The Australian Accounting Standards Board (AASB) has released Exposure Draft ED SR1 Australian Sustainability Reporting Standards – Disclosure of Climate-related Financial Information to propose climate-related financial disclosure requirements.

Climateworks supports the introduction of mandatory climate-related financial disclosure, with the aim of reducing barriers to investment in Australia’s pathway to net zero.

These standards provide a crucial opportunity to help mobilise private investment for corporations to finance their transition to net zero, through improving transparency and ensuring Australian corporations stay competitive given the changing international regulatory landscape.

Climateworks supports the introduction of standards that create disclosures that will allow investors, shareholders and regulators to assess climate- and nature-related risk and the actions that entities are taking to reduce their exposure to risk.

We note that standards for this work are expected to evolve as international expectations around disclosure changes.

This is particularly relevant to the work of the Taskforce for Nature-related Risk Disclosure and on the disclosure of transition plans, and setting standards to ensure such plans are credible.

Overall, Climateworks supports the framework introduced in the Exposure Draft as a first step towards additional disclosures in the future.

In particular, Climateworks supports the AASB proposals that:

  • scenario analysis must include a 1.5°C-aligned scenario.
  • entities with a non-material risk should be required to present why they should be exempted from reporting.
  • mandatory standards should be implemented as per the timeline set out in the exposure draft legislation.

To strengthen the standards proposed, Climateworks recommends that the AASB:

  • review wording in the Exposure Draft to clarify that scenarios used should be both ‘Paris-consistent’, and specific to Australia
  • set standards that include requirements for entities to prepare a credible transition plan as part of their mandatory climate disclosures
  • propose to Treasury that every entity that has a material risk should have a credible transition plan, in line with international best-practice
  • highlight to Treasury the weaknesses of relying solely on the National Greenhouse and Energy Reporting Act (NGERs) for methodologies for reporting data, especially as regards methane
  • include Australian Carbon Credit Units (ACCUs) in a separate category for a time limited period for the carbon credit used. Highlight with government and the Clean Energy Regulator that the lack of serialisation of ACCUs means they do not meet ISSB standards for mandatory disclosure
  • propose that the Department of Finance standards for Stream 1 and Stream 2 Commonwealth entities and Commonwealth companies are consistent with the transparency and ambition provided by the AASB standards for mandatory corporate disclosures
  • clarify the specific circumstances in which data can be withheld for commercially-sensitive reasons
  • monitor and align executive remuneration with the entity’s stated climate metrics and targets, disclosing at a minimum:
    • a description of whether and how climate-related considerations are factored into executive remuneration
    • the percentage of executive management remuneration recognised in the current period that is linked to climate-related considerations
  • expand disclosure requirements to include financed emissions and sustainable finance/funding targets to achieve the objectives of the Sustainable Finance Strategy
  • designate the relevant requirements for assurance to a broader group of suitably accredited professionals, together with Audit and Assurance Standards Board (AUASB) and the Treasury
  • collaborate with Australian Securities and Investments Commission (ASIC) to bring digital sustainable financial reporting to Australia as soon as ISSB finalises the IFRS Digital Financial Reporting
  • signal clear next steps after mandatory disclosure and scenario analysis are implemented, as part of the broader Sustainable Finance Strategy
  • work with government to implement capability-building and training programs focused on clarifying what entities need to do specifically to meet the standards.