Trends shaping climate governance priorities in 2024

2024 is expected to be a landmark year for climate governance in Australia and internationally. Here are six trends to follow.

In 2024, the climate governance landscape is undergoing a momentous change as countries, including Australia, implement mandatory climate reporting regimes in line with global standards. This coincides with renewed regulatory scrutiny of corporate environmental claims, and growing costs associated with climate impacts.

In this context, forward-thinking leaders will not stand still in 2024. Board focus on climate and related governance issues will step up as directors prioritise collaboration within their organisations and develop transition strategies that integrate climate, energy and nature, considerations.

Full disclosure: Mandatory reporting takes centre stage

This year marks the simultaneous implementation of global climate disclosure regulations. Europe's Corporate Sustainability Reporting Directive (CSRD) mandates multinational companies report on their climate impact, while the US Securities and Exchange Commission (SEC) is set to adopt climate disclosure rules.

In Australia, mandatory climate reporting based on the International Sustainability Standard Board (ISSB) standards begins on 1 July 2024 for the largest companies and heaviest emitters. This marks a significant shift from voluntary climate disclosures which have been primarily undertaken by the largest, ASX 100 companies against the Taskforce for Climate-related Financial Disclosures (TCFD) framework. This new reporting regime will require companies to disclose their current and anticipated climate-related risks over the short, medium and long term. The rise of ‘climate tech’ and the use of AI (Artificial Intelligence) is a parallel trend expected to support these efforts.

While many directors recognise disclosure can drive urgency of action, reporting on climate related risks and transitions is complex and scenario based, with long timeframes and variable assumptions. This will mean an elevated level of scrutiny on the accuracy and viability of climate commitments and the need for directors to ask timely and probing questions of management. In turn, management will need to ensure that messaging across the organisation (from finance to sustainability to marketing) is consistent.

No excuses: Greenwashing scrutiny sharpens corporate communications

Regulatory bodies such as the Australian Securities and Investments Commission (ASIC) and the Australian Competition and Consumer Commission (ACCC) have reinforced their commitments to investigate and prosecute any misleading statements on environmental credentials and inadequate reporting of climate change risks. Internationally, action against greenwashing is also escalating. The European Union is banning generic environmental claims, and the US SEC could follow suit.

Common features of greenwashing include vague environmental claims, unclear language, misleading impressions of a product's environmental impact, a lack of accessible evidence for claims, and the use of eco logos without third-party assurance. ASIC has issued regulatory guidance in relation to sustainability-related products.

In addition to greenwashing being a continuing enforcement priority for 2024, ASIC has been clear that in its eyes ‘greenhushing’ (companies intentionally not making any climate representations or disclosures) is another form of greenwashing that will be enforced accordingly.

Adaptation climbs up corporate climate agenda  

Adaptation is gaining prominence on the corporate climate agenda, as scientists declare 2023 the hottest year on record. A warming planet is already increasing climate impact costs and rendering assets uninsurable in specific regions. There is also a growing acknowledgment that mitigation efforts alone are insufficient. The World Economic Forum Global Risks report identifies 'extreme weather' as the foremost risk in 2024.

However, a recent S&P report reveals that only 1 in 5 companies actively engages in adaptation planning, such as enhancing the resilience of assets to destructive weather events. It finds exceptions exist in regions with robust policy frameworks, such as the US Inflation Reduction Act, where there is increased private investment in adaptation measures such as climate-resilient infrastructure. Following COP28 in December 2023, which underscored the insufficiency of adaptation efforts, this year anticipates an intensified policy focus on adaptation and a shift towards public-private collaboration, including in Australia.

‘Credible’ transition brings together climate, energy and nature

While regulatory pressures may encourage a compliance-centric approach to climate change, discussions at the World Economic Forum in Davos suggest that the most successful companies will avoid having a compliance-mindset and will instead focus on how sustainability can increase competitive advantage. The most innovative and successful companies will capitalise on efficiencies and overlap by bringing together climate, energy and nature, holistically incorporating these into their transition planning.

The UK’s Transition Planning Taskforce is leading the way, and will further develop its guidance this year. This more integrated approach aligns with the broader 'nature positive' agenda suggested by the Taskforce on Nature-related Financial Disclosures (TNFD), which promotes the co-benefits of incorporating nature into the net zero transition. The 2023 Climate Leaders Coalition report on credible transition planning reinforces this perspective.

Team effort: More collaboration within organisations, industries and across sectors

A focus on the balance sheet in climate-related reporting is expected to deepen collaboration between Chief Financial Officers (CFOs) and Chief Sustainability Officers. That is, collaboration that is required for organisations to address more challenging aspects of the low-carbon transition, such as scope 3 disclosures which require cooperation up and down the value chain.

The scale of the decarbonisation challenge will require significant data and capability sharing within industries. Governments will need to consider how they can facilitate and encourage this type of collaboration, including ensuring that competition law settings are fit for purpose. The Australian Government is making a start with the development of sector-wide net zero transition pathways through 2024 which has the potential to identify collaborative needs within six economic sectors.

Just Transition: Stakeholders increasingly expect a seat at the table

While the concept of a 'just transition' has roots extending back to the 1980s, its significance has evolved in recent years under the Paris Climate Agreement. Just transitions empower communities, allowing them to actively participate in discussions about the net-zero transition that significantly impact their lives and livelihoods.

In 2022, the Australian Council of Superannuation Investors (ACSI) released a just transition report outlining investor expectations for companies engaging with stakeholders. This year, expectations regarding just transitions are set to rise further as stakeholders demand a genuine seat at the table, presenting a challenge for companies and organisations that have yet to secure their buy-in. An example of these challenges is detailed in the draft Integrated System Plan (ISP) from the Australian Energy Market Operator (AEMO) which highlights energy sector stakeholder engagement as a key risk affecting the energy transition.