Mandatory disclosure of climate related risks and opportunities: Submission to Treasury

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10 March 2023
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Mandatory Disclosure of Climate-Related Risks and Opportunities: Submission to Treasury

The Centre for Policy Development’s submission to Treasury on the mandatory disclosure of climate-related risks and opportunities makes recommendations to support a swift, just and orderly transition to net zero. It was written by Toby Phillips and Dr Mara Hammerle.

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The Centre for Policy Development submission to Treasury on mandatory disclosure of climate-related financial risk and opportunity recommends one clear set of rules that cover as much of the economy as possible

What is the mandatory disclosure submission about?

Australia’s major trading partners are moving towards a net zero economy – more than three quarters have committed to net zero emissions by 2050.

A mandatory disclosure system can standardise how Australia tracks climate risk and transition in a way that is clear and consistent to the public, investors and trading partners.

Consistency attracts low-carbon investment by enabling comparisons with international markets.

What is climate-related financial disclosure?

Climate change creates risks and opportunities for businesses, governments and nations. Directors of companies and other organisations often have duties to discover, disclose and address these, especially if they are financial.

Why does it need to be mandatory?

There is no current requirement to disclose climate-related risks and opportunities in a standard way.

This makes it harder for leaders to know what to disclose, and for investors and policymakers to compare one organisation with another.

A mandatory regime sets clear requirements for who needs to make disclosures, and how they should be made.

Why should government and private companies be included?

A single rule across the economy provides clarity, fairness and comparability.

Government is a quarter of GDP and invests on behalf of citizens. A swift, just and orderly transition benefits from a complete national and sectoral picture of climate risk and opportunity.

Private companies inhabit the supply chains of listed companies. Listed companies required to disclose should not be forced into guesswork about their supply chain emissions. Investors should not be able to privatise (de-list) companies to avoid disclosure.

Mandatory disclosure recommendations

The mandatory disclosure submission recommends a phased rollout where uniform rules are ultimately applied to listed companies, some privately held businesses and government authorities.

This ensures coverage across large sections of the economy, including transition-exposed sectors, enabling a detailed national and sectoral picture of climate risk.It also recommends disclosures conform to internationally recognised frameworks such as those developed by the Taskforce on Climate-related Financial Disclosures, and the International Sustainability Standards Board.

The full schedule of recommendations says:

Australia should align with international disclosure frameworks, such as the TCFD and the ISSB standards.
The mandatory disclosure framework should go beyond large, listed entities and financial institutions and eventually apply to all organisations with current reporting requirements under section 292 of the Corporations Act 2001 (Cth), as well as any carbon-exposed entities not covered by s292.
- The framework should first be applied to large or carbon-exposed entities.
- Any size thresholds should align with existing regulatory thresholds, such as from the Corporations Act 2001 (Cth) or the Modern Slavery Act 2018 (Cth).
- For all organisations covered by s292 of the Corporations Act, the government should set a timeline of 3-5 years to make climate-related financial disclosures a part of the standard financial disclosures
The framework should also apply to public authorities. For public authorities established under the Corporations Act 2001 (Cth), the roll-out of the disclosure framework should follow the same timeline as for the private sector with the same thresholds being applied (e.g. starting with large entities). Eventually, the framework should apply to all Corporations Act public authorities.
For public sector entities covered by the PGPA Financial Reporting Rule, the roll-out should advance in three stages
“Full” disclosure should include scope 1, 2 and 3 emissions as well as transition plans. Scope 1 and 2 emissions could form a common baseline framework, or a “floor”, for mandatory disclosure.
As we have proposed very broad eventual coverage, the requirement for disclosure of scope 3 emissions and transition plans could be restricted to large or carbon- exposed entities.
The framework should require that organisations clarify how much of any reduction in its reported emissions is due to purchased offsets; ideally the framework would specify how this is to be presented.
Given the ongoing revision of the definition of “materiality” by the International Sustainability Standards Board, the Commonwealth Government should signal its intent to align with any final ISSB guidance, but develop its own interim definition of “materiality” that takes enterprise value as a starting point and builds upon it by also considering non-financial considerations.
The government should publish at least one central scenario that reporting organisations must disclose against.

Background - directors duties and climate risk

The submission draws on the Centre for Policy Development’s history of work on the economic and legal frameworks needed to navigate climate change.

The organisation commissioned the Hutley Opinions (which first examined the duties of company directors on climate risks and opportunities in Australia), produced leading research on climate risk governance in public authorities, and has hosted landmark speeches on climate change and the economy by leaders from the Reserve Bank, APRA, Treasury and ASIC.

Mandatory disclosure submission downloads

Mandatory disclosure submission in the media

Calls to extend reporting to private companies

The Centre for Policy Development, a key contributor to the debate on the economic risks posed by climate change, says large government entities, such as Australia Post and the Future Fund, should be forced to disclose.

AAP
13 March 2023

Think tank claps back at govt climate disclosures, pushes for ‘economy-wide’ transparency

Government firms, such as the Future Fund, should disclose climate risks alongside their public counterparts, an independent policy institute has said.

Investor Daily
13 March 2023

Carbon Counter: Should all business and government entities disclose climate‑related financial risk?

As the world moves towards net zero, capital markets and investors are demanding better quality and internationally comparable information on how companies and businesses are tackling climate change.

ABC RN Drive
13 March 2023

Mandatory disclosure of climate related risks and opportunities: Submission to Treasury

Overview

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