In December 2021 the AICD in conjunction with the Climate Governance Initiative Australia published a study on climate governance1.
The key findings were:
1. Australian directors are concerned about climate risk
2. Directors want to do more – but face capacity and resource limitations
3. Policy uncertainty and short-term market pressures are seen to constrain action
4. Climate change is on the agenda – but risk and governance maturity is low.
One year on and BDO has assisted a number of clients to engage with sustainability and climate change management. These organisations are now able to continue to develop climate-related strategies and report on environmental, social, and climate-related risks and opportunities.
A high-level review of 2022 reporting against environmental, social, and climate risk and opportunities in operating financial reviews2 (OFR) reveals that a number of companies are still struggling to adequately report against disclosure obligations.
Jane Gouvernet, Sustainability and Governance Advisor at BDO, highlights that some companies have reported inconsistently between the OFR and Principle 7.4 of the ASX Corporate Governance Principles and Recommendations. Furthermore, there are boards that are of the view that the company has no material exposure to sustainability risks relating to economic, environmental, and social matters. “This short-term view appears to be aligned to remuneration time frames rather than sustainability and climate timeframes.”
Gouvernet continues, “By 2023, the International Sustainability Standards Board (ISSB) will have released the new global standards for sustainability disclosure in Australia. Government is currently consulting on amendments to the ASIC Act 2001 to empower the AASB and Financial Reporting Council to oversee sustainability reporting, including climate-related disclosures.” Gouvernet concludes, “ASIC has already taken action on poor material business risk disclosures in 2022 annual reports. The reporting of no material exposure to climate related risks is low hanging fruit for regulators.”
Catherine Bell, Principal, Sustainability Services at BDO, suggests companies need to address sustainability risk (and opportunity) by:
1) Education
a) Advising or training your board and executives on sustainability frameworks, reporting, metrics, and the development of an ESG risk framework
2) Reporting
a) Reporting against sustainability framework metrics including TCFD
b) Embedding climate change into risk management frameworks
c) Developing board reports on climate footprint/sustainability metrics
3) Strategy & Continuous Improvement
a) Conducting a gap analysis and ESG roadmap strategy
b) Remuneration/incentive arrangements aligned to sustainability.
c) Decarbonisation strategy & roadmap
1 Climate Governance Study: Risk and opportunity insights from Australian directors, AICD & Climate Governance Initiative Australia, December 2021
2 s299A(1)(c) Corporations Act 2001. Refer 247.64-66 ASIC Regulatory Guide 247 Effective disclosure in an operating financial review
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