In a shift towards enhanced corporate transparency, the Australian Securities Exchange (ASX) is to implement new international sustainability reporting standards.
Climate reporting and sustainability standards
It is hoped that these standards, set to take effect in January 2024, will transform how businesses disclose sustainability-related financial information.
A large proportion of Australian companies are now committed to achieving ambitious emissions reduction goals, including net-zero, by 2050 – and investors are watching to see how they match up to their claims.
It is timely then, that the International Sustainability Standards Board (ISSB) has introduced the Global IFRS Sustainability Standards S1 and S2, which respectively focus on general sustainability disclosures and climate-related information.
The Australian Accounting Standards Board (AASB) is adapting these ISSB standards to develop tailored Australian requirements. Concurrently, the federal Treasury is consulting on distinct climate-related financial reporting requirements.
Simon O'Connor, CEO of the Responsible Investment Association Australasia (RIAA), emphasised the collective support from regulators, businesses and investors for these new standards.
"Investors are keen on the rapid adoption of the ISSB standards in Australia, given the strong support from various stakeholders. Thus, businesses must start preparing now," O'Connor said.
The new reporting rules are a response to escalating investor expectations regarding disclosures.
RIAA data reveals that 70% of ASX-listed companies already report sustainability data aligning with the Taskforce for Climate-related Financial Disclosures' (TCFD) requirements – a year-on-year increase of 30%. These TCFD standards laid the groundwork for the ISSB's criteria.
"To attract capital, companies must meet the ISSB’s standards,” O’Connor said. “This is crucial as most Australian investors have an international focus and are attuned to global trends in sustainability and sustainable finance."
The new standards are expected to bolster investor confidence in the data issued by companies, especially those committed to net-zero targets by 2050.
Bringing Australia in line
Observers expect they will increase uniformity and comparability in reporting across global markets, counteract greenwashing and give investors confidence in the trustworthiness of Australian companies’ disclosures.
Rade Musulin, a principal at Finity, an actuarial and insurance consulting firm, thinks that companies proactive in adopting these standards will face less stress and expense.
He notes a significant challenge for ASX firms will be in measuring and reporting emissions, particularly Scope 3 emissions, which include indirect emissions in supply chains.
The advice to companies from the experts is to spend some time understanding how the new standards will affect your operations and prepare to adapt.
"Firms that are proactive will likely secure a competitive edge," Musulin said.