Australian financial watchdog hones in on climate risk, warns companies to lift game

National securities watchdog ASIC has put ASX-listed companies on notice after a broad-ranging review found corporate climate risk disclosure standards to be seriously lacking.

The Australian Securities and Investment Commission report, published on Thursday, examined climate risk disclosures by 60 listed companies in the ASX 300; in 25 recent initial public offering (IPO) prospectuses; and across 15,000 annual reports.

Of the 60 ASX 300 listed companies, just 17 per cent identified climate risk as a material risk to their business; while most of the reviewed ASX 100 entities disclosure practices were found to be fragmented and vastly different.

And in some cases, the review found climate risk disclosures to be far too general, and of limited use to investors, ASIC said.

“Climate change is a foreseeable risk facing many listed companies in the Australian market in a range of different industries,” said ASIC commissioner John Price in comments.

“Directors and officers of listed companies need to understand and continually reassess existing and emerging risks (including climate risk) that may affect the company’s business – for better or for worse.

“Climate risk disclosure practices are still evolving, not only in Australia but also globally. We intend to monitor market practice as it continues to evolve and develop in this area.”

The findings of the report, and the recommendations from ASIC, have been welcomed by the Investor Group on Climate Change (IGCC), which represents more than $2 trillion in funds under management.

“Financial regulators are clearly telling corporate Australia that they must report on climate change risk with the same level of rigour as any other financial risk. This report finds that currently they are not”, said IGCC CEO Emma Herd in comments on Thursday.

“While there is some evidence of progress for larger companies, worryingly ASIC found that the level of reporting has actually gone backward as regulatory signals have weakened over the past few years. This is especially true for companies outside of the ASX100,” Herd said.

“Investors need companies to report investable data which delivers a complete picture of climate-related risks. Investors are demanding better, more meaningful information and collaborating in unprecedented numbers through initiatives such as the Climate Action 100+ to push for it.

IGCC itself has been calling on companies to strengthen their corporate reporting on climate change disclosure for a number of years now, through frameworks like the global Taskforce on Climate-relate Financial Disclosure and through the Senate Inquiry into Carbon Risk.

“This report shows that Australian companies have the policy and accounting frameworks they need to report on climate change risks in a meaningful way. With ASIC, APRA and the market calling for better reporting on climate change, it’s time for Australia companies to step up,” Herd said.

Meanwhile, ASIC’s focus on climate risk disclosure contrasts with a complete loosing of the reins at the top of federal politics, as all attempts of emissions reduction are erased from energy policy, Paris fades from view, and Abbott’s Green Army makes a return.

But if companies can be moved by their shareholders to take climate change seriously, then perhaps governments will one day be convinced by their constituents to do the same.

“What we’re seeing is, in markets all round the world, in every region, increasingly you’re seeing investors picking this up and engaging with the companies that they invest in, have equity holders in, are owners in, and saying we expect you to be reporting on this,” said Herd told RenewEconomy in an Energy Insiders Podcast earlier this month.

“The speed at which those recommendations are being adopted is quite phenomenal, including here in Australia. And once you report it to market… you really begin to see how that changes how the companies behave. And it’s a work in progress, but it’s already having a significant impact.”

Herd said it was clear that investor money was ready to be deployed in new technologies and infrastructure, but that it would find a home in other markets if Australia continued to sow confusion with its policies.

“From our perspective, we can’t see how you can move forward with an energy policy that does not have an emissions component, because it is such a fundamental part of the energy system in Australia.

“We can’t see how you can regulate for reliability without regulating for emissions at the same time, because it is… two sides of the same coin.

“And we would very strongly argue for an integrated energy and climate policy, which actually does work towards delivering on Australia’s commitments under the Paris agreement, as well.”