Australian finance sector pushes for full alignment with ISSB

Investors, sustainable finance bodies and non-profits respond to Australian government’s second consultation on mandatory climate disclosures.

The Australian Sustainable Finance Institute (ASFI), the Australian Council of Superannuation Investors (ACSI) and the Principles for Responsible Investment (PRI) have called on the Australian government to fully align its climate-related financial disclosure standard with the International Sustainability Standards Board (ISSB).

The ISSB published its first two disclosure standards on general reporting (IFRS S1) and those on climate (IFRS S2) last month. At the time, PRI CEO David Atkin asked politicians and regulators to make the disclosures mandatory by 2025.

In the second consultation on its climate-related financial disclosure standard, the Australian government sought feedback on proposed positions for the implementation of standardised, internationally-aligned requirements for disclosing climate-related financial risks.

In response to the first consultation on mandatory climate disclosures, launched at the end of last year, the overwhelming message from the industry was the need for the government to prioritise transition plan guidance for 2023.

This was reiterated in the second consultation, and was bolstered by calls to fully align with ISSB’s latest standards in light of the absence of IFRS S1 in the treasury’s latest draft.

ASFI said it expects local policymakers to adopt IFRS S1 “as soon as practicable” to ensure interoperability and “signal that Australia is appropriately managing broader sustainability-related risks”.

The PRI echoed this, advising the treasury to articulate how its primary components will be incorporated into Australia’s standard and further consider mandating IFRS S1 and future ISSB standards.

ACSI noted that the treasury’s consultation paper was “silent” on some aspects of IFRS S2. The council therefore requested that all elements of the standard be consulted on in the development of the Australian Accounting Standards Board (AASB) standard.

Like ASFI and the PRI, ACSI and the Investor Group on Climate Change (IGCC) recommended the treasury to consider IFRS S1 more closely to evaluate how it can support the final reporting requirements of IFRS S2.

Amy Quinton, senior policy manager at the IGCC, told Responsible Investor: “Building on the global ISSB standards is the right way to go. It will streamline the process for companies, investors, and for anyone trying to navigate a rapidly changing economy, locally or internationally.”

However, the Australian Centre for Corporate Responsibility (ACCR) questioned whether IFRS S2 goes far enough, arguing that its oil and gas metrics are “insufficient” since they do not consider scope 3 metrics, the amount of offsets, or divestment.

“One of the fundamental problems with current disclosures is that issuers select metrics that present their entity in a favourable light,” it said, adding that this reduces the comparability of the disclosures.

ACCR also stressed that standards in Australia should be aligned “as far as possible” with New Zealand’s climate-related disclosures regime.

Meanwhile, the Responsible Investment Association Australasia (RIAA) recommended that the ISSB’s definition of materiality be legislated for use in mandated climate-related disclosures, but for it to allow for the incorporation of full double materiality approach in the future.

Phased reporting

Several respondents – including ASFI, RIAA, IGCC and the PRI – also recommended that a maximum phase-in period of three years, rather than the proposed four years.

ASFI said the three-year fixed period “serves as a useful incentive for firms to upskill and even to begin reporting on a voluntary basis, supporting better-quality disclosures”.

RIAA also supported reducing the timeline to incorporate full reporting by 2026/27, arguing that there is a timely need for reporting “to inform decisions and actions aimed at reducing Australia’s emissions in line with the Paris Agreement”.

The PRI warned that delaying reporting for larger companies in particular could prevent investors from receiving information necessary for them to achieve their 2030 interim net zero targets.

Transition plans

As in the first consultation, calls for the government to lead on transition planning were prominent.

The PRI said the treasury’s proposals could be improved to “better generate the comprehensive disclosures investors urgently need” by establishing a “clear framework” for companies to develop and disclose transition plans.

It added that, without mandating specific scenarios for climate resilience assessments and linking transition plans to 1.5C scenarios, the proposed approach may limit investors’ ability to assess the risks and opportunities of their investments and effectively steward investee companies to reduce emissions.

ASFI called on government entities to take the lead in producing “high-quality disclosures and credible transition plans” connected to the Australian Public Service’s (APS) net zero by 2030 target.

It added that information about offsets, target-setting and mitigation strategies should also be included, and that clear minimum requirements should be outlined in the disclosure framework to “support comparability and adequacy of disclosure”.

RIAA urged the government to ensure that transition planning is aligned with the EU and UK’s work, and to provide regulation and guidance to produce transition plans “useful to investors”.