The imminent introduction of mandatory sustainability reporting has prompted a significant shift in corporate Australia, with the ASX50 continuing to lead the way in dedicated climate disclosures.
For many years now, King & Wood Mallesons has been supporting and monitoring the ASX50’s approach to climate reporting and governance, from the early stages of target-setting to the increasingly sophisticated governance required to support emissions objectives, mitigate greenwashing risk and maintain transparency.
This alert summarises our latest findings on the status of sustainability reporting and governance amongst ASX50 entities in 2023.
It was encouraging to see that in 2023, a high proportion of the ASX50 were already voluntarily embracing dedicated climate disclosures. Specifically, we observed that:
- almost all (over 90%) ASX50 entities reported in accordance with the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD) or confirmed that they are in the process of aligning their reporting to the TCFD recommendations;
- over half of the ASX50 entities (66%) disclosed climate-related risk factors in the operating and financial review in their annual report, some with more detailed disclosures included in a stand-alone climate/sustainability report. More than two thirds (76%) disclosed scenario analysis;
- just over half of the ASX50 entities included scope 3 emissions in their reduction and net zero targets. Of those that didn’t, 86% provided comments on a path forward in respect of mapping or reducing scope 3 emissions; and
- the vast majority of ASX50 entities (86%) reported their progress against previously set targets. On top of this, 76% of ASX50 entities have also set interim targets, generally spanning 2025 to 2035.
From an accountability perspective, nearly half of the ASX50 entities have now appointed a senior executive responsible for sustainability matters and 82% refer to climate, sustainability or ESG responsibilities in their board or board committee charters (an increase of 16% from last year, which is unsurprising given mandatory reporting will require more detail on this). Additionally, over two thirds of ASX50 entities now obtain independent assurance of aspects of their climate reporting (up from just over half in calendar year 2022). These developments serve to bolster the level of disclosures made by these entities.
However, we also saw that there is close scrutiny of these climate disclosures from regulators and other stakeholders.
For stakeholders, this focus took many forms, including via questions at annual general meetings, votes against director re-elections and physical protests at or outside annual general meetings. We expect this interest will persist in 2024 with some proxy advisers, including the Australian Council for Superannuation Investors, expecting more disclosures around material circular economy risks, transition plans and offsets reliance and credibility.[1]
Meanwhile, the Australian government has introduced to Parliament the Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill 2024 (Bill). If passed, the legislation would establish a mandatory sustainability reporting regime in Australia which would affect more than 6,000 entities, possibly as early as 1 January 2025.[2] At the time of writing this article, the Bill has passed the House of Representatives and will now be considered by the Senate.
Regulators have also signalled that sustainability issues remain front of mind.
Misleading conduct in relation to sustainable finance, including greenwashing, continues to be an enforcement priority for ASIC.[3] This focus also extends to greenhushing, which ASIC has labelled ‘just another form of greenwashing’.[4]
ASIC’s focus is also extending to capture:
- net zero statements and targets made without a reasonable basis;
- use of terms such as ‘carbon neutral’, ‘clean’ or ‘green’ not founded on reasonable grounds; and
- the scope and application of investment exclusions and screens.[5]
Similarly, the ACCC has ‘consumer, product safety, fair trading and competition concerns in relation to environmental claims and sustainability’ as an enforcement and compliance priority for 2023/24.[6] The inclusion of ‘product safety’ and ‘competition concerns’ signal an expansion of the ACCC’s regulatory priorities in the ESG space.[7]
This focus has also given rise to a number of regulator-initiated actions and court proceedings, including against financial services entities, manufacturers and energy companies. ASIC has now been successful in two of the greenwashing cases it initiated, both relating to allegations of false and misleading statements about ESG exclusionary screens applied to investments.
Next steps
At King & Wood Mallesons, we support entities navigating the evolving complexities of sustainability reporting and governance.
You can read our full report into ASX50 Sustainability Reporting and Governance in 2023 here: Breaking new ground: ASX50 sustainability reporting and governance in 2023 - KWM
Otherwise, for further information and assistance with sustainability reporting and governance, please contact the authors.
AFR, Make it harder for CEOs to get big salaries, bonuses: super funds (12 December 2023).
