Climate disclosure momentum: Get ready to report!

July 14, 2023
ESG Insights

Earlier this month, we saw the well-publicised unveiling of the long-awaited International Sustainability Standards Board (ISSB) inaugural disclosures rules. These disclosure rules, which aim to establish a global baseline for the reporting of ESG risks and opportunities, will be fundamentally important in defining comparable, globally consistent parameters for ASX listed companies, and as such, have been a development that Ethical Partners has been regularly engaging on and providing feedback into the draft development over the past few years, both directly and through our membership of the PRI Global Policy Reference Group.

Ethical Partners commends the ISSB on the IFRS S1 on general sustainability related risks and opportunities, and the IFRS S2 on specific climate related disclosures. We are very pleased to see that both these standards incorporate the recommendations of the TCFD (Task Force on Climate related financial disclosures), which is a framework that Ethical Partners has long encouraged our portfolio companies to report against, and we believe is both well accepted and provides important information for investors. Ethical Partners does, however, remain concerned that these initial disclosure rules omit a focus on human rights and social factors, as well as natural capital loss, which we feel is somewhat of a false dichotomy, given the multiple interconnections between human rights, natural capital loss and climate change, and as such we have provided our feedback to the ISSB in their current consultation that we would encourage the development of parallel human rights and natural capital disclosure rules as soon as possible.

Excitingly, on the same day that the ISSB standards were announced, the Australian government also released the next phase of their consultation on mandatory climate related financial disclosures, something Ethical Partners has been very involved in advocating for over the past 5 years, including through direct engagement with ASIC, the AASB and the Australian Treasury, through our involvement in the IIGC Policy and Advocacy working group, and through our submission to the earlier phases of this consultation available on the Our Views tab of our website.

We commend the Australian government for its plans to begin introducing mandatory disclosures from 2024, and the alignment of these rules with the ISSB standards, and the 4 main pillars of disclosures (governance, strategy, risk management and metrics and targets) which also align with the well accepted TCFD framework currently already used by leading ASX listed companies. We would however, encourage the Australian government to phase in the reporting requirements for all companies, including medium and smaller sized firms to the reporting threshold of $50 million revenue earlier, as we believe that ASX listed companies have been well warned of the impending global regulatory and policy changes that would require climate related disclosures, and equally so, that the suggested date of mandatory reporting beginning in 2028 is too late for companies and investors (such as Ethical Partners) who have strong 2030 interim targets, and as such, need clear, credible and verifiable climate related disclosures well before this date – and as such, Ethical Partners have provided this feedback to the Australian government through our involvement in the PRI Global Policy Reference Group.

Ethical Partners also continues to communicate our strong expectation to all portfolio companies that they are producing clear, credible and robust climate related disclosures and transition plans well before these phase-in dates and believe that those companies leading in how they are addressing their impact on people and planet should already be providing these disclosures, as indeed many of the leaders we have identified through our EPORA investment positive screening process are already doing.

Excitingly, the final TNFD guidelines, for which Ethical Partners has also been regularly engaging as TNFD Forum members, are also slated to be announced on the 18th of September, and we continue to engage strongly with all portfolio companies on their understanding of their biodiversity and natural capital dependencies and impacts, as well as their preparation for this reporting framework.

We look forward to continuing to engage on these exciting policy moves both domestically and globally and engaging on the impending reporting requirements with all portfolio companies.

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