On 13 April 2021, New Zealand introduced a Bill requiring financial firms to report the impact of climate change on their businesses and how they will manage climate-related risks and opportunities. If the law is passed, disclosures will be required for financial years beginning 2022, meaning that the first reports will be made by companies in 2023.
New Zealand may be the first country to take this step but there is already a global phenomenon of increasing political will to enforce corporate sector responsibility for climate change. The US, UK, and the EU are in the early stages of consulting and implementing a similar bill.
Is Australia shifting toward mandatory disclosures?
While climate impact disclosure remains largely voluntary in Australia, the Bill is consistent with the legal and regulatory trends in Australia regarding climate impact disclosures. In 2019, ASIC released guidelines for climate related risk disclosures and between 2019-2020, began surveying several listed companies spanning a range of industries, to assess how they were managing and disclosing this issue.
The only exception to voluntary disclosure, is an indirect mechanism in the Corporations Act 2001 (Cth). S299(1)(a)(c) requires operating and financial review disclosures in annual reports to consider whether climate impact is a material risk to a company’s financial standing. This is a rather indirect way of requiring climate disclosures through a company’s own self evaluation. However, ASIC’s guidance in RG 247 indicates that there is a low likelihood for finding directors liable for a misleading or deceptive forward looking statement in an Operating and Financial Review. This means that if the Federal government wants to achieve it’s lofty goal of zero net carbon emissions by 2050, they will face increasing push from investors to make climate risk disclosures mandatory.
Apart from investor pressure, there is evidence of a push from everyday citizens. In 2019, a university student brought a landmarked dispute against his superannuation fund ‘REST’, arguing that the latter’s disclosure of climate risk in its investments was inadequate, and breaches corporate law and obligations to its trustees. REST settled the dispute with an acknowledgement of the “material, direct, and current financial risk to the superannuation fund” posed by climate change. The company went beyond its media statement, committing to taking specific steps to deal with the financial risks of climate change on its members.
These trends suggest that Australian companies should start assessing their climate change risks and be prepared to make disclosures in the near future.
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