Consultation: Climate-related financial disclosure, June 2023 consultation

Overall, the AICD considered that Treasury’s proposals were a positive step towards the creation of an effective climate disclosure framework which incentivises organisations to make high quality, comparable and useful climate disclosures. However, we noted that the complexity and impact of this “once in a generation change in corporate reporting”[1] will require material changes to the Corporations Act and financial reporting framework. As such, the AICD’s submission focused on practical implementation issues and the legal implications of the proposed regime. Our key points were:

• Liability: The AICD strongly supports the proposal to limit enforcement of scope 3, transitional plan and scenario analysis disclosures to the regulator for a fixed period of three years following the commencement of the regime (Transitional Liability Relief). However, we submitted that this relief should apply for three years for each reporting cohorts, rather than being a fixed 3-year period. We also submitted that it should cover all forward-looking disclosures required under IFRS S2 - not just transition plans and scenario analysis. We also reiterated the need for ASIC to be clear as to its approach to enforcement, and that it adopts a pragmatic stance in light of the emerging nature of climate disclosures and the significant upskill required.
• Modified Director and Management authorisations: Given the proposal to locate climate disclosures within both the Directors’ Report and Financial Report, we submitted that there is a clear need for modified Director and Management authorisations. Modifications were broadly to ensure that the “true and fair” sign-off was not provided for statements that were not subject to reasonable assurance, and that authorisations of climate disclosures were only made on a good faith and best endeavours basis subject to the uncertainties, judgments and assumptions set out in the relevant report(s).
• Timing: We submitted that the legislation needs to be make clear that climate disclosures only need to be made on an annual basis, and that there is no expectation that climate disclosures will be updated throughout the year unless (in a listed entity’s case) a Continuous Disclosure obligation is triggered. To that end, we strongly supported Treasury’s proposal that the ASX confirms that continuous disclosure obligations continue to be subject to the existing materiality thresholds, and that it provides guidance on how to manage those obligations in the climate context. We also suggested that organisations be provided with timing relief in their first reporting year, such that they be allowed to submit a stand-alone climate disclosure report within 2 months after the issue of their annual report, rather than submitting both Annual (financial) and climate reports at the same time.
• Scope: We submitted that Cohort 3 (which was estimated to cover around 20,000 entities) was too broad relative to thresholds set by other jurisdictions such as the EU. We were concerned that for these entities, the compliance burden would not be commensurate to the policy benefit. As such, we proposed a significant lifting of thresholds for Cohort 3, or, alternatively, that less onerous disclosure requirements be applied to Cohort 3 reporting entities. We also sought confirmation that reporting will be required on a consolidated group level, rather than on an individual entity basis. Finally, we noted that as currently framed, the regime would exclude charities registered with the Australian Charities and Not-for-Profit Commission (ACNC) but would include Not-for-Profits who were not ACNC registered. Given the ISSB standards were developed for commercial for-profit entities, we recommended that the Government undertake a separate consultation with the NFP and charities sector to consider the utility and impact of having the disclosure regime apply to them.
• Materiality: The Consultation Paper made a number of unclear statements about how materiality would apply to climate disclosures. As such, we requested that the Government clarify which disclosures are mandatory, and which disclosures are subject to an organisation’s materiality assessment.

The full submission can be found here.

[1] ASIC Chair’s CEDA State of the Nation Conference speech dated 13 June 2023.