Sustainability reporting in Australia:
Rapid movement towards new standards
For over ten years, companies in Australia have been reporting on their sustainability efforts using a range of voluntary frameworks and global standards. Having multiple reporting frameworks without a unified structure for reporting can be a challenge.
It is important for the vast majority of companies to have a standardized reporting framework that is interoperable with global standards.
The Australian Accounting Standards Board (AASB) has recently consulted on an exposure draft of the Australian Sustainability Reporting Standards (ASRS). When finalized, these will become the mandatory reporting requirement standards for Australian entities to apply for their climate-related financial disclosures.
These proposed reporting standards were developed to align with international standards, making close reference to the International Financial Reporting Standards (IFRS) Foundation’s Sustainability Disclosure Standards (also known as ISSB Standards). These standards provide a consistent and comprehensive global baseline across IFRS S1: General Requirements for Disclosure of Sustainability-related Financial Information; and IFRS S2 Climate-related Disclosures.
The AASB Exposure Draft closely references IFRS S2, focusing on climate-related disclosures. The ED covers three standards: ASRS 1 General Requirements for Disclosure of Climate-related Financial Information, ASRS 2 Climate-related Financial Disclosures, and ASRS 101 References in Australian Sustainability Reporting Standards.
“This is an important first step for Australia to introduce standardized reporting requirements in Australia, providing investors with consistent and transparent information for their investment decisions."
S2 covers emissions reporting across the value chain and would require companies to report information on their data on Scope 1, 2, and 3 emissions — meaning emissions throughout their entire supply chain, says Dr. Keith Kendall, AASB Chair, at the recent Bloomberg Sydney Sustainable Finance Forum. “Under S2, preparers are required to report on the forward-looking opportunities and risks associated with climate change and their business.”
"This is an important first step for Australia to introduce standardized reporting requirements in Australia, providing investors with consistent and transparent information for their investment decisions," Kendall explains.
This coincides with the Government’s recent final policy to implement mandatory climate-related financial disclosures. Australian businesses, public and private, will need to be aware of these proposals and prepare to report.
Kendall’s key advice? "Do not wait until the standards are finalized. Businesses will need time to prepare and collate the necessary information to be ready to comply with the requirements."
So, how do firms start preparing for their mandatory climate disclosures? And what are the risks and challenges involved as they prepare?
Switching the lens to get the market’s view, representatives from the buy-side, sell-side, and policymakers shared their key concerns regarding climate-related disclosure at a panel discussion moderated by Bloomberg’s Government and regulatory affairs team.
“Those looking at [reporting on Scope 3] now have reported big gaps in the data, particularly for some of the harder asset classes like private equity and private credit.”
"From an asset manager perspective," says Charlotte O’Meara, Senior ESG Specialist at Challenger, "data is probably the biggest challenge." While many Australian companies are used to reporting on their Scope 1 and 2 emissions, reporting on Scope 3 is a much taller order. "Those looking at it now have reported big gaps in the data, particularly for some of the harder asset classes like private equity and private credit," O’Meara adds.
Companies will have to reach deep into their supply chain to find usable, comparable information. These standards will be subjected to audit and assurance, so there is a very high level of accountability involved and the data reported must reflect this. Even companies who don’t meet the threshold to report on Scope 3 themselves will need to know a certain amount of information because they will most likely sit within the supply chain of an organization affected by the rules.
Leanne Bloch-Jorgensen, Head of Sustainability, Client Coverage at National Australia Bank, offers this sharp advice: "Don’t think this doesn’t apply to you; you’re still in someone’s supply chain."
There are also challenges around capability and capacity. Some of the larger businesses have invested a lot of money and time in hiring the right people to help them build their capabilities in sustainability reporting. Access to expertise will be key, says Bloch-Jorgensen: "You may have the data, but you need to know how to interpret it, how to translate it, and turn it into a meaningful, forward-looking statement."
Companies will have to ensure that they set aside enough budget and time to train cross-department teams in sustainability reporting.
Those companies already building toward reporting against S1 and S2 share some similar qualities, aware that information to meet the requirements will come from right across the business.
They are instituting behavioral changes from the board level downwards and bringing together experts from data, strategy, risk, and governance teams to get the job done.
Those that have been successful in preparing for the requirements are also already breaking up what seems like an overwhelming task into manageable chunks. S1 and particularly S2 will have challenging technical standards that will need to be met, particularly for Australian companies with an international footprint. Breaking it down into jurisdictions and really thinking strategically about how to organize the business and phases of work to meet this challenge is key.
The third successful trait during the course of preparation is a cultural shift: learning along the way instead of waiting until everything, including data and systems, becomes available. Disclosures and reporting can seem complex and daunting, particularly for finance professionals who are used to having perfect systems, perfect information, and plenty of best practices available to them. In the case of sustainability reporting, preparers are on a journey along with their peers.
"Preparing for TCFD taught us that the process of preparing for mandatory climate disclosures can be a really insightful piece of work that actually helps mobilize an organization and embed transition strategy."
Bloch-Jorgensen points out that preparation isn’t all burdensome. "Preparing for TCFD taught us that the process of preparing for mandatory climate disclosures can be a really insightful piece of work that actually helps mobilize an organization and embed transition strategy, not just to mitigate risk but to leverage opportunities for the business and see the viability of the company in a different environment."
If the process is done right, preparers will be ready for audit and assurance when the time comes.
The best approach is one that does not let perfection get in the way of progress. Regulators shouldn’t let perfection get in the way of progress; they are aware that companies are in the early stages of reporting on these issues, and the hope is that all internal and external stakeholders in the process will work together with understanding to improve reporting over multiple years.
Though risk is an essential consideration of sustainability reporting, opportunity is also. The latter should motivate preparation.
Lastly, understanding that this is a group effort, not a solo marathon, is key. And it won’t be the last effort regulators have to make. Rebecca McCallum, a Director at the Commonwealth Treasury, says that "this is not the only disclosure that’s going to be required in this space — the standards were designed with the expectation that the framework for reporting will be expanded."
Climate-related financial disclosure is an essential priority for the Government. "The Treasury Laws Amendment (Financial Infrastructure and Other Measures) Bill 2024 (Bill) will put in place mandatory obligations, starting with large businesses," Rebecca reminded. Since the time of the event and as of May 14, 2024, the Bill has been introduced to the Parliament and considered by a Senate Committee.
Those companies that will succeed in reporting against sustainability standards, now and in the future, will work together with regulators and policymakers in the same direction. The recently announced Government’s Sustainable Finance Roadmap makes clear the same intent – Government will work closely with regulators and industry to achieve clearly understood and coordinated outcomes.
Companies should be keen to share best practices, particularly those who have reported using TCFD rules since they are far ahead in this process and have valuable advice to offer others. Preparers should be clear with regulators about any specific guidance they need and engage in consultations as much as possible.
A shared approach to problem-solving is the only way to report useful information, avoid greenwashing, and mobilize capital toward sustainable outcomes.
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