Mandatory Climate Reporting | 'You have to do this now' says ASIC Chair

3 minute read  25.04.2024 Paul Schoff

ASIC expects business not to wait for the new mandatory climate reporting regime to be enacted, but to start preparing now.  

'You have to do this now'

Ahead of the imminent introduction of new ISSB-aligned mandatory reporting requirements in Australia (read: Mandatory climate reporting in Australia | Landmark Climate Disclosure Bill introduced), the message from Australian Securities and Investments Commission (ASIC) Chair Joe Longo to in-scope entities is clear: 

'you have to do this now. It’s simply not an option to put this off until after legislation has passed, and then scramble to comply.  You have to figure out how you're going to marshal data, support and capabilities and start keeping the necessary records now – today'.

'Compliance equals good business'

Mr Longo also made clear that the introduction of the new climate reporting requirements is only the beginning of a broader global shift towards increased disclosure on a range of sustainability issues which will only accelerate over time. 

As such, Mr Longo urged entities to embrace the benefits of increased transparency (rather than focus exclusively on the challenges).  Mr Longo said that the new reporting requirements would: 

'create opportunities. More reporting requirements mean you benefit from greater visibility of the physical and transitional risks. You can also benefit from climate-related opportunities of other entities in your value chain, and more visibility on these issues across the entire economy. This will support companies to manage their own climate-related risk and opportunities over the short, medium and long term, in the best financial interests of the entity and its shareholders'.

… Doing this now will allow the best transition – and it will provide a surer foundation for a more profitable business – because a compliant business is a profitable business.'

How ASIC expects to 'administer this ambitious new once-in-a-generation change'

Mr Longo emphasised that, consistent with the regulator's usual approach to the introduction of new obligations/requirements, ASIC's initial focus will be on supporting compliance (rather than enforcement).

Mr Longo said: 

'ASIC will be responsible for administering the mandatory climate reporting regime, and this necessarily includes enforcement.  But we understand that there will obviously be a period of transition as industry works to build the capability required to meet these new obligations…Now, as with any new regulatory regime, ASIC will take a pragmatic approach to the supervision and enforcement of the climate reporting regime. We will consider what support and guidance we can give to help entities meet their new obligations.…In short, I want to make it clear that ASIC is listening.  We know there are a lot of moving parts, we understand the complexity and the challenge – and we’re here to administer the new standards in a way that benefits us all'.

New guidance to support implementation

As flagged, ASIC intends to develop and issue new regulatory guidance on climate-related financial disclosures.  Mr Longo said that this new guidance will include:

  • 'A new, regulatory guide for the climate reporting regime which will address ASIC’s approach to relief from those obligations, and interaction of the regime with existing legal and regulatory requirements'.
  • Resources on the ASIC website for preparers and users of sustainability report including 'information on the new sustainability reporting obligations, ASIC’s regulatory functions in relation to the regime and the types of information found in sustainability reports'.

Once the new requirements commence, ASIC will monitor progress and market practice through its existing annual financial reporting surveillance program.  Mr Longo also flagged ASIC's intention to

'undertake proactive surveillance of the first reporters, the largest firms, to identify any learnings that we can share for the benefit of the entire market'.

In saying this, Mr Longo underlined that the new guidance will not be a comprehensive roadmap, but will necessarily evolve over time.  Mr Longo comments: 

'this is an evolving space. In a sense, ASIC is learning alongside you. While some guidance holds up well over time, things like court decisions can obviously affect how it’s presented. The point is, we’re having to develop that in context – and this will play out for years to come. I mean, even when standards are passed and implemented, there is as yet no international consensus around assurance. At this very early stage we’re working very hard with industry and at the international level to get a grip on this subject. But the point is we’re a long way from calling it a day. To coin a phrase, the implementation of mandatory climate disclosure isn’t the end – it’s the beginning.

That said, I’m not going to give you a step-by-step roadmap. That’s simply not possible….As with any new legislation, we can expect more clarity as things firm up over time'.

What steps to take now

Mr Longo called on listed companies to:

  • report voluntarily under the recommendations of the Financial Stability Board’s Taskforce on Climate-related Financial Disclosures (TCFD recommendations)
  • 'begin engaging with the ISSB standards through the report preparation process to test and/or assess capabilities, data availability and requirements against the new standard'
  • 'start developing the necessary organisational and governance structures to support future reporting requirements [included in the ISSB standards], including any additional sustainability-related topics that may be introduced in future years'.

On this last point, Mr Longo added that:

'In addition to climate change, momentum is gaining pace in relation to disclosure on other sustainability-related topics, including nature and biodiversity.  ASIC will continue to monitor these developments as they progress and encourages entities to ensure that any systems and processes they adopt for the purposes of climate-related financial disclosures be sufficiently agile to incorporate additional sustainability topics in future years'.

Mr Longo is not alone in this view.  We expect the Taskforce on Nature-related Financial Disclosure (TNFD) framework to follow the same trajectory as the TCFD guidance and at an accelerated rate.  In other words, mandatory nature and biodiversity reporting will be a 'fast follower' to mandatory climate reporting.  With this in mind, when preparing for the introduction of new climate-reporting requirements, entities should think also of nature-related risk. 

[Source: ASIC Chair Joe Longo's 22 April address to the Deakin Law School International Sustainability Reporting Forum, publication date: 23/04/2024]

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