Ahead of the storm: climate reporting best practice and pitfalls
Organisations are bracing for impact as the dual regulatory storm of mandatory climate reporting and greenwashing enforcement action looms. Emma Newnham, senior associate, Linda Le, solicitor, and Ha Dinh, solicitor, at King & Wood Mallesons in Sydney, provide an advanced snapshot of the findings of their upcoming report, Weathering the Regulatory Storm: ASX50 Climate Reporting and Governance in 2023.
One of the goals of the report is to help refine best practice for sustainability reporting. As sustainability reporting has gained momentum over the years, certain practices have emerged among entities in the S&P/ASX 50 Index1. The report highlights four notable developments from calendar year 2023. The first is that almost all – more than 90 per cent – of ASX 50 entities reported in accordance with the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD) or confirmed that they are in the process of aligning their reporting to the TCFD recommendations. This compares with nearly 75 per cent of entities in the S&P/ASX 200 Index reporting or committing to the TCFD framework2.
Meanwhile, two-thirds of ASX 50 entities disclosed climate-related risk factors in the operating and financial review section of their annual report, some with more detailed disclosures included in a standalone climate or sustainability report. More than threequarters disclosed scenario analysis.
Third, just more than half of ASX 50 entities included scope-three emissions in their emissions reduction and net zero targets. Of those that did not, 86 per cent provided comments on a path forward in respect of mapping or reducing scope-three emissions.
Finally, the vast majority of ASX 50 entities – 86 per cent – reported their progress against previously set targets. Furthermore, 76 per cent of ASX 50 entities have also set interim targets, generally spanning 2025-35.
Despite these developments, refinements continue to be made to enhance the credibility and transparency of these disclosures. In 2023, 58 per cent of ASX 50 entities included assumptions or qualifications to their targets – a figure that has actually increased, from 50 per cent in calendar year 2022. We also saw an increase in the number of entities discussing offsets in their reporting in 2023: 76 per cent as compared with about 66 per cent in 2022.
Nearly half of ASX 50 entities have now appointed a senior executive responsible for sustainability matters and 82 per cent refer to climate, sustainability or environmental, social and governance (ESG) responsibilities in their board or board committee charters. This is an increase of 16 per cent from 2022 which is unsurprising given mandatory reporting will require more detail on this.
Additionally, more than two-thirds of ASX 50 entities now obtain independent assurance of aspects of their climate reporting – up from just more than half in calendar year 2022.
“The government has signalled that it is taking a ‘climate first, but not only’ approach to mandatory disclosure requirements. This suggests Australia may ultimately follow global developments toward mandatory nature and social inequality reporting.”
A DYNAMIC AREA
Expectations and norms are evolving rapidly, in areas such as stakeholder activism, mandatory reporting, greenwashing and more. The refinements being made to best practice may be attributed to evolving stakeholder expectations as well as the regulatory landscape.
Stakeholder interest in climate change disclosures remained strong in 2023 and continues to be so. Copious amounts of shareholder questions at AGMs, votes against director re-elections and physical protests at or outside AGMs are just a few examples of how this played out.
This level of interest is fuelling a cycle of increased communication from entities, which in turn is providing more information for stakeholders to scrutinise. We expect to see this trend continue into 2024 with some proxy advisers, including the Australian Council for Superannuation Investors, expecting more disclosures on material circular economy risks, transition plans, and the reliance and credibility of offsets3.
Meanwhile, the Australian government has introduced the Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill 2024 to the House of Representatives. Schedule 4 of the bill proposes a new mandatory sustainability reporting regime. At the time of writing, the bill had not yet passed parliament.
In taking steps to introduce this regime, the government has signalled that it is taking a “climate first, but not only” approach to mandatory disclosure requirements. This suggests Australia may ultimately follow global developments toward mandatory nature and social inequality reporting in some shape or form.
ASX 50 entities are already anticipating this development. As of 2023, more than half of ASX 50 entities had set nature-related targets, with 58 per cent reporting against or taking steps to align with aspects of the Taskforce on Nature-Related Financial Disclosures (TNFD) recommendations.
The targets vary in detail and specificity, with many relating to waste and water management and others including achieving a net zero or net positive impact on biodiversity, rehabilitation, and land and water stewardship. Additionally, a number of ASX 50 entities have indicated they will adopt the final TNFD recommendations no later than this financial year.
Meanwhile, greenwashing is an increasing focus for regulators. The Australian Securities and Investments Commission (ASIC) has indicated that misleading conduct in relation to sustainable finance, including greenwashing, will continue to be an enforcement priority in 20244. The focus extends to greenhushing, which ASIC has labelled “just another form of greenwashing” and one that it says “risks misleading by omission”5.
Going forward, ASIC has indicated that its areas of interest are likely to also include:
- Net zero statements and targets made without a reasonable basis.
- Use of terms such as ‘carbon neutral’, ‘clean’ or ‘green’ not founded on reasonable grounds.
- The scope and application of investment exclusions and screens6.
In a similar vein, the Australian Competition and Consumer Commission (ACCC) also has “consumer, product safety, fair trading and competition concerns in relation to environmental claims and sustainability” as an enforcement and compliance priority for 2023/247. The inclusion of “product safety” and “competition concerns” signal an expansion of the ACCC’s regulatory priorities in the ESG space8.
This has prompted a number of regulator-initiated actions and court proceedings, including against financial services entities, manufacturers and energy companies. Most recently, ASIC won its first greenwashing case relating to allegations of false and misleading statements about the ESG exclusionary screens applied to an “ethically conscious” index fund.
“Stakeholder interest in climate change disclosures remained strong in 2023 and continues to be so. Copious amounts of shareholder questions at AGMs, votes against director re-elections and physical protests at or outside annual general meetings were just a few examples of how this played out.”
NEXT STEPS
Important lessons can be learned from how ASX 50 entities are responding to the dual storm of mandatory sustainability reporting and greenwashing enforcement. Some of the key takeaways that will be included in our upcoming report are to:
- “Walk the talk”: ensure disclosures reflect actual practice without overstating sustainability benefits or otherwise omitting limitations, qualifications or assumptions. Establish due diligence and verification processes for sustainability reporting, and ensure marketing materials and other disclosures are consistent.
- “Be bold, but not reckless”: by all means set ambitious targets, but ensure you have, and document, reasonable grounds to support being able to achieve those targets. Also, track compliance with published disclosures to avoid surprises and manage continuous disclosure obligations.
- “Mobilise the dream team”: ensure the right people – including finance, legal and stakeholder relations – are involved in preparing sustainability disclosures, supporting the board and responding to climate-related queries.
Please contact the authors at This email address is being protected from spambots. You need JavaScript enabled to view it. if you would like to receive a copy of the full report.
1 ASX50 entities as of 22 November 2023. Although year-on-year comparisons have been used in this article, this does not necessarily represent a direct entity-for-entity comparison due to, among other things, movements in the composition of the S&P/ASX 50 Index between calendar year 2022 and calendar year 2023. All figures have been rounded to the nearest whole number. Where entities have stated they report in a particular way,we have relied on that statement in our analysis, and have not independently verified that statement.
2 ACSI, Promises, Pathways & Performance: Climate Change Disclosure in the ASX200 (August 2023), p4. tinyurl.com/asxreporting
3 AFR, Make it harder for CEOs to get big salaries, bonuses: super funds (12 December 2023). tinyurl.com/afrceo
4 See ASIC enforcement priorities | ASIC. tinyurl.com/asicpriorities
5 See ESG: Major change is underway, and we need to be ready | ASIC. tinyurl.com/asicreport
6 See Red light for greenwashing | ASIC. tinyurl.com/asicreport2
7 See Compliance and enforcement policy and priorities | ACCC. tinyurl.com/acccpriorities
8 See Compliance and enforcement priorities for 2022-23 | ACCC. tinyurl.com/acccpriorities2
