Key issues to watch at COP28 | Australian climate standards reach milestone

The 28th United Nations climate change summit (COP28) will convene in Dubai from 30 November to 12 December. The summit will bring together leaders and representatives from almost 200 state parties to the United Nations Framework Convention on Climate Change (UNFCCC) with the goal of keeping the Paris Agreement temperature goals within reach. This month we focus on the most important issues expected to be covered at the conference.

We also cover some key market updates, including:

• Australian climate standards reaching a milestone;
• Government consultation on its sustainable finance strategy and carbon leakage review;
• The release of a legal opinion on nature-related risks and directors’ duties;
• An example transition planning toolkit for directors.

Key issues to watch at COP28

From 30 November, government representatives will meet in Dubai to address global progress towards achieving the Paris Agreement goals and facilitate a course-correction strategy so as to limit warming to 1.5°C by the end of the century. The summit comes at a time when current global emissions policies put the world on track for 3 degrees warming, and Climate and Energy Minister Chris Bowen says it is ‘crunch time’ for Australia’s transition response, which he admits will be difficult. 

As COP president, the United Arab Emirates has identified the following areas of focus:

• Fast-tracking the energy transition;
• Setting the framework for a new deal on climate finance;
• Putting nature and communities at the heart of climate action.

Ahead of COP28, the Australian and Tuvalu governments announced the landmark Falepili Union treaty, which includes climate cooperation and allows for a special human mobility pathway for citizens of the low-lying nation to access Australia. Australia has also been working to acquire support for its bid to co-host the 2026 UN Climate Conference with Pacific Island countries.

For a full summary of these issues, see our article on COP28.

Australia’s climate standards reach a milestone

The Australian Accounting Standards Board (AASB) has issued draft climate-related financial disclosure standards for public consultation, closing on 1 March 2023.

As expected, the standards substantially mirror those of the International Sustainability Standards Board (ISSB) Standards, with only minor proposed amendments for the Australian market. Differences are in areas including materiality, industry-specific disclosures and scenario analysis.

Treasury is still expected to release its final position on climate reporting before the end of this year, and we understand the government is proposing to maintain a 1 July 2024 commencement date for the regime, for the largest public and private companies, financial institutions and emitters.

Read more on our website about how the draft Australian Climate Standards differ to the ISSB, and the implications for directors.

Consultations open for sustainable finance strategy and carbon leakage review

The Australian Government has issued its long-awaited Sustainable Finance Strategy for consultation. The strategy seeks to drive and support private sector decarbonisation in Australia. Of particular interest to directors will be the proposals for the:

• Integration of the sustainable finance taxonomy into the regulatory framework
• Development of a ‘sustainable’ investment product labelling system
• Reform of stewardship practices and requirements.

Other priorities include supporting transition plans and addressing data challenges. The closing date for submissions is 1 December 2023.

On 13 November the government also opened public consultation on ‘carbon leakage’ with the aim to protect trade-exposed heavy industry, such as steel and cement, in a decarbonising global economy. The review includes assessments of a carbon border adjustment mechanism for Australia, emissions product standards and funding needs. It is the first of two rounds of consultations and closes on 12 December.

In case you missed it: A director’s guide to mandatory climate reporting

To assist directors prepare for mandatory climate disclosures, likely to commence from 1 July 2024, the AICD, in partnership with Deloitte and MinterEllison has released A director’s guide to mandatory climate reporting.

The Guide outlines the proposed Australian mandatory reporting framework, sets out the key legal obligations for directors, and provides practical steps directors can take to ready their organisations for the commencement of the mandatory climate reporting regime.

New legal opinion on nature risk and directors’ obligations

A new legal opinion commissioned by climate advisory firm Pollination and the Commonwealth Climate and Law Initiative states that Australian company directors have a duty under corporations law to consider their company’s exposure to nature-related risks. In the opinion, barrister Sebastian Hartford-Davis and lawyer, Zoe Bush, take the view that directors who do not act to identify and appropriately manage material nature-related risks will be exposing themselves to potential legal consequences for breaching their duties. 

Nature and biodiversity as a governance issue is gaining greater focus globally, with the Australian market, like many, still coming to terms with the issue. Adoption of disclosure frameworks for nature-related risks, such as the TNFD, remain voluntary at both the global and domestic level. However, investors and stakeholders will increasingly be looking for organisations to adopt nature positive initiatives, including to help meet ambitious climate and sustainability targets. 

The AICD encourages directors to think carefully about their organisation's impacts and dependencies on nature and what steps they should take to manage any material risks in the ordinary course of discharging their duties.

To help directors get started with nature-related risk assessment, in July 2023 we developed a resource: Biodiversity as a material financial risk – what board directors need to know.

How to produce a nature and climate disclosures report

Forico, a Tasmanian forestry management company, has published its integrated Taskforce for Climate-related Disclosures (TCFD) + Taskforce for Nature-related Disclosures (TNFD) report as a guide to other companies on providing sustainability disclosures to the market.

The report is published in conjunction with the TNFD and covers four areas of nature disclosure: land, ocean, freshwater and atmosphere. It includes assessment and reporting of nature-related dependences, impacts, risk and opportunities and shows how companies can build on their existing climate-related reporting activities to get started with assessment and reporting of other nature-related issues. View the report.

Australia can meet Paris commitments with emission cuts of 48–68% by 2030

Two new decarbonisation scenarios released by Climateworks Centre, in partnership with CSIRO, show Australia can meet its Paris Agreement commitment to keep global warming to 1.5°C or well below 2°C, with deeper emission cuts shared across all economic sectors. Under the 1.5°C scenario, Australia achieves net zero emissions by 2039 and a 68% cut in emissions by 2030, on 2005 levels. In the 'well below 2°C' scenario, Australia is net zero by 2050 and emissions fall 48% by 2030.

The scenarios include a range of technology benchmarks for electricity, transport, industry, agriculture, buildings and carbon-dioxide removals. For example, in both scenarios, renewable energy backed by storage makes up around 83–90% of electricity generation by 2030. The current Australian Government targets are a 43% emissions reduction by 2030 and net zero by 2050, and 82% renewable electricity by 2030.

Government expects Productivity Commission focus on climate and the net zero transition

On 10 November Treasurer Jim Chalmers issued the Government’s statement of expectations for the Productivity Commission and incoming Chair Danielle Wood, explicitly including ‘climate change and the net zero transformation’ as part of the body’s mandate.

This is the first time that climate change has been explicitly referenced, bringing the Commission into line with similar statements issued to other government agencies such as the Australian Prudential Regulation Authority (APRA).

Making Australia’s sectoral transition plans ‘investable’

In a new discussion paper, the Investor Group on Climate Change sets out how the Australian government’s sectoral decarbonisation plans could attract investment.

The IGCC highlights a potential role for sectoral plans to support businesses to transition, help coordinate the transition and spread the load fairly and build understanding across industries of what needs to be done. This follows the Australian government commitment back in July to develop transition plans for six economic sectors, including electricity and energy, industry, the built environment, agriculture and land, transport and resources.

Australian economists want to see expanded carbon pricing

In a recent edition, The Economist reported that a quarter of global emissions are now covered by a carbon price of some sort, and that share was rising.

At a domestic level, according to an Economic Society of Australia survey of 50 Australian economists, a carbon price was one of the preferred ways for Australia to accelerate decarbonisation. All but seven of the 50 economists surveyed nominated either an economy-wide carbon price or an expanded safeguard mechanism as one of their top priorities.