The introduction of improved climate disclosures in Australia is an area we have been actively advocating over the past few years through various channels, including our previous direct engagements with the AASB in 2021/22. We were therefore pleased to see the current Australian Accounting Standards Boards’ (AASB) release of Exposure Draft ED SR1 Australian Sustainability Reporting Standards – Disclosure of Climate related Financial Information and to once again provide feedback on the proposed standards through various avenues: including both directly through the AASB’s online survey, our direct in-person discussions with the AASB’s sustainability reporting team as well as through feedback on the PRI’s position through its Global Policy Reference Group.
Overall, Ethical Partners were supportive of the content of the proposed standards, which largely align with the International Sustainability Standards Boards’ (ISSB) final standard. Although we broadly welcomed the standards, our feedback provided additional clear recommendations for how the AASB should improve the standards. For example, we recommended that:
- Rather than solely focus on climate, Australia’s reporting framework should mandate broader sustainability reporting and should be implemented in a manner that facilitates the urgent introduction of additional sustainability standards with a double materiality approach adopted. In the interim, we encouraged the AASB to expressly confirm that additional sustainability disclosures are not only permitted but encouraged.
- Australia’s reporting standards requires all companies to provide a comprehensive climate statement as opposed to permitting certain entities to provide a statement that they have no material risks. Given our recognition that climate change presents a systemic risk, we firmly believe that all companies will be affected by climate change in some manner and to varying degrees. A statement that a company has no material risks therefore simply flags that its risk management is inadequate rather than that the company has no risks.
- The AASB specify that companies disclose a climate resilience assessment based on scenario analysis using a lower 1.5-degree and upper 4-degree pathway. In Ethical Partners’ view, specifying both a lower and upper limit for scenario analysis is necessary for investors to adequately understand and compare both current and future climate-related risks across companies. We strongly supported the direction for reporting entities to disclose how these assessments inform companies’ strategies and business models.
- The standards be underpinned by the best available scientific evidence. To that end, we encouraged the AASB to require the global warming potential values that companies use to convert greenhouse gas emissions to a carbon dioxide equivalent to be based on the latest IPCC assessment report.
- Finally, the AASB amend the draft standards to require financial institutions to disclose financed emissions in line with the ISSB’s standards. Ethical Partners are committed to taking into account material portfolio scope 3 emissions as members of the Net Zero Asset Managers and, as such, need disclosure by all ASX listed companies on their scope 3 footprint.
Ethical Partners looks forward to seeing further developments in Australia’s sustainability reporting framework and continuing to provide engagement with the Australian Government on this important topic.
