Aussie investors push for full ISSB-alignment in new sustainability reporting standards

IFM Investors and Hesta welcome the climate-focused framework, but call for the introduction of other sustainability metrics.

Australian investing giants IFM Investors and Hesta have welcomed the Australian Accounting Standards Board’s (AASB) sustainability reporting standards published for consultation last month, but have pushed for broader alignment with the International Sustainability Standards Board (ISSB).

It comes as the Australian finance sector called for full alignment with the ISSB to ensure interoperability in response to the government’s second consultation on climate-related financial disclosure in July.

The standards have been developed using ISSB’s two sustainability disclosure standards, released in June, for general reporting standards (IFRS S1) and those on climate (IFRS S2).

They include ASRS 1 for general requirements for disclosure of climate-related financial information, developed using IFRS S1 as the baseline, and ASRS 2 for climate-related financial disclosures, developed using IFRS S2, both out for consultation until 1 March.

For ASRS 1, the AASB has proposed limiting the scope of disclosure to climate-related financial disclosures only. It has therefore replaced all references to “sustainability” in IFRS S1 with “climate”.

To avoid duplication with the ISSB’s climate standard (IFRS S2), the board has suggested combining the two into a single ASRS standard which encompasses both.

But Maria Nazarova-Doyle, global head of sustainable investment at IFM Investors, said she does not think it makes sense to combine the two standards “if the intention is to align with ISSB and broaden out ASRS 1 to other areas”.

She told Responsible Investor that the first standard speaks to general requirements and acts as the foundational standard that underpins ASRS 2 and future anticipated standards, such as nature and biodiversity.

“It is reasonable to focus first on climate, where there are broader and deeper skillsets and capabilities. Over time, we’d like to see proposed timelines of when other focus areas, such as biodiversity, will come into play, particularly given the intention to advance other areas under the ISSB,” she said.

She added that the asset manager also welcomed the proposal for companies to be afforded protection from false or misleading representation claims from private litigants for the first three years of reporting.

Australian lawyers including the New South Wales Bar Association and the Environmental Defenders Office, came out in opposition earlier this month to the Treasury’s proposal on this.

But Nazarova-Doyle said this was necessary, “particularly given that the disclosures will require positions to be taken on inherently uncertain matters, coupled with a requirement to make forward-looking statements”.

She added that it is also needed due to the “significant concerns” with data availability for scope 3 emissions.

“Until we see this improve, it is understandable that directors and companies want some protection in case they lack the requisite confidence about the accuracy of emissions reporting,” she noted. “Otherwise, it will lead to overly cautious disclosures that may not meet the needs of the market.”

Kim Farrant, Hesta’s general manager responsible investment, said the standards are “a welcome step forward for investors”, adding that the A$74 billion (£48 billion; €44 billion) superfund supported it because “we need consistent, transparent information to make informed decisions about climate risks and opportunities across our investment portfolio”.

Like IFM Investors, however, she said that over time Hesta would like to see the climate disclosure framework extended to other areas of sustainability that are “material to companies’ financial performance and broader economic outcomes”.

Separately, in response to the government’s release of its long-anticipated sustainable finance strategy earlier this month, the Responsible Investment Association Australasia also called on the government to “move rapidly” beyond climate to adopt the broader ISSB standards.

The AASB has said that, depending on the feedback it receives, it may publish another exposure draft or a review draft to “enable further consultation with stakeholders”.