Climate Governance Initiative Australia Newsletter November 2022

This month’s issue highlights the release of Herbert Smith Freehills-AICD guidance on board structures and sustainability. We also cover ACSI’s new research on ASX200 companies’ climate-related commitments alignment with a 1.5°C trajectory, the Federal Government’s commitment to progress climate modelling and reporting standards, and Australian commitments at COP27.

Ahead of COP27, the Climate Governance Initiative produced a briefing for directors that covers the significance of UN climate meetings, outcomes from COP26 and the Paris Agreement. Look out for our upcoming article and videos on the key insights for directors from COP27 in the coming weeks. The big development from COP27 was the establishment of a ‘loss and damage fund’ for developing countries vulnerable to climate change.

Herbert Smith Freehills-AICD guide to board structures and sustainability

Herbert Smith Freehills and AICD have jointly prepared a new guide ‘Bringing together ESG: Board structures and sustainability’ to help directors and management elevate ESG matters to the board.

“The guide aims to help boards decide their approach to integrating ESG into their decision-making. There is ‘no one size fits all for this issue. For some organisations, it will sit with the board. For others, it will sit in existing committee structures.” Tim Stutt, Partner at Herbert Smith Freehills and Australian lead for the firm’s ESG, Sustainability and Responsible Business practice.

The guide explores:

• Directors’ duties and effective stakeholder engagement on sustainability;
• The role of existing committee structures in elevating ESG matters;
• The role, structure, and benefits of a Sustainability Committee.

The guide draws on learnings from market practice and trends seen in overseas jurisdictions and includes a template Sustainability Charter – a useful starting point for organisations considering how a standalone ESG or sustainability committee would operate in practice.

Further practical resources from CGI Australia resources can be found here.

ACSI research on companies’ climate-related commitments - 1.5°C alignment

Australian Council of Superannuation Investors (ACSI) research Chasing 1.5°C:  The ASX200 – on the right trajectory? released earlier this month shows corporate Australia’s current emission reduction commitments will see a 36% overspend of the ASX200’s ‘carbon budget’ between 2021 and 2050 – suggesting Australian corporate commitments are not aligned with limiting warming to 1.5°C above pre-industrial levels, the key goal of the Paris Agreement.

Key findings:

• Net zero ambition has improved for scope 1 and 2 emissions: 45% of ASX200 companies have set a net zero ambition for their scope 1 and 2 emissions.
• Lack of short and medium-term goals: Longer-term net zero goals are not being sufficiently supported by short and medium-term absolute emissions reduction targets.
• Scope 3 not sufficiently considered: Only 9% of companies have 1.5°C- aligned net zero targets covering all applicable emissions scopes. The carbon footprint associated with scope 3 emissions (applicable to 95% of the ASX200), are not sufficiently considered when establishing targets, resulting in significant market risk.
• Variable disclosure: In general, larger capitalised companies set more targets and discuss their emissions more frequently. The analysis identified that those companies not setting targets are often not disclosing their emissions, so the first step for many is to begin to disclose emissions profiles.
• Use of offsets: It is unclear from disclosures the extent to which net zero targets are dependent on the use of offsets, which means investors cannot assess whether they are being used appropriately.

Latest Government announcements

COP27 announcements

In the lead up to COP27, Climate Change and Energy Minister Chris Bowen signed up Australia to a global pledge on cutting methane emissions. During COP27, Mr Bowen also made pledges on halting deforestation and promoting green shipping, while announcing that Australia will join the Global Offshore Wind Alliance (GOWA) to help establish an offshore wind industry domestically.

Federal Budget and climate disclosures

Last month’s Federal Budget earmarked $36.1 million in spending over the next 4 years (and $6.9 million per year ongoing) to support Government priorities on climate modelling and reporting standards. Treasury and the AASB will receive $6.2 million over four years to develop and introduce specific climate reporting standards for large businesses and financial institutions, in line with international standards. For AICD’s analysis on the what those reporting standards might look like, read here.

Other Australian climate governance news

• The Taskforce on Nature-related Financial Disclosures (TNFD) is seeking feedback on v0.3 of its beta framework by 14 February 2023 to be considered ahead of the release of v0.4 in March 2023. The TNFD is an emerging framework to manage disclose biodiversity related risks, building on the model of the TCFD (Taskforce on Climate-Related Financial Disclosures).
• “ASIC acts against greenwashing by energy company”(ASIC) –  ASIC has taken its first action for ‘greenwashing’ against listed energy company Tlou Energy Limited (Tlou). Tlou has paid a total of $53,280 to comply with four infringement notices over concerns about alleged false or misleading sustainability-related statements made to the ASX in October 2021.
• Outcomes from the recent AGL annual general meeting (AGL) – AGL shareholders have approved the appointment of all four directors nominated by Mike Cannon-Brookes' investment company Grok Ventures including Dr Kerry Schott AO, former chair of the Energy Security Board. The board now expands from five to nine directors (AFR, The Guardian). Shareholders also approved the AGL Climate Transition Action Plan which includes:
  • closure of its last coal-fired generator by the end of FY35, up to a decade earlier than previously announced;
  • development of a Scope 3 decarbonisation pathway to Net Zero by 2050; and
  • climate transition metrics in long-term executive remuneration to incentivise leadership on climate change and the energy transition.
• “Australia takes steps towards sustainable finance framework” (Pro Bono Australia) – The Australian Sustainable Finance Institute (ASFI) released its research on 13 international finance taxonomies. ASFI executive officer, Kristy Graham said Australia’s major financial regulators and institutions are providing input on the Australian taxonomy and are supportive of the industry-led project. A recommendations paper will be released by end of 2022 for feedback.
• Dr Ken Henry (former Federal Treasury secretary) discusses ‘Accounting for Nature’ (Radio National), a tool that has been developed to determine the value of, and assess improvements in, natural assets like rivers, forests and wildlife.
• Catch up on recent CGI Australia webinars
• Connecting climate change and strategy: delivered by CGI Australia partner, Pollination. Access here.
• Sustainability or ESG Committees - How to structure your board: delivered by CGI Australia partner, Herbert Smith Freehills. Access here.
• An introduction to reporting on nature-related risks: delivered by CGI Australia partner, PwC.  Recording pending - future access here.

Stay posted for details on upcoming webinars and events in future CGI Australia newsletters and AICD member publications.

Recent publications from across the Climate Governance Initiative global network

• How to move from ambition to action – Chapter Zero (UK). This briefing summarises the following four basic requirements needed for your business to move from ambition to action on climate, highlighting your role as a non-executive director.
• Briefing for independent directors ahead of COP27 – Climate Governance Initiative. This briefing provides information on the UN climate meetings, their significance, the outcomes from COP26 and the Paris Agreement. It focuses on businesses and what COP27 means for directors.