance Initiative hub of our website which contains a suite of free resources.

    Suggested questions for directors


    • Has the question of mandatory climate reporting been discussed at board level? How prepared are we as an organisation? What expert support will we need? What do we currently disclose?
    • Do our existing governance structures need to be adjusted? Do we need a dedicated board committee to oversight climate change issues? For further guidance, the AICD together with HSF recently released a guide on board structures and sustainability.

    Strategy and Risk Management

    • Has the board considered the key short, medium and long-term risks (physical, transitional and liability) arising from climate change and its impact on the business? Has the board documented the process to undertake that analysis, as well as the outcome? What scenario analysis has been undertaken?

    Metrics and Targets

    • Does the board have sufficient information to confidently approve disclosures on scope 1, 2 and 3 emissions and set climate-related targets? If not, what are the barriers, such as data gaps, that prevent this? If yes, are these metrics and targets subject to validation or external assurance?

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