Climate governance study special edition

Friday, 15 March 2024

    Current

    In this special edition, we feature the Climate Governance Study 2024 published last week by the AICD in partnership with Pollination.

    The study finds Australian directors are intensifying their focus on climate change, yet organisations face growing challenges in executing their strategies. Based on a survey of 1,057 AICD members and consultations with 24 senior non-executive directors, the study offers practical insights and recommendations for improving governance practice. There is also a brief ‘snapshot’ document highlighting the key findings, better practice and recommendations.

    Also in this newsletter:

    • The US introduces its first national climate disclosure rules, while the Australian regime remains in flux;
    • Consultations open on Australia’s proposed new Nature Positive laws;
    • Save the date: AICD announces its third annual Climate Governance Forum (Sydney, 23 August 2024)
    Climate Governance Study 2024

    Climate Governance Study 2024: Moving from vision to action

    The Climate Governance Study 2024 is the second released by the AICD and builds on the insights of the inaugural 2021 climate insights study. It finds, despite several years of significant strategic and economic challenges, Australian directors report a high level of concern regarding climate-related risks to their organisations.

    • 80 per cent of directors say their boards are concerned about climate change as a material risk;
    • A clear majority of directors (60 per cent) believe their boards should pay more attention to the subject;
    • A third of Australian boards have reassessed their organisational strategies in response to climate risk and opportunity;
    • 60 per cent say climate governance warrants more board attention.

    The intention of the study is to act as a ‘temperature check,’ assessing how perspectives and actions on climate governance are evolving among the Australian director community. Overall, it identifies fluctuating levels of board and organisational activity on climate change, with significant differences between sectors. Read the report.

    Snapshot of contemporary climate governance practice in the Australian market

    The Climate Governance Study 2024 provides details of the leading climate governance practices that have evolved in the past few years. The Australian Market Snapshot, which accompanies the comprehensive report, captures these insights in an easy-to-share format for inclusion in board briefings and papers. The four-page summary provides better practice guidance and recommendations relevant to all sectors, with more detailed discussion in the full report.
    trends-shaping-climate-governance-priorities-in-2024

    The findings represent a significant turnaround in sentiment in this sector in two years. In fact, the study finds listed directors and their boards are leading climate practice in Australia across key measures. They are more likely to be investing in training (39 per cent), preparing for mandatory climate reporting (81 per cent) and setting climate targets and transition plans (43 per cent). Read more.

    directions

    Climate transitions are complicated by stakeholders pulling in different directions: Study

    Australian directors face challenges balancing transition and investments in a world with diverging stakeholder interests. The Climate Governance Study 2024 finds organisations are also finding it challenging to justify investment in transition efforts, including allocating costs for climate initiatives. In some cases, sustainability was seen as a second-order issue by investors – only of interest once financial goals were already being met. Read more.

     

    Market developments update

    Australian climate reporting – commencement date up in the air  

    In recent months, the AICD has made submissions on the Government’s proposed mandatory climate disclosure framework and reporting standards. The proposed regime aims to commence as early as 1 July 2024. Given legislative and standard setting processes are yet to be finalised, there is significant uncertainty regarding the enactment of any mandatory climate reporting bill before 1 July 2024, especially considering the potential referral of the bill to a parliamentary inquiry. The AICD considers a commencement date of January or July 2025 appears increasingly likely. Read AICD's latest update here, which also sets out the AICD’s policy position on mandatory climate reporting.

    United States corporate regulator approves the country’s first climate disclosure rules

    After two years of intense public debate, last week the United States Securities and Exchange Commission (SEC) approved the country’s first national climate disclosure rules. The rules set out requirements for publicly listed companies to report their climate-related risks and, in some cases, their greenhouse gas emissions. The new SEC rules are different than those originally proposed. For example, there is no requirement to disclose scope 3 (value chain) emissions, and scope 1 and 2 emissions disclosures are only required for larger companies, on a phase-in basis. Smaller companies are excluded. Critically, the SEC has extended existing private liability safe harbours to a broad range of forward-looking climate disclosures, being transition plans, scenario analysis, internal carbon price and targets and goal disclosures. The SEC has done so to “help incentivize more comprehensive disclosures on these matters to the benefit of investors.”

    We expect that the SEC’s approach will reinvigorate debate as to proportionality and liability relief mechanisms available under Australia’s proposed climate reporting regime. The Australian Government currently proposes that a three-year regulator-only period of enforcement (Limited Immunity) apply to scope 3 and scenario analysis disclosures. Transition planning including climate target disclosures are not covered by the Limited Immunity. The AICD considers that the Limited Immunity should apply to all forward-looking disclosures required under the proposed Sustainability Standards, including transition plan disclosures.

    Climate Change Authority sets out its sectoral pathway process

    Australia’s Climate Change Authority (CCA) has detailed its consultation process for Australia’s sectoral pathways. Following expert engagement in Q1 this year, the CCA will run roundtables and roadshows from February until May, after which they will release an Interim Paper for consultation. Its sectoral pathways review is due to be submitted to the government and published in August. The CCA has set out on its website, that the period May to August will involve discussion of its ‘2035 targets project’. The CCA’s 2035 targets advice to government and its annual progress report will be published by December 2024.

    Consultations open on Australia’s proposed new Nature Positive laws and the National Climate Adaptation Plan

    The Department of Climate Change, Energy, the Environment and Water (DCCEEW) has opened consultations on new Nature Positive laws. The Federal Government released the Nature Positive Plan in 2022 as a blueprint for reassessing federal environmental laws and replacing the Environment Protection and Biodiversity Conservation Act (EPBC Act). There are several proposed reforms under development, including National Environmental Standards, the creation of an independent federal Environment Protection Agency, and a 'world-first' Nature Repair Market.

    DCCEEW also opened consultations on the Climate Adaptation in Australia – National Adaptation Plan. It proposed to invest $28 million over two years to deliver the National Climate Adaptation and Risk Program, including Australia’s first National Climate Risk Assessment, and the National Adaptation Plan.

    ASX 200 companies lag global peers on including ESG measures in long-term incentive plans

    Guerdon Associates’ 2023 ESG research report highlights the growing incorporation of ESG measures into long-term incentive (LTI) plans globally. It finds while global large-cap companies show a steady increase in integrating ESG measures into incentive plans, ASX 100 companies in Australia lag behind, with 12 per cent including ESG metrics in LTI compared to 34 per cent globally.

    Other market developments – in brief
    • Singapore will provide funding support of up to 30 per cent for large companies about to begin making mandatory climate-related disclosures aligned with the International Sustainability Standards Board (ISSB) framework from 2027.
    • Real Economy Progress reports that the Science-Based Targets Initiative (SBTi) has removed 239 companies from their platform, because they either missed a deadline to set ‘full net-zero targets’ or have chosen not to use the standard.
    • Leading Practice Principles: First Nations and Renewable Energy Projects sets out guidelines for engaging with Australia’s First Nations peoples on renewable energy projects and were published by the Clean Energy Council and KPMG.
    • The United Nations Environment Programme has released its Global Resources Outlook 2024 which shows (again) that global emission reduction efforts are not on track.
    • News from NZ: The anticipated Smith v Fonterra and Ors judgement regarding a novel climate change claim brought against several of New Zealand’s largest corporations alleging they have all ‘materially contributed to climate change and caused damage’ will see the claim proceed to trial.
    • The Financial Times reports total spend on sustainability advice was projected to hit US$48.9bn in 2023 globally — a year-on-year increase of 8 per cent but down from 9.8 per cent in 2022. It expects the slowdown to continue in 2024.
    • The Accelerating Business Action on Climate Change Adaptation report was released by the World Economic Forum, with PwC, to help companies address the challenge of adaptation planning.
    • In a National Press Club address in February, Professor Rod Sims AO, Chair of the Superpower Institute, and Professor Ross Garnaut AC, Director of the Superpower Institute, proposed a ‘carbon solutions levy’ equivalent to the European carbon price which is imposed on every tonne of carbon extracted from below the ground or imported into Australia.

     
     

    For the calendar:

    • 20-21 March 2024: AICD’s upcoming annual Australian Governance Summit includes a session on ‘Powering the Future: The Energy Transition and Climate Governance’, featuring John Lydon GAICD (Co-Chair, Australian Climate Leaders Coalition), Dr Larry Marshall FAICD (Director, Fortescue), and Karen Moses FAICD (Director, Orica; Charter Hall). Register now.
    • Friday, 23 August 2024 – save the date: Third annual AICD Climate Governance Forum (Sydney). Registrations open soon.
    • 8-10 October 2024: The Australian Government will host the first Global Nature Positive Summit in Sydney. Read more.
    • 11-24 November 2024: COP29 United Nations climate conference in Baku, Azerbaijan. Learn more.
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