Over the next 12 months many Australian companies – both listed and private – will be obligated to report against the Australian Sustainability Reporting Standards (ASRS). However, as mandatory reporting requirements grow, many issuers are left wondering about the relevance of voluntary disclosures and whether mandatory disclosures, in isolation, will be enough to satisfy investor expectations.
Key updates on mandatory climate disclosure – as of May 2024
The Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill 2024 (the Bill) was sent to Parliament on 27 March 2024, with Part IV of the Bill dedicated to the rollout of mandatory climate disclosure requirements. Although mostly consistent with the initial Treasury Exposure Draft of the ASRS Standards released earlier this year, the Bill has brought some significant changes, including:
In the article below we’ll outline the key aspects companies should focus on to successfully navigate the dynamic disclosure landscape in 2024.
Align with global standards beyond ASRS
Given the need for consistency and comparability of sustainability reporting globally, the ASRS Standards were designed to be aligned with the most influential global framework, the International Sustainability Standards Board (ISSB), specifically IFRS S2, which is based on the Task Force on Climate-related Financial Disclosures (TCFD).
Given the primary users of ISSB standards are investors, lenders and creditors, reporting against this framework beyond ASRS Standards is essential to ensure current and future investors have access to useful, consistent and comparable information. Other voluntary disclosures such as the Global Reporting Initiative (GRI) remain relevant, however ISSB is currently considering interoperability with GRI to avoid duplication.
However, there are some points of differentiation between ASRS and ISSB which create confusion, leaving many issuers wondering what to do to satisfy both international investors, financial regulation, and how to find the balance between mandatory and voluntary reporting. To adequately address all the key aspects with confidence, a few years of trial implementation of both standards is required.
Meet growing investor expectations
Although most investors support the mandatory reporting initiative, we expect to see a market reaction in some areas. For example, the existence of mandatory and comparable disclosures is likely to motivate institutional investors and proxy advisers to raise their expectations when evaluating a company’s climate and overall ESG strategies. Simply complying with mandatory reporting is only the tip of the iceberg and this needs to be considered for the next reporting cycle to avoid risks.
Industry-specific disclosures – which are not currently covered by the ASRS Standards – are still important in this regulatory landscape. Voluntary ESG disclosures based on recognised sector-level guidance such as those issued by the former Sustainability Accounting Standard Board (SASB), are essential to help investors identify which issuers are effectively managing financially material environmental and social risks.
Equip your board for success
The opportunity to discuss the sustainability report during AGMs for shareholders, opens the door to question board accountability and oversight of climate strategy, and potentially impacts director election/re-elections. During the last AGM season and the current mini-peak season, we have seen a significant increase in both number and severity of protest votes against directors as a key strategy utilised by unsatisfied investors.
It is widely accepted that to tackle climate change, reporting entities also need to address broader nature issues. Hence, it is expected that recent recommendations from the Taskforce on Nature-related Financial Disclosures (TNFD) will become mandatory a lot faster than climate disclosures did. These reporting changes can also have an impact on board composition and skill matrix. Given that sustainability reporting will require director approval, board members will need the skills and education that allow them to effectively oversee an ESG governance framework.
Protect your company’s reputation
Sustainability reporting will present higher reputational and legal risks than before, considering that under the Corporations Act, a failure to disclose, or inadequate disclosures, can attract civil penalties. This is in addition to the risk of being accused of greenwashing, which is already highly scrutinised by the Australian Securities and Investments Commission (ASIC) and the Australian Competition and Consumer Commission (ACCC).
Continuing to report against voluntary frameworks is not only advantageous for companies looking to remain competitive and satisfy investor expectations, but it also presents important opportunities for innovation and leadership amongst directors and key management personnel. Voluntary reporting frameworks remain relevant in ensuring companies can attract capital, build trust amongst stakeholders, demonstrate a commitment to sustainability and ensure compliance with future mandatory requirements and standards.
 | GEORGESON RECOMMENDS |
Expecting perfect disclosures from the outset is not realistic, but it is important to start now by prioritising verified data that ensures credibility and reduces risk.
- A Gap and Peer Analysis against ASRS Standards is key to understanding what action you need to take before your reporting group timeframe begins.
- An ESG Profiler and Materiality Assessment can help you identify which voluntary frameworks and ESG topics are expected from your investors and other stakeholders.
- Avoid the risk of being accused of greenwashing through having an effective and robust data gathering, internal control and due diligence processes in place.
- Reviewing your Governance on E&S matters can assist you in determine your areas of weaknesses and strength to be better prepared for the future of mandatory reporting.