There is mounting pressure on businesses to effectively address climate risks and opportunities as the federal government intensifies the push towards mandated climate sustainability reporting.
This comes news comes with the release of the Treasury’s climate-related financial disclosure consultation paper and the closure of consultations focused on empowering the Australian Accounting Standards Board (AASB) to deliver sustainability standards.
RSM Australia Partner and National Leader of Energy, Resources and ESG Services Jacob Elkhishin said that these moves signified a major step by the federal government towards affirming its commitment to mandatory and standardised sustainability reporting, especially towards implementing the recommendations made by the Task Force on Climate-related Financial Disclosures (TCFD).
“These moves by Treasury sound the alarm for all Australian businesses that the transition to mandatory climate-related financial disclosure could come sooner rather than later, potentially as early as 2024-25 financial year reporting for initial entities,” Elkhishin said. “Just what will define these initial entities forms a primary focus for the consultation, as the resulting framework seeks to strengthen Australia’s economic transparency, accountability and investment security in line with global standards.”
There is a specific focus on data challenges and digital reporting of sustainability risk which highlights the significance of these factors in reporting on future greenhouse gas emissions and other potential metrics, and where some entities may have major ability gaps.
While size thresholds are considered as part of the consultation, the Treasury has proposed mandatory reporting to large, listed entities, financial institutions, and other large entities that are not publicly listed. In addition, if new requirements are applied through the Corporations Act, as suggested in the consultation, this would widen the scope to a larger pool of liable entities.
“Many of Australia’s well-resourced larger corporations, being larger emitters with pre-existing regulatory targets, already have more advanced environmental, social and governance (ESG) strategies,” Elkhishin said. “However, small to medium businesses have been occupied with other short-term priorities during the recent economic turbulence.
“Until there is legislation requiring them to act, many will likely sit on the sidelines and wait,” he added. “However, climate change is recognised internationally as a material risk to the global financial system, so businesses need to start preparing for what may be coming from key stakeholders to influence the management of these risks.”
With Australia’s emissions targets now enshrined in legislation – 43 per cent reduction by 2030 and net zero by 2050 – Elkhishin said that “the rubber really needs to hit the road on business and corporate action”. He noted, however, that implement regulatory change or targets will take time “which we don’t have”, and that Australia is already far behind Europe and many Asian countries that have already legislated public sustainability reporting for many companies.
Despite these issues, Elkhishin also acknowledged the contributions Australia made to the International Sustainability Standards Board. As such, businesses need to be prepared for the possibility of meeting regulated targets, particularly around emissions, and public reporting of their climate-related risks and opportunities.
“Companies are facing scrutiny not only from regulators, but also financiers, and the wider community,” Elkhishin said. “These risks are quickly becoming financially material in nature, and inaction may be soon affecting companies bottom lines. In Australia, we are seeing significant projects and proposals being reconsidered and reassessed for their impact on the climate. There are some significant risks for businesses who either fail to move quickly enough or to act at all, in respect of losing investors, finance and employees,” Elkhishin concluded.
