How boards can navigate climate action strategy as global sustainability reporting gains momentum

In a time of political change, navigating uncertainty while maintaining your climate action strategy is vital, say Pru Bennett GAICD and Rory Macpherson from business advisory Brunswick Group.

While it may seem that the tides are shifting, we believe the pressure on companies to mitigate the risks of climate change is likely to continue to rise in the medium to long term.

On the whole, Australian listed companies are ahead of the curve in terms of climate and sustainability disclosure. During the past 20 years, Australian boards have faced increasing investor demands to disclose the risks and opportunities associated with sustainability factors as well as the actions their companies are taking to mitigate risks and maximise shareholder value.

Australian listed companies have acted. In 2008, the Australian Council of Superannuation Investors (ACSI) published its first ESG reporting project, finding that 31 companies (16 per cent) in the ASX 200 provided investors with ESG disclosures rated “detailed” or “comprehensive”. In its 2022 report, ACSI found that number had jumped to 140 companies (70 per cent). Today, 82 per cent of ASX 200 companies are reporting — or have committed to report — against the Task Force for Climate-related Financial Disclosures (TCFD) framework.

This has been driven by the growing recognition that climate change presents material financial and operational risks. For example, the rising incidence of extreme climate events has led to higher insurance costs and lower asset values. Similarly, regulatory frameworks to price carbon — such as the Safeguard Mechanism in Australia — have translated intangible costs into real dollars for listed companies.

But in 2025, many directors are reconsidering their climate strategies, targets and disclosure policies following a number of developments, which include:

Some of the world’s largest energy companies have pulled back on climate targets as they look to refocus on shareholder returns

A number of the world’s largest asset managers have withdrawn from climate-focused organisations

US President Donald Trump’s return to power has catalysed an anti-ESG movement and resulted, among other things, in the US withdrawing from the Paris Agreement.

However, whether you share Trump’s perspectives on climate or not, pressure to mitigate climate change risk will only get stronger over time. There are several contributing factors as to why your climate change strategy remains important.

1. Global reporting on material climate change and sustainability issues is already here — and gaining momentum

Many of the world’s largest markets have established mandatory climate and sustainability disclosure standards slated to take effect in the years ahead.

In 2022, the International Sustainability Standard Board (ISSB) issued drafts of two sustainability reporting standards — the S1 General Requirements for disclosure of Sustainability-related Financial Information and the S2 Climate-related Disclosures. The goal being to set a global baseline for reporting for investors on material sustainability matters. And in 2023, the EU’s Corporate Sustainability Reporting Directive (CSRD) came into effect requiring mandatory reporting of ESG data.

Major economies and Australian trading partners such as the UK, Japan, Canada and New Zealand are all expected to mandate ISSB-based reporting in coming years. In China, climate reporting was made mandatory in Hong Kong and new regulations are being created on the mainland.

Meanwhile, Australia has adopted the Australian Accounting Standards Board, AASB 1 (on a voluntary basis) and AASB 2 (mandated for ASX-listed companies). Both are aligned with the ISSB S1 and S2 standards. While the outcome of the federal election may impact the scope and timing of mandatory climate reporting in Australia, the direction of travel is clear.

Our view is that even if the US chooses not to adopt the ISSB standards, there will be little impact on companies already committed to the adoption of ISSB standards. Many investors will increasingly expect companies to disclose relevant climate change and sustainability data.

2. Investors will stay focused on climate and sustainability

While some major US investors have started to moderate their approach to engaging investors on climate change, it remains a critical topic for Australian superannuation funds and other investors. ACSI and the Investor Group on Climate Change (IGCC) remain strong advocates for corporate action on climate change and will continue to engage and measure progress made by companies.

Constructive engagement with investors on climate-related issues will remain very important for boards. Boards should also note there is a trend towards asset owners — the clients of asset managers — taking the stewardship function and voting decision in-house. For this reason, asset owners should be considered as part of any comprehensive investor engagement plan.

3. Climate-related shareholder activism expected to rise along with regulatory intervention

Shareholder activists such as the Australasian Centre for Corporate Responsibility (ACCR) and environmental advocacy Market Forces have become increasingly well-resourced and adept at implementing campaigns targeting both investors and corporates perceived to be lagging on climate disclosure, targets and action.

Shareholder activism can take many forms, including submissions of shareholder proposals demanding greater climate action or disclosure, as well as making use of section 249P of the Corporations Act 2001 (Cth) to have a member’s statement included in the notice of meeting ahead of the annual general meeting. These statements are often designed to encourage shareholders to vote against management proposals such as the re-election of a director or approval of the remuneration report.

One of the biggest challenges for boards is understanding the rationale of investors whose decisions are made for myriad — often conflicting — reasons. Boards should not assume investors are solely influenced by activist campaigns or proxy adviser recommendations. Direct engagement with investors to understand and address their concerns is critical.

Similarly, Australian regulators are also increasingly scrutinising corporate disclosures related to climate change. ASIC has publicly stated its intention to pursue greenwashing cases and it took 47 regulatory interventions to address greenwashing misconduct during the 15-month period up to 30 June 2024.

Shareholder activism and regulatory intervention is expected to continue to rise in coming years as mandatory climate reporting brings greater transparency, governments set increasingly aggressive carbon emissions-reduction targets and the impacts of climate change are better quantified.

Conclusion

While we are in a period of sustained pushback against non-core ESG initiatives, it is important for companies to continue to clearly articulate the link between corporate action on climate change and the ability of the organisation to generate shareholder value.

The board should prioritise climate-related risks and opportunities truly material to the company’s future earnings. The costs and benefits of climate initiatives should be clearly explained.

The organisation should be clear on the investment thresholds that climate initiatives must meet before they are approved to proceed.

This is about making the business case for allocations of capital to climate. We expect that this will continue to be a focus for investors now and into the future.

This article first appeared under the headline 'The Strategist’ in the May 2025 issue of Company Director magazine.