ob体育

Check against delivery

More than 6,000 entities will be required to report under new climate-related disclosure requirements in the next few years. They need to start preparing for the future, now.

As I鈥檝e said before, the growing interest in environmental, social, and governance鈥�(ESG) issues is driving the biggest changes to financial reporting and disclosure standards in a generation. This is a transformational issue for global markets, and we need to be ready to meet that change at every step of its development. To do that, we must maintain high standards of governance and disclosure.

In the face of this change, I know many of you have questions about how ob体育 will administer the new standards around the climate disclosure regime. In fact, 31% of respondents to the recent AICD director sentiment index survey said that their main concern in relation to mandatory climate disclosure is the complexity of reporting requirements. Though this is mitigated somewhat by only 11% saying climate change keeps them awake at night, and only 5% naming climate and sustainability reporting as a key concern.

Nevertheless, the potential complexity of climate-related reporting is clearly an important question on many people鈥檚 minds. And rightly so. Given the recent introduction of the climate reporting bill, it鈥檚 only reasonable to be asking questions around how to meet climate-related financial disclosure obligations.

That said, I鈥檓 not going to give you a step-by-step roadmap. That鈥檚 simply not possible. Similarly, it would be getting ahead of ourselves for ob体育 to talk about enforcement strategy. That鈥檚 not the focus of what we鈥檙e here to talk about today. As with any new legislation, we can expect more clarity as things firm up over time.

Instead, I am going to talk to you about how ob体育 will administer this ambitious new once-in-a-generation change. And so today, I would like to give you some insights into the approach ob体育 will take 鈥� our expectations 鈥� and why you need to be preparing for these changes today.

The regulatory transition

As you鈥檒l be aware, following Treasury鈥檚 public consultation, the legislation proposing mandatory climate-related disclosure was introduced into Parliament last month. The Australian Accounting Standards Board (AASB) has recently consulted on an exposure draft of the Australian Sustainability Reporting Standards (ASRS). The final version will be the standards that entities will be required to report against under the Government鈥檚 proposed mandatory climate reporting regime.

We鈥檙e right on the cusp of this potentially becoming domestic Australian law. There鈥檚 still a lot of work ahead of us to work through what the standards will look like in the Australian context. ob体育 supports aligning the Australian standards to international standards as much as possible. This is of course a matter for the Parliament and for the AASB, but minimising divergent climate reporting requirements between different jurisdictions would likely improve market efficiency, the competitiveness of Australian companies, and reduce the regulatory burden for reporting entities.

In any case, as we move to join the ever-growing ranks of jurisdictions with mandatory climate disclosure, many larger entities have been preparing for this for some time. Nearly 75% of the ASX200 have committed to or are already voluntarily reporting climate-related information against the TCFD framework.^[1] The same is not necessarily true of some of the smaller entities. But for both the smaller and the larger entities, there is some understandable apprehension, because now the legislation is actually upon us.

And this is a crucial point: you have to do this now. It鈥檚 simply not an option to put this off until after legislation has passed, and then scramble to comply. You have to figure out how you're going to marshal data, support and capabilities and start keeping the necessary records now 鈥� today.

Now, ob体育 will be responsible for administering the mandatory climate reporting regime, and this necessarily includes enforcement. But we understand that there will obviously be a period of transition as industry works to build the capability required to meet these new obligations. For this reason, we support Treasury鈥檚 phased approach to the implementation of the disclosure and assurance requirements. This allows time for the necessary uplift. Treasury is also aware that some are concerned about making forward-looking statements under the regime: they鈥檝e responded by introducing the legislation alongside modified liability settings which will restrict private actions against certain protected statements for a period of three years.

Now, as with any new regulatory regime, ob体育 will take a pragmatic approach to the supervision and enforcement of the climate reporting regime. We will consider what support and guidance we can give to help entities meet their new obligations. We will also work with the Government and the other Council of Financial Regulators (CFR) agencies on supporting implementation of the climate reporting regime, including on broader initiatives that will assist entities meet their new obligations, such as ongoing work on addressing data challenges.

In the meantime, ob体育 continues to encourage listed companies to report voluntarily under the recommendations of the Financial Stability Board鈥檚 Taskforce on Climate-related Financial Disclosures. This has been ob体育鈥檚 position since 2018. We also encourage entities to start developing the necessary organisational and governance structures to support future reporting requirements, including any additional sustainability-related topics that may be introduced in future years.

As we release this guidance, we will no doubt get some people saying they鈥檝e covered too much 鈥� or that they cover too little 鈥� others saying that they鈥檙e too prescriptive or not prescriptive enough 鈥� and so on. But we鈥檙e focusing on where we think we can be the most helpful in our guidance, within our remit. And we consult and monitor in response, and come back and adapt the guidance to better suit the need.

In short, I want to make it clear that ob体育 is listening. We know there are a lot of moving parts, we understand the complexity and the challenge 鈥� and we鈥檙e here to administer the new standards in a way that benefits us all.

Compliance equals good business

Which brings me to another important point: while there will be a cost for entities to report, those entities will also benefit. New mandatory reporting requirements don鈥檛 necessarily make it harder to balance the scales between profit and legal requirements.

Yes, new climate-related reporting requirements will impose new obligations on directors and reporting entities. But they also create opportunities. More reporting requirements mean you benefit from greater visibility of the physical and transitional risks. You can also benefit from climate-related opportunities of other entities in your value chain, and more visibility on these issues across the entire economy. This will support companies to manage their own climate-related risk and opportunities over the short, medium and long term, in the best financial interests of the entity and its shareholders.

This is an important point to remember. In particular, the Australian Government has legislated Australia's commitment to be net zero by 2050 and to reduce emissions by 43% below 2005 levels by 2030. On top of that, the Paris agreement remains afoot. That means more than 190 countries globally agree to reducing the sources and enhancing the sinks of greenhouse gases to limit warming to two degrees Celsius above pre-industrial levels. The point is, it鈥檚 pretty apparent that these issues will only become more pronounced over time.听

So, while we acknowledge the step up in capability required, and we note the complexity in some aspects of the proposed standards 鈥� such as setting net zero targets, undertaking scenario analysis and creating transition plans 鈥� nevertheless it鈥檚 important to consider the benefits that will also accrue from more transparency in this area right across capital markets.

We at ob体育 think good practice in thinking about reforms like this is to look at both sides of the equation 鈥� both the benefits and the challenges.听

ob体育鈥檚 expectations

But what will that look like? Since 鈥� as we鈥檝e seen 鈥� it鈥檚 far too early to talk about an enforcement strategy on standards that haven鈥檛 even passed yet, what can we say in terms of administering this change?

First, we need to recognise that the proposed standards for climate-related disclosures constitute what might be a called a prescriptive regime. Whenever this is the case, ob体育 鈥� and other regulators 鈥� need to be helpful in providing some guidance as to how we think about what compliance might look like with those rules.听

To fulfil that need, ob体育 will develop and issue regulatory guidance on climate-related financial disclosures. This will include:

1. A new, regulatory guide for the climate reporting regime which will address ob体育鈥檚 approach to relief from those obligations, and interaction of the regime with existing legal and regulatory requirements.
2. Resources on ob体育鈥檚 website for both those who prepare and use sustainability reports. This will include information on the new sustainability reporting obligations, ob体育鈥檚 regulatory functions in relation to the regime and the types of information found in sustainability reports.

The above will all be housed under a single dedicated page on the ob体育 site that鈥檚 dedicated to climate-related financial disclosures. This will allow for easy updates as things firm up in this space over time.

At the same time, there will be some aspects of CRFD where ob体育 may need to wait and observe market practice and regulatory developments before we can provide more detailed guidance.

ob体育 reviews climate and sustainability disclosures made by entities in financial reports as part of our annual financial reporting surveillance program. We will utilise this program to monitor progress and market practice in this area before and during the implementation of the mandatory regime. We will also undertake proactive surveillance of the first reporters, the largest firms, to identify any learnings that we can share for the benefit of the entire market.

And this is something I want to emphasise here: this is an evolving space. In a sense, ob体育 is learning alongside you. While some guidance holds up well over time, things like court decisions can obviously affect how it鈥檚 presented. The point is, we鈥檙e having to develop that in context 鈥� and this will play out for years to come. I mean, even when standards are passed and implemented, there is as yet no international consensus around assurance. At this very early stage we鈥檙e working very hard with industry and at the international level to get a grip on this subject. But the point is we鈥檙e a long way from calling it a day. To coin a phrase, the implementation of mandatory climate disclosure isn鈥檛 the end 鈥� it鈥檚 the beginning.

Start today

But don鈥檛 wait until climate-related financial disclosure requirements actually become mandated and the AASB finalises Australian standards based on those issued by the ISSB. As I suggested earlier, ob体育 considers that those entities reporting under the TCFD will be well placed to report under any future mandatory reporting regime. This is particularly the case since the ISSB鈥檚 standards are founded on the four pillars of the TCFD framework.

So start there. While companies may continue to use the voluntary TCFD framework, it may also be useful for them to begin engaging with the ISSB standards through the report preparation process to test and/or assess capabilities, data availability and requirements against the new standard. This will help inform the company of future requirements.

In addition to climate change, momentum is gaining pace in relation to disclosure on other sustainability-related topics, including nature and biodiversity. ob体育 will continue to monitor these developments as they progress and encourages entities to ensure that any systems and processes they adopt for the purposes of climate-related financial disclosures be sufficiently agile to incorporate additional sustainability topics in future years.

As I鈥檝e said, the data tells us that markets and investors are increasingly relying on this information in order to make decisions. That鈥檚 why climate and sustainability disclosures and statements need to be rigorous, robust, and comprehensive. And it should go without saying, they cannot be misleading or deceptive under law. This is nothing new 鈥� it has never been okay to be misleading or deceptive.

Conclusion

In conclusion, while it鈥檚 too early to talk about enforcement strategy, that should not be taken to mean it鈥檚 too early to be prepared. This means considering and putting into place the systems, processes and governance practices that will be required to meet new climate reporting requirements. It means ensuring you adopt the necessary practices to avoid greenwashing.

Doing this now will allow the best transition 鈥� and it will provide a surer foundation for a more profitable business 鈥� because a compliant business is a profitable business. As things firm up, ob体育 will provide further guidance. But in the meantime, you need to start preparing for the future, now.

听

[1] See: 鈥� August 2023.