Date posted: 10/06/2021 6 min read

Why you need to pay attention to the G7's communiqué

How global developments in climate and non-financial reporting are shaping the shifts in our local environment

In Brief

  • Global developments are shaping the future of business and accounting
  • Climate change and biodiversity loss are a key focus of the G7
  • ASIC writes to companies that have failed to disclose climate changes risks in OFRs and directors’ reports

If you are finding it hard to keep up with all the developments in the climate and non-financial reporting landscape, you are not alone.

If you have no idea what I am talking about, you really need to get up to speed on what's happening as this is shaping the future of business and accounting.

The need for transformation

The G7 Finance Ministers and Central Bank Governors' communiqué in early June noted a focus on a "transformative effort to tackle climate change and biodiversity loss", with specific reference to the IFRS Foundation's work to establish an International Sustainability Standards Board and the launch of the new Taskforce on Nature-related Financial Disclosures (TNFD).

In particular, the G7 Finance Ministers and Central Bank Governors "support moving toward mandatory climate-related financial disclosures ... that are based on the Taskforce on Climate-related Financial Disclosures (TCFD)".

There is also a call for full implementation of the FATF AML Standards – noting that Australia is yet to implement tranche 2 of the recommendations which would bring designated non-financial businesses and professions – including accountants – into the AML regime.

It will be interesting to see how these matters are reflected in the G7 leaders' statement. Additionally, how these are addressed in the G20 discussions (which includes Australia) in Italy later this year.

Achieving net-zero emissions by 2050 will require nothing short of the complete transformation of the global energy system.
the International Energy Agency

Tackling climate change

The G7 communique followed a week of significant announcements. First, a Dutch court ruled that Shell must cut its CO2 emissions by 45% from 2019 levels. Over in the US, an activist hedge fund successfully had two directors voted onto ExxonMobil’s Board and just over two-thirds of Chevron investors supported a resolution to further reduce its greenhouse gas emissions.

Closer to home, the Australian High Court made history by ruling that the environment minister owes a duty of care to Australia’s young people not to cause them harm from climate change. The written judgement makes interesting albeit concerning reading.

"...None of this will be the fault of nature itself. It will largely be inflicted by the inaction of this generation of adults, in what might fairly be described as the greatest inter-generational injustice ever inflicted by one generation of humans upon the next.

To say that the children are vulnerable is to understate their predicament."

All this followed a special report from the International Energy Agency, which found "achieving net-zero emissions by 2050 will require nothing short of the complete transformation of the global energy system" on a "narrow but achievable" pathway. The IEA was abundantly clear: no new fossil fuel projects should be approved.

Biodiversity loss

The G7 finance ministers noted the establishment of the TNFD. The TNFD seeks to do for Nature what the TCFD did for climate, building on its success. But the TNFD notes that the new nature-focused taskforce faces unique challenges. When it comes to data, metrics and methodologies, there are critical differences between climate and nature. 

Measuring and disclosing nature-related risks is an even more complex challenge than it is for climate-related risks. A key challenge is that, unlike for climate, it is not just what your activities are, but where they are, which matters, which means having more location-specific data from corporates will be part of the solution.

Role of accountants

For those still wondering what this has to do with accountants, it was recently reported in The Australian Financial Review that the Australian Securities and Investments Commission, the corporate regulator, wrote to five fossil fuel companies and their auditors in mid-2020 about their lack of disclosure of climate-change risks. 

The letters followed complaints that the companies’ operating and financial reviews (OFR) and directors' reports had failed to disclose the risks to the businesses from climate change.

CA ANZ contributed to an expert roundtable arranged by the Centre for Policy Development, which resulted in a new supplementary legal opinion by Noel Hutley SC and Sebastian Hartford Davis. This updated opinion notes the increasing standard of care expected of directors in managing climate-related risks and opportunities and, in particular, those associated with ‘greenwashing’. 

The 2019 climate bulletin on materiality from the AASB and AuASB clarified that climate-related risks or other emerging risks should be considered material to financial statements if investors could reasonably expect that they would have a significant impact on the entity and would qualitatively influence investors’ decisions, regardless of the quantitative impact on the financial statements. This bulletin was also referenced in a similar statement from the IASB.

Here at CA ANZ, we’ll continue to stay across these critical local and global developments to ensure you, as Chartered Accountants, remain informed. But it is also important for you to consider how these developments influence your role and organisations. 

What actions do you need to take and where are the opportunities and risks for your organisations?

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