Climate and sustainability reporting is a strong global and domestic focus, but harmonisation of frameworks remains a challenge and the AICD is continuing to contribute to regulatory and policy debates on these issues, writes Louise Petschler GAICD.

    International sustainability standards

    The AICD has been working with key stakeholders to provide input to draft global standards on ESG reporting. This is a key focus with global and domestic policymakers and regulators. Directors of listed companies have highlighted the challenge of the current “alphabet soup” of different reporting frameworks for ESG, particularly relevant for climate change reporting.

    Late last year, the newly formed International Sustainability Standards Board (ISSB) released draft standards for sustainability reporting — one general, and one specific to climate change. The Australian Accounting Standards Board (AASB) has also consulted on climate reporting proposals.

    Collaborating with a range of peak bodies and investor groups, the AICD contributed to an “Australian Voice” submission to the global draft standards. While supportive of the direction of the ISSB draft standards, the Australian Voice group highlighted challenges for Australian adoption, including liability issues and assurance. The AICD also made our own submissions to both the ISSB and the AASB, flagging these key issues:

    • Harmonisation is critical: Global and domestic consistency in sustainability reporting frameworks must be a primary focus, to support preparers and comparability.
    • Australia’s liability framework is challenging: Our higher risk of class actions and liability for forward-looking estimates will hinder good faith adoption in Australia unless addressed.
    • Capability needs to build: The standards would require a substantial uplift in capability, data and practice, supporting a phased implementation model focused on key metrics.
    • Assurance gaps: Standards need to be clarified, targeted and capable of reasonable and independent assurance, with significant challenges in the current drafts.

    The AICD commissioned legal advice from Herbert Smith Freehills on the liability framework and challenges for Australian companies, shared with the AASB and informing our international input.

    Climate governance in focus

    In Australia, the Albanese government has indicated that improving climate reporting will be a priority. Australian listed companies are already largely providing Task Force on Climate-related Financial Disclosures (TCFD)- aligned reporting, given market demands, but a mandatory framework is likely to be a priority.

    Reporting issues and key climate governance issues were canvassed at the first Climate Governance Forum on 1 August, hosted by AICD as an initiative of the Climate Governance Initiative. The Climate Governance Initiative is a forum to support directors on climate governance, connecting with global and Australian resources (see governance resources below).

    On the national governance front, the AICD joined with business, investor and environmental groups to support the passage of the Climate Change Bill 2022 as an important step towards climate policy certainty — a key concern for Australian directors in our regular Director Sentiment Index surveys. The AICD joined with the Australian Industry Group, Investor Group on Climate Change, Governance Institute, Australian Energy Council and Australian Council of Superannuation Investors, among others, in its public support. The Business Council of Australia separately endorsed the Climate Change Bill.

    Australian companies lead on board diversity

    The AICD’s most recent gender board diversity report revealed that 53 per cent of women non-executive directors appointed in the past year are entering the index for the first time, reflecting the efforts of boards to look beyond known names and networks to engage new talent.

    It comes as the proportion of women on the ASX 200 and ASX 300 were 34.8 and 33.8 per cent, respectively, as at the end of June 2022.

    Also, for the first time, the 30 per cent target was reached within ASX companies ranked 201–300.

    Best interests duty

    Last month the AICD was pleased to release new guidance on the duty of Australian directors to act in good faith in the best interests of the corporation. The material includes a new AICD Practice Statement — a legal opinion provided by barristers Bret Walker AO SC and Gerard Ng MAICD, examining interpretations of the duty by Australian courts and international comparisons of the duty by Allens Linklater.

    Experienced senior directors also share their views on the duty and consideration of shareholder/member and stakeholder interests. Member response has been positive, with more than 5000 AICD members accessing the best interests duty material in recent weeks.

    Practice resources — supporting good governance

    The AICD is committed to supporting directors with guidance on governance practice issues. Below are some useful examples:

    Climate Governance Initiative Australia

    Director Guide to Climate Risk Governance

    Virtual AGM Guide

    Ethics in the Boardroom

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