Overview

Our key takeaways from Australian Securities and Investments Commission (ASIC) Chair Joe Longo's 13 June 2023 address to the Committee for Economic Development of Australia (CEDA) State of the Nation conference are below.

'Change isn’t just on the horizon, it’s already here', so we need to prepare now

The central message running through ASIC Chair Joe Longo's address is that:

'environmental, social, and governance (ESG) issues are driving the biggest changes to financial reporting and disclosure standards in a generation…and we need to be ready to meet that change at every step of its development'.

Importantly, Mr Longo emphasised that the change is already happening observing that 'the conventional paradigm in finance is already undergoing a seismic shift'.

Mr Longo pointed to three of the seven 'megatrends' highlighted in the CSIRO's 2022 report – Our Future World – in illustration of the scope of the shift and the (already discernible) direction of travel. Namely:

• 'climate change adaptation and the protection of livelihoods, infrastructure, and people’s quality of life as the climate changes.
• the global push to reach net zero, protect biodiversity and use resources more efficiently.
• unlocking the human dimension and elevating diversity, equity and transparency in business, policy, and community decision making'.

Mr Longo cited the expected release by the International Sustainability Standards Board (ISSB) of its first two global sustainability standards at the end of June 2023, in illustration of how these themes are beginning to 'play out globally'.

'The signal is clear: major transformational change has begun. And we all need to be ready'

Mr Longo recapped some of the initiatives on foot to support the government's broader net zero by 2050 'ambition' including:

• the development of new standards or taxonomies for sustainable investment;
• 'further initiatives to reduce greenwashing and strengthen ESG labelling'; and
• funding in the 2023/24 Federal Budget for sustainable finance initiatives (including additional financial support for ASIC to undertake its greenwashing enforcement work).

These developments, Mr Longo said, 'add further weight to the increasing profile of ESG issues as a priority for investors and companies' and serve to underline the need for companies to prepare.

In making this point, Mr Longo acknowledged that many ASX 100 companies have already taken steps in this direction, including voluntarily adopting/reporting against the TCFD framework. However, Mr Longo emphasised that this alone is insufficient in the face of the accelerating demands of international capital markets. Mr Longo commented.

'ESG is not a static space, and the bar is continually being raised ever higher. As such, there is a need for companies to reflect on and review governance standards, to ensure stronger support for disclosure'.

Preparation of ISSB-aligned standards 'should be starting now'

Mr Longo reiterated that ASIC continues to encourage voluntary reporting under the recommendations of the TCFD for the current financial year.

He emphasised however, that ASIC expects firms to be preparing now for the expected introduction of more rigorous ISSB-aligned requirements. ASIC's expectation is that:

'Firms should be well advanced in embedding robust corporate governance practices ahead of more rigorous reporting requirements that are imminent in the standards being released by the ISSB in two weeks. These ambitious standards will require companies to adopt a systematic approach to collecting and analysing data across the company itself, and its supply chains. Preparation for that should be starting now'.

Mr Longo also flagged that Treasury is expected to release a position paper on these standards 'within the next fortnight' which will outline the proposed implementation timeline. On this point, Mr Longo said that 'a scaled introduction, depending on the size of the entity, is expected'.

Tackling greenwashing (including greenhushing) remains a key focus

Mr Longo reiterated the points made in his 5 June 2023 keynote address to the AFR ESG Summit concerning the regulator's continued focus on maintaining 'high standards of governance disclosure' in line with existing requirements, and more particularly the priority ASIC is according to tackling greenwashing.

Mr Longo also reiterated ASIC's views on 'greenhushing' - ie where companies cease all voluntary ESG-disclosure out of purported concern about the regulatory response to such disclosures.

Mr Longo observed that:

'"greenhushing", is in our view just another form of greenwashing, and risks misleading by omission. Silence from firms and failing to engage isn’t the answer'.

Guidance for boards

• ASIC has released an information sheet (INFO 271) offering guidance on how to avoid greenwashing. ASIC has since released ASIC report 763 (summarised) which is intended to supplement the guidance in INFO 271 through providing examples of when ASIC has intervened.

• MinterEllison has also produced a guide on the topic: Navigating the rising tide of greenwashing

• Ahead of the introduction of new mandatory ISSB-aligned sustainability reporting requirements in Australia, the AICD, in conjunction with Deloitte and MinterEllison, have produced anew guide outlining what is known about the forthcoming requirements, the questions yet to be determined by government, and the steps boards can take now in preparation.

[Source: ASIC Chair Joe Longo address to the CEDA State of the Nation Conference 13/06/2023]