The AICD has been actively involved in new climate reporting legislation as well as the continuous disclosure review, plus the release of the latest NFP Governance Principles.
Climate reporting laws
Parliament is considering new laws to introduce a mandatory climate reporting regime to Australia. The legislation is in Schedule 4 to the Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill 2024 (Cth).
Having lagged other jurisdictions on climate reporting and regulation, the new framework, if passed, will see Australia become one of the first developed countries to implement such a comprehensive and extensive mandatory reporting regime. The AICD has been actively involved in consultations on the new regime, which sets significant new obligations on boards and organisations.
Under the new regime, entities (including public and private companies, registered schemes, superannuation entities and NFPs, but excluding charities) will disclose current and anticipated climate-related risks and measures over the short, medium and long term, under frameworks set through new sustainability standards.
Reporting will be phased, with Group 1 entities (large companies and heavy emitters) starting with disclosure periods commencing 1 January 2025. Group 2 entities will report for periods from July 2026, and Group 3 (where the entity assesses that they face material climate-related risks or opportunities) from July 2027.
Disclosures will need to comply with the Australian Sustainability Standards, currently being "analysed by the Australian Accounting Standards Board. These are adapted from the International Sustainability Standards and will be a significant step up from most current reporting.
A directors’ declaration is also required confirming disclosures are in accordance with the Corporations Act 2001 and new standards. There is a phased assurance timetable for disclosures.
The AICD supports mandatory climate reporting, as do other key investor and business groups. Read more in our joint public statement (with Business Council of Australia, Australian Council of Superannuation Investors, Financial Services Council, Australian Shareholders’ Association and other key groups) here.
This is a very complex reform that requires director focus and board preparation. ASIC chair Joe Longo rightly describes the regime as the biggest change to corporate reporting in a generation.
The AICD has advocated strongly for important provisions in the new laws and we are pleased many are re$ected in the proposed legislation. Our key concern has been the intersection of mandatory climate reporting with Australia’s liability settings for forward-looking corporate disclosures. We have argued that liability adjustments are needed, given the uncertainty and lengthy time frames associated with climate disclosures. It is critical that these apply to scenario analysis, transition plans and scope 3 disclosures. We have also argued that directors’ declarations will need to be suitably qualified, given the nature of reporting and limited assurance capability in the market.
In positive news, the government has responded to concerns raised by the AICD and others. The Bill includes a three-year modi"ed liability period of “regulator-only” enforcement (by ASIC, not private class actions) and a quali"ed directors’ declaration for the initial three years of the regime. These are important provisions to support quality and comprehensive disclosure.
There are different views on these issues across Parliament and the AICD, and other stakeholders will be making the case with all parties and independents as the Bill progresses. A Senate committee recently heard evidence from the AICD and other stakeholders on the legislation, where we made the case for these important provisions as well as raising concerns about the wide range of entities that are currently captured in Group 3.
On 23 August, the AICD will host our third annual Climate Governance Forum. The program covers transition plans, climate reporting, board responses to ESG backlash, nature and biodiversity, and director insights. Speakers include leading directors, experts, government and stakeholders. Register here.
Continuous disclosure review
In welcome news, an independent review has recommended that reforms to continuous disclosure laws (reintroducing a “fault” element for private litigation) should remain in place. These reforms were strongly supported by the AICD and listed company directors in 2021. The reforms were subject to an independent statutory review conducted by former ASX chief compliance officer Dr Kevin Lewis and tabled in Parliament in May.
The review’s central finding was that not enough time had elapsed to comprehensively assess the impact of the 2021 changes. Lewis made two key recommendations:
On the main issue for directors (private continuous disclosure litigation) he found that the reforms have had little, if any, impact on the number and type of class actions. The review recommends the fault requirement for a private litigant (to prove the disclosing entity acted knowingly, recklessly or negligently) be retained.
Lewis also recommends this be revisited if evidence emerges that the reforms are having a negative effect on disclosure standards, with none observed to date. However, Lewis found a negative impact on ASIC enforcement and recommends removal of the fault requirement for civil actions brought by ASIC.
The 2021 continuous disclosure changes were strongly contested by plaintiff law firms and litigation funders, and did not have bipartisan support when enacted. The AICD advocated strongly for the changes. We commissioned comparative international research by Herbert Smith Freehills to support the case that Australia was a relative outlier in legal settings.
While the government has yet to formally respond, the findings provide a strong case for the retention of the private litigant reforms. Given some stabilisation of the D&O market over recent times, we remain strongly opposed to a no-fault threshold being reintroduced for private litigation.
NFP governance
The AICD launched a significant update of our Flagship NFP Governance Principles earlier this year. The Principles, a small NFP checklist, snapshot and supporting tools are available to all directors on the AICD website. The NFP Principles offer pragmatic guidance grounded in director expertise and real-life case studies. Many NFP directors have told us their boards find the Principles invaluable, with some adopting a practice of scheduling board discussion around specific principles across the year.
A number of NFP governance developments are current, including:
- Government response to the Disability Royal Commission final report, expected mid-year
- Productivity Commission philanthropy review
- Focus on care governance, including ongoing aged care sector reforms.
Louise Petschler GAICD is General Manager Education & Policy Leadership at AICD.
This article first appeared under the headline 'Regime Changes’ in the July 2024 issue of Company Director magazine.
Practice resources — supporting good governance
We have targeted resources to support directors in preparing for the new regime, and regularly provide free updates and webinars here.
Examples of the AICD’s contemporary governance practice resources for members:
Climate Governance
- Directors’ Guide to Mandatory Climate Reporting
- Climate Governance for NFP Directors
- Introduction to Climate Governance free e-learning module
- The AICD has launched a new live short course: Climate Governance for Australian Directors
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