AICD submission on ASIC guidance for sustainability reporting

As Australia begins its mandatory sustainability reporting journey, it is critical that ASIC provide clear guidance to assist reporting entities prepare high-quality, comparable and useful climate disclosures.

The AICD submission considered that, while the Draft Guide will assist reporting entities prepare a statutory Sustainability Report in compliance with the Corporations Act, there are certain areas that would benefit from further clarification and additional guidance. 

Our key points and recommendations included:

• The Draft Guide should clarify that reporting entities may selectively use or reproduce information contained in a Sustainability Report within corporate reports required by law (e.g. Financial Report, Operating and Financial Review report, a Corporate Governance Statement, or Notice of Meeting) and that the summary or reproduction of such information will be treated as a protected statement under the modified liability settings. The modified liability protections should also extend to answers required by law to be provided at an AGM in response to questions from investors that relate to information provided in the Sustainability Report.
• The Draft Guide should provide specific guidance on ‘reasonable grounds’ in the context of climate-related forward-looking disclosures. ASIC should also consider explaining how Australian law, including Australia’s unique liability settings, interacts with the concepts contained within International Sustainability Standards Board (ISSB) Disclosure Standard S2, which have then been adopted domestically via AASB S2.
• The Draft Guide should include guidance on steps directors should take to assess the materiality of climate-related financial risks and opportunities, including examples of materiality factors that may be considered.
• The Draft Guide should explain the interaction between the requirement for a directors' declaration in the Sustainability Report and section 344 of the Corporations Act requiring directors to take all reasonable steps to comply with, or to secure compliance, with provisions in Part 2M.2 and 2M.3 of the Corporations Act.
• ASIC should clarify what a “proportionate and pragmatic approach to supervision and enforcement” will involve, as well as how ASIC intends to escalate matters beyond the use of its ‘direction powers’.