ASX businesses ready for new sustainability reporting rules
- Wed 08 November 2023
Investors expect listed businesses to meet new disclosure requirements.
Listed businesses will be expected to report against new international sustainability reporting standards as a condition for access to capital. Experts say top ASX companies are prepared for the new reporting era.
ASX-listed businesses are preparing to report against the International Sustainability Standards Board’s inaugural Global IFRS Sustainability Standards S1 General Requirements for Disclosure of Sustainability-related Financial Information and S2 Climate-related Disclosure, which come into effect in January 2024.
The Australian Accounting Standards Board (AASB) will use the ISSB standards as a baseline to develop Australian-specific sustainability-related financial disclosure requirements, which are still in progress. Meanwhile, the federal Treasury is consulting on its own proposed climate-related financial reporting requirements.
The new ISSB standards provide a globally consistent set of sustainability reporting requirements to significantly improve the ability of various stakeholders, including regulators and investors, to understand how various firms are managing climate risk and moving towards seizing opportunities. The standards have specific requirements for different industries.
Simon O'Connor, CEO - Responsible Investment Association Australia (RIAA)
"There's been really strong support from regulators, business and investors for their strong adoption."
The new standards are reassuring to investors who assess thousands of companies across the world in their investment portfolios.
“The investment community expects the rapid adoption of the ISSB standards in Australia. There's been really strong support from regulators, business and investors for their strong adoption. So businesses need to be preparing now,” says Simon O’Connor, CEO of the Responsible Investment Association Australasia (RIAA).
“Investors, businesses and regulators warmly welcome this development as it finally brings together disparate reporting frameworks and standards into one global, comparable baseline,” he adds.
The new reporting standards prompted a rapid escalation of investor expectations around disclosures and reporting by listed companies. In response, larger listed companies are really stepping up their disclosures. RIAA’s data shows 70 per cent of the ASX 200 report sustainability data in line with the Taskforce for Climate-related Financial Disclosures’ (TCFD) requirements, a rise of 30 per cent year-on-year. The TCFD served as a baseline for the ISSB’s standards.
O’Connor says investors will expect companies to be able to meet the ISSB’s standards to be able to attract capital. “Most of the big investors we work with in Australia are internationally focused. They are very aware of the development and evolution globally around the areas of sustainability and sustainable finance. We will want to ensure Australia is keeping up with that.”
With a growing number of companies committing to net zero by 2050 targets, investors want to be able to trust the data companies issue to demonstrate their progress against their stated emissions reduction goals.
“Investors really want to have faith in the integrity and the comparability of disclosures from companies in Australia versus companies in Europe or North America. The new standards are reassuring to investors who assess thousands of companies across the world in their investment portfolios. Reporting against the new standards is a critical part of engaging in global capital markets,” says O’Connor.
“We want to get to a point where the larger super fund managers can look across their portfolios and see comparable disclosures and aggregate data so they can start telling their portfolios’ stories to their clients. It's really important we have the ability to compare apples with apples across companies around the world and these standards allow that,” he adds.
Rade Musulin, principal of actuarial and insurance consulting firm Finity says firms that are on the front foot will be able to comply with less stress and expense. “These new disclosure standards are here to stay and will become increasingly integrated into financial reporting in coming years.”
He says a common challenge for ASX firms will be measuring and reporting emissions. “Eventually, firms will have to report on their Scope 3 emissions. For example, that might mean a motor insurer will have to consider the emissions used to make and ship parts used to repair a vehicle after an accident. This will require the development of new ways to measure emissions in supply chains.”
According to Musulin, companies need to invest the time needed in absorbing how the new standards’ specific requirements are applicable to their operations and how these may evolve over time. “There is a lot to understand in this space and naturally firms that are proactive will gain a competitive advantage.”
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