Climate risk and sustainability: ASIC guidance developments

ASIC has released revised guidance on climate change-related financial disclosures made in both offer documents and Annual Report Operating & Financial Reviews:

• Regulatory Guide 228 Prospectuses: Effective disclosure for retail investors; and
• Regulatory Guide 247 Effective disclosure in an operating and financial review.

ASIC has updated its guidance to, amongst other things:

• incorporate the types of climate change risk developed by the G20 Financial Stability Board’s Taskforce on Climate Related Financial Disclosures (TCFD) into the list of examples of common risks that may need to be disclosed in a prospectus appearing in Table 7 of RG 228; and
• in RG 247.66, highlight climate change as a systemic risk that could impact an entity’s financial prospects for future years and that may need to be disclosed in an operating and financial review.

The updated ASIC RG’s follow recent joint guidance published by the Australian Accounting Standards Board and Auditing & Assurance Standards Board on the incorporation of climate-related financial risk assumptions into accounting estimate materiality assessments. That guide specifically calls out the need for report preparers and auditors to consider the materiality of climate risk assumptions on balance sheet items such as asset valuation, impairments and provisions.

Taken together, there is no doubt that mainstream investor, activist and regulatory focus will be on the adequacy of climate-related financial risk disclosures in FY20.

Our guide, Our guide, 'Are your finance and governance teams ready? Heightened expectations on climate risk governance and disclosure', analyses these, and other, developments in the climate risk governance, risk management and disclosure space, including:

• the Paris Agreement;
• Recommendations of the G20- Financial Stability Board’s Taskforce on Climate-Related Financial Disclosures;
• AASB/AuASB's joint guidance on the integration of climate change-related risks into financial statement materiality considerations: Climate-related and other emerging risk disclosures: assessing financial statement materiality using AASB Practice Statement 2; and
• ASIC’s updated Regulatory Guides: RG228 Prospectuses - Effective disclosure for retail investors and RG247 Effective disclosure in an operating and financial review.