Date posted: 22/05/2019 3 min read

Consider non-financial risks in the reporting season

The 2019 TCFD implementation guide aims to enhance climate-related financial disclosures in mainstream reporting.

In Brief

  • Investors need to price climate risk into investment decisions
  • ASIC and APRA encourage organisations to voluntarily disclose climate risk under TCFD
  • Climate risk disclosures form part of key priorities for ASIC for the upcoming reporting period

Businesses are being urged to include non-financial risks and sustainable investments as they start to prepare annual financial reports.

At the recent Council of Superannuation Investors (ACSI) conference in Melbourne, John Price, Commissioner of ASIC outlined the regulators' key priorities for the upcoming reporting season and noted that climate change is a foreseeable risk.

ACSI conference in Melbourne

ASIC continues to encourage strong corporate governance and disclosure of useful and relevant information to the market, including climate risk.

"[W]e are now observers of a profound and accelerating shift in the way that Australian regulators, firms and the public perceive climate risk. There has been a series of coordinated interventions by Australian regulators, which will require in practice that increased attention be given to both the assessment and disclosure of climate risk. There has been acute interest in these issues from investor groups. There have been developments in the state of scientific knowledge. In our opinion, these matters elevate the standard of care that will be expected of a reasonable director. Company directors who consider climate change risks actively, disclose them properly and respond appropriately will reduce exposure to liability. But as time passes, the benchmark is rising." – Climate Change and Directors Duties, Supplementary Memorandum of Opinion, The centre for Policy Development.

Price highlighted the importance of boards and directors taking an active role as climate risk should start to be translated as a financial risk in the financial statements.

Price quoted the recent Climate Change and Directors Duties supplementary memorandum by Hutley and Hartford Davis to emphasise the elevated duty of care expected of a reasonable director, in particular, the assessment and disclosure of climate risk.

Geoff Summerhayes, executive board member of the Australian Prudential Regulatory Authority (APRA) notes that there is a sense of urgency about climate risk and there needs to be a shift from awareness to action. Summerhayes notes the current de facto for climate change disclosure is the TCFD (Task Force on Climate-related Financial Disclosures) framework and encourages voluntary disclosure.

In May 2019, the Climate Disclosure Standards Board (CDSB) and the Sustainability Accounting Standards Board (SASB) released the TCFD implementation guide, which is the first paper in a series of practical, climate-related tools aimed at helping companies enhance the robustness, consistency, comparability and utility of TCFD implementation.

TCFD Implementation Guide

The guide is available through the CDSB webpage:

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