Date posted: 14/03/2022

Treasurer urged to tackle sustainability reporting in budget

Australia’s government faces calls to regulate and resource corporate sustainability reporting to keep up with international momentum towards a single set of global standards?

In brief

  • The federal budget is a chance for the government to set out how it will include sustainability in corporate reporting
  • A growing number of companies are adopting sustainability initiatives in response to the global climate crisis
  • There are big discrepancies in how companies report on sustainability and investors expect a consistent approach

The number of times the word “sustainability” appears in corporate annual reports could be seen as a proxy for the level of importance management attach to the term.

In its 2017 annual report, Australia’s largest supermarket chain, Woolworths, mentioned “climate change” once and “sustainability” five times. Since 2020, the company has voluntarily complied with all the recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD). Last year’s report mentioned “climate change” 32 times and “sustainability” 102 times.

As warnings about effects of climate change become ever more dire, Australian companies face scrutiny by investors, lenders, customers and other stakeholders who increasingly expect business practices to minimise societal and environmental harm. Many are already disclosing ESG (Environmental, Social and Governance) information publicly, and it’s led them to review supply chains, adapt facilities, and engage in new activities to become more sustainable.

But after the creation of the International Sustainability Standards Board (ISSB) at the COP26 climate conference last November the first of a new set of global reporting standards will be in place by the end of this year. The first standard will be on climate-related disclosures.

The upcoming federal budget, due to be unveiled on 29 March, is an opportunity for the government to start engaging all parties involved in corporate reporting, says Karen McWilliams, CA ANZ’s business reform leader.

“The momentum on sustainability reporting is gathering pace internationally,” she says. “We need to examine how Australia will integrate these new global standards into the national corporate reporting framework, as well as ensure the process is properly resourced.” 

Many corporate sustainability disclosure initiatives in Australia are voluntary and the pace of change is “not fast or far enough,” an analysis by PwC says. 

The momentum on sustainability reporting is gathering pace internationally. … It’s critical that Australia meets this new global baseline for disclosure. 
Karen McWilliams, CA ANZ’s business reform leader.

PwC’s study of the top 200 companies listed on the Australian Stock Exchange (ASX) shows 87% now publish a “substantive level” of ESG disclosure to warrant inclusion in its survey, and 70% have a sustainability strategy. 

But only 21% of companies have sustainability as an “integral part of their core strategy” and just 36% of companies have a net-zero emissions target. As many as 43% don’t even consider, let alone disclose, any negative impacts of their value chains on sustainability.

As efforts to confront the climate and sustainability crisis intensify, the ISSB says investors globally are demanding “high quality, transparent, reliable and comparable” reporting by companies on ESG issues.

More than half (53%) of respondents in CA ANZ’s latest Investor Confidence Survey said climate-related information is highly important to their investment decisions, and almost three in five (59%) of more than 750 Chartered Accountants surveyed  indicated that climate-related information was already important to their work.

In a submission to the government ahead of the budget, CA ANZ said with increased awareness of the impact of climate change on business risk, opportunities and profits, Australia is seeing “accelerating moves toward greater corporate accountability on climate.”

Companies that fall short risk being punished in financial markets as investors and lenders shun those that don’t comply with community expectations.

The task of achieving a best-practice corporate reporting framework, though it may be led by the ISSB globally, will need a robust response by Australia’s government and relevant institutions such as the Financial Reporting Council (FRC) and the Australian Securities and Investments Commission (ASIC), says CA ANZ’s McWilliams.

“Decisions about how ISSB standards are incorporated into Australia’s reporting framework need to be made now to allow sufficient time for legislative changes,” she says. “It’s critical that Australia meets this new global baseline for disclosure at a minimum.”

CA ANZ supports establishing a new Australian Sustainability Standards Board in due course and has asked the government to adequately fund the institutions that will ensure all stakeholders involved in Australian corporate reporting are well prepared for future changes.

An immediate decision for the government is whether to mandate climate-related disclosures in line with the Taskforce for Climate-related Financial Disclosures (TCFD) for some companies, as other jurisdictions have done.

For its part, Australia’s corporate regulator ASIC has welcomed the formation of the ISSB and recommends companies adopt all the current TCFD disclosure standards as “the primary framework for voluntary climate change-related disclosures.” It says listed companies that do so will be well placed to transition to any future standard. 

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