New climate target setting guide | Climate Governance Forum – this Friday

This month, we release a new guide for Australian boards: Principles for setting climate targets. With mandatory climate reporting on the horizon, Australian organisations must be prepared to disclose key details of their targets. The new resource provides 10 guiding principles to support boards in establishing climate targets and managing associated risks.

On Friday, 23 August, we look forward to seeing over 1800 of you in person and virtually at the AICD’s Climate Governance Forum 2024. It is the third year we have run this event, with strong attendance from directors, executives, investors and senior government representatives.

Also in this newsletter:

• Help improve this newsletter by taking our two-minute Readers’ Survey – it closes tomorrow;
• New research finds that 66 per cent of ASX200 companies have made a net-zero commitment, with one in three (58 companies) disclosing how climate impacts financial performance;
• Directors and investors share their hopes for the first year of climate reporting in Australia; and
• Air New Zealand removes its 2030 emissions reduction target and withdraws from the Science Based Targets initiative (SBTi), Mercer to pay an $11.3 million penalty in ASIC greenwashing case, plus more market updates.

New directors’ guide to setting climate targets

As more Australian companies set climate targets, the AICD has released a new guide for directors, Principles for setting climate targets, jointly developed with the Insurance Council of Australia and Herbert Smith Freehills as part of the Climate Governance Initiative (CGI) Australia.

The resource includes 10 guiding principles to assist boards in developing, implementing, communicating and reviewing climate targets. At each of the four identified phases of the target-setting process, the resource provides suggested questions for directors to ask management to support effective oversight.

While this resource uses the insurance sector as a case study, the guiding principles are broadly applicable to all organisations. The resource addresses the various drivers compelling businesses to act, from strategic alignment to regulatory requirements and stakeholder expectations. Access the resource and summary snapshot.

ASX200 lifting reporting on climate change impact

The Australian Council of Superannuation Investors’ (ACSI) July research into the climate change disclosure practices of the ASX200 reveals that the adoption of the Taskforce for Climate-related Financial Disclosures (TCFD) has more than doubled in the past five years – 82 per cent of the ASX200 now use the framework. The Promises, Pathways and Performance report finds:

• Large companies are leading the way on net zero commitments: Sixty-six per cent of ASX200 companies (131) have made a net zero commitment, an eight per cent increase since 2023.
• A decrease in short-term targets: The number of short-term targets (0-5 years) has decreased year-on-year, from 80 companies in 2022 to 70 in 2023. However, medium-term targets have increased to 61 per cent of companies.
• Integration of climate considerations into financial statements: Twenty-nine per cent (58 companies) disclosed how climate change is considered when evaluating their financial performance and position.
• Increased identification of physical risk: Sixty-six per cent (132 companies) undertook and disclosed analysis of their exposure to physical risks arising from climate change, marking a 12 per cent increase.
• Significant increase in scope 3 disclosures: The disclosure of strategies and targets to reduce scope 3 emissions has increased by 35 per cent; 29 per cent (58 companies) have set scope 3 targets.
• Stable trend in science-based target setting: Thirty per cent (59 companies) refer to science-based methodologies when setting emission reduction targets. Additionally, 29 companies have either submitted for verification or had their targets verified by the Science Based Targets initiative (SBTi).

ACSI notes that factors contributing to the reduction in short-term targets include increased scrutiny from various stakeholders, the uneven nature of decarbonisation pathways and technology, and changes in the index composition, with newer entrants typically being less developed.

Most climate-related financial disclosures are qualitative and focus on the impact of climate change on assumptions used in impairment testing (47 companies), useful lives of assets (13 companies), and provision calculations (20 companies).

Regarding carbon offsets, the researchers looked for references to using offsets within a hierarchy – where real-world emissions reduction is prioritised and offsets are used as a last resort. Twenty per cent of companies (40) disclosed the number of offsets retired, sold, bought, or generated during the year.

Market developments update 

• Air New Zealand’s decision to withdraw from the Science Based Targets initiative (SBTi) made headlines. On 30 July, the company announced its withdrawal from the SBTi and the removal of its 2030 carbon intensity reduction target. The airline said its decision was driven by challenges beyond its control, including delays in fleet renewal, limited availability of alternative jet fuels, and insufficient global regulatory support. Air New Zealand is working on setting new near-term emissions targets and is still committed to achieving net zero carbon emissions by 2050.
• The Australian Accounting Standards Board (AASB) has released a consultation paper that sets out illustrative examples for how entities can apply requirements to report the effects of climate-related uncertainties in financial statements. Submissions are due by 4 October 2024 and the AICD will be responding to the consultation.
• Mercer ordered to pay following ASIC greenwashing action: On 2 August, the Federal Court ordered Mercer Superannuation (Australia) Limited to pay an $11.3 million penalty after admitting to making misleading statements about the sustainability of some of its superannuation investment options. ASIC Deputy Chair Sarah Court described it as a ‘landmark case’ for both ASIC and the financial services industry, highlighting the critical importance of accurate ESG claims to investors.
• Commonwealth Bank releases its third climate report: Released last week, CBA’s 2024 climate transition plan shows it has set targets for sectors responsible for 67 per cent of its 2020 financed emissions. The plan was labelled 'significant’ by a shareholder activist group due to the company’s decision not to finance oil and gas producers lacking a Paris-aligned transition plan.
• The US Securities and Exchange Commission (SEC) has defended its climate risk disclosure rules in court against lawsuits that argued the rules exceed the agency’s authority. News reports indicate that the SEC said, ‘Each provision of the rules falls within the Commission’s statutory authority and is consistent with the Commission’s decades of practice exercising its delegated rulemaking authority.’
• The SBTi has released a discussion paper that discusses the challenges and opportunities associated with scope 3 target setting. The paper explores potential solutions to enhance value chain decarbonisation to support the SBTi in delivering its mission ‘to drive science-based climate action in the corporate sector consistent with limiting warming to 1.5°C’.
• The latest Insurance Council of Australia Insurance Catastrophe Resilience Report 2023-24 shows the impact of extreme weather on the Australian economy has more than tripled over the last three decades.
• Australia’s export emissions are outsized compared to domestically produced emissions, according to a study by Climate Analytics. The study found that exported carbon dioxide emissions accounted for nearly 80 per cent of Australia’s total emissions footprint from fossil fuels in 2022. Australia’s total fossil fuel carbon dioxide footprint accounted for approximately 4.5 per cent of global fossil fuel CO2 emissions in 2022, with one per cent of these emissions produced within the country.
• Meanwhile, China’s emissions may have peaked: Under the Paris Agreement, China promised to have its emissions peak in 2030. It encouragingly appears to have hit that target six or even seven years ahead of schedule.
• The hottest day on record was recorded on 22 July 2024, beating the record that was set just one day before. The Copernicus Climate Change Service found that global temperatures between July 2023 and July 2024 were the highest on record.
• Labour market impact from climate transition in Australia:The OECD forecasts climate change mitigation will lead to substantial job reallocation in Australia. The report suggests high-skilled workers can move from emission-intensive to climate‑friendly industries with little retraining.

For the calendar:

• 23 August 2024: Climate Governance Forum 2024
• 22–29 September 2024: Climate Week NYC
• 8–10 October 2024: Global Nature Positive Summit, Sydney
• 21 October–1 November 2024: COP16 United Nations (UN) Biodiversity Conference, Cali
• 11–22 November 2024: COP29 UN Climate Change Conference, Baku