In ASIC’s world, climate disclosure and reporting are no longer optional. With the market increasingly focusing on sustainability, businesses need to be ready for the mandatory climate-related disclosure regime. This article reviews the proposed requirements, the importance they hold, and the risks of non-compliance.
ASIC is actively working towards implementing a mandatory climate reporting regime. The goal is to ensure that companies regularly and accurately disclose the risks and opportunities associated with climate change. The Australian Accounting Standards Board has requested input on a draft version of the Australian Sustainability Reporting Standards. Once finalised, these requirements will be mandatory. Over the next few years, more than 6,000 companies will be required to report under the Government’s proposed climate reporting regime.1
ASIC supports aligning Australian climate disclosure standards with international standards established by the International Sustainability Standards Board to enhance market efficiency and the competitiveness of Australian companies. To support these efforts, ASIC will release a new regulatory guide for the climate reporting regime, outlining how it will offer relief from obligations and interface with existing legal and regulatory requirements. Online resources will also be offered by ASIC for those involved in the preparation and utilisation of sustainability reports.
ASIC emphasises that this is an evolving space, and it is learning alongside stakeholders. It encourages companies to start preparing now, even before requirements become mandated.
Bigger companies are already gearing up for this major change. Recent statistics reveal that 75% of the ASX200 have committed to or have been voluntarily reporting against the Taskforce for Climate-related Financial Disclosure framework. This marks a significant increase from previous years, with only 66% in 2022 and a mere 10.5% in 2017.2 The positive trend showcases a growing recognition among Australia’s largest companies of the importance of climate transparency and the need to align with global standards. As these companies pave the way, smaller entities must also start preparing to meet the upcoming regulatory requirements.
Climate change is one of the greatest challenges facing the world today, and its impacts are already being felt across the globe. Climate change poses significant risks to businesses of all sizes and sectors, ranging from more frequent and severe weather events to shifting regulatory landscapes.
The surge in interest of environmental, social, and governance (ESG) is reshaping financial reporting and disclosure standards. The need for a mandatory climate-related disclosure regime has never been more pressing. Investors and stakeholders increasingly rely on climate-related information for decisions, making accurate disclosure crucial.
Climate-related risks can have a material impact on investment portfolios. Without such information, investors are left in the dark about how companies are managing these risks and whether they are well prepared for the transition to a low-carbon economy. As such, there is a growing demand for companies to disclose their climate-related risks and opportunities, so that investors can make better-informed decisions on capital allocation. Failure to disclose risks and opportunities could damage investor trust and have financial consequences.
Beyond investors, other stakeholders such as customers, employees, and regulators, are also increasingly interested in how companies are tackling climate change. Companies that do not disclose their climate-related risks and opportunities risk losing the trust and support of these stakeholders, which can have long-term implications for their business.
Non-compliance with the mandatory disclosure regime could have serious consequences for companies, extending beyond potential regulatory action. It opens the door to misleading and deceptive conduct claims, exposing companies to legal action from third parties like activist groups or shareholders. ASIC is committed to pursuing non-compliant companies, conducting investigations, and taking enforcement action if necessary. Penalties for non-compliance include fines, injunctions, and potentially criminal prosecution for severe breaches.
Furthermore, non-compliance can lead to market instability, as investors rely on precise data. Inaccurate or deceptive information can cause volatility and disruptions in the market. Companies must understand that failure to disclose or provide false information could result in costly legal battles and further damage to their reputation. It is imperative for companies to comply with the upcoming regime and provide accurate and transparent information.
The mandatory climate-related disclosure regime is a substantial step forward in creating a more sustainable and transparent market. While there will be a cost for companies to report, those companies will also benefit. Companies that embrace this change and take proactive steps to disclose their climate-related risks and opportunities will not only comply with the law but also gain a competitive edge.
While it's too early to discuss an enforcement strategy, ASIC has already committed to develop and issue regulatory guidance on mandatory disclosure. The regulatory transition is underway, and companies need to be proactive in their preparations to position themselves for long-term growth and resilience in a rapidly changing world.