Treasury to publish plans for adopting the ISSB standards in Australia in the next two weeks.
Australian Securities and Investments Commission (ASIC) Chair Joe Longo has called on the corporate sector to brace for major changes in sustainability and ESG disclosure requirements.
During a speech at the Committee for Economic Development of Australia (CEDA) State of the Nation conference, Longo said ESG issues are driving “the biggest changes to financial reporting and disclosure standards in a generation”.
He said ESG is a “transformational issue” for global markets and called on corporates “to be ready to meet that change at every step of its development”.
“When I said that ESG is driving the biggest disclosure changes in a generation, I mean that the conventional paradigm in finance is already undergoing a seismic shift,” Longo added.
Sustainable finance strategy
Longo’s comments come two weeks ahead of the expected release of final standards for general sustainability requirements and climate-related financial disclosures by the International Sustainability Standards Board (ISSB).
In preparation for this, Australia’s government released a consultation paper late last year on mandatory climate risk disclosure requirements and assigned the Treasury the task of developing a comprehensive sustainable finance strategy for the country.
According to Longo, the strategy aims to enhance transparency, deepen Australia’s green finance markets, and capitalise on the global momentum in sustainable finance.
As part of the effort, ASIC also anticipates the development of new standards or taxonomies for sustainable investment, as well as further initiatives to combat greenwashing and strengthen ESG labelling.
Longo noted that the recent Federal Budget announced in May further bolstered these efforts by allocating additional funding to sustainable finance initiatives, including increased support for the commission.
This funding enables ASIC to safeguard the integrity of sustainable finance markets by investigating and undertaking enforcement action against market participants engaged in greenwashing and other forms of sustainable finance misconduct, Longo said.
Longo said Australia will also continue to actively engage in global forums supporting climate and sustainable finance frameworks and investment.
He said on the corporate front, the Australian Institute of Company Directors has “long backed efforts to consolidate global reporting frameworks on sustainability and environment issues”.
In Australia, the growing emphasis on ESG issues is gaining traction among investors and companies, Longo said, pointing to KPMG’s sustainability reporting survey, which found that nine out of ten ASX100 companies acknowledge climate as a financial risk.
Additionally, the survey found that three-quarters of these companies already report carbon targets and comply with the Taskforce on Climate-related Financial Disclosures (TCFD) framework.
“This means there is already positive action at the domestic level to understand what financial markets want from voluntary reporting, as well as to improve the assessment and management of short, medium- and long-term exposures to climate risks,” Longo said, adding that the progress is a “strong start”.
With the bar for managing ESG risk and impacts being continually raised higher, Longo emphasised the need for companies to reflect on and review governance standards, to ensure stronger support for disclosure.
To help this process, he said ASIC is maintaining “active engagement” with key stakeholders, including the Council of Financial Regulators Climate Working Group, Australian Prudential Regulation Authority, the Reserve Bank of Australia, and the Treasury.
This group has been working on these issues for a number of years now, Longo said. Part of this will necessarily involve upskilling to ensure “rigorous and reliable disclosure” to support Australia’s capital markets, he added.
While encouraging voluntary reporting aligned with TCFD recommendations has been a longstanding ASIC practice, Longo said the imminent release of the ISSB standards demands more.
“These ambitious standards will require companies to adopt a systematic approach to collecting and analysing data across the company itself, and its supply chains,” he said. “Preparation for that should be starting now.”
Longo noted that the Treasury also intends to put out a position paper on the new standards in the next two weeks. The paper is expected to cover plans for when ISSB standards will be adopted and come into operation in Australia.