An increasing number of climate change commitments and initiatives from Australian companies are expected in the future as demand for climate-related disclosure continues to rise worldwide.
In a report on climate disclosure and its implications for Australia, economists from the Commonwealth Bank (CBA) predicted that the quantity and quality of disclosures from local companies would improve over time regardless of whether they are made mandatory by the federal government.
Businesses have recently faced greater pressure from both investors and regulators to be more transparent on their exposure to sustainability issues and a wide range of disclosure standards and frameworks have emerged as a result.
These include the Task Force on Climate Related Financial Disclosures (TCFD) framework, which was adopted by 80 ASX 200 companies for climate risk reporting as of 2020, while a further 34 companies were either committed to or reviewing the framework.
“Support for the TCFD framework has accelerated rapidly both in Australia and abroad, with the number of companies that have endorsed TCFD recommendations increasing by more than four times over the 2017-2020 period,” said CBA economist Carol Kong.
While Australian law requires listed companies to consider and disclose all relevant risks, CBA noted that climate-related disclosures remained broadly voluntary. This compares to other countries, most notably the United States and New Zealand which have moved to incorporate disclosures in line with frameworks such as the TCFD.
“The rapid uptake of climate reporting has come despite the fact that many jurisdictions, including Australia, have not made this type of reporting mandatory,” said Ms Kong.
“Instead, companies are choosing to improve their financial and risk disclosures to meet the strong interest from stakeholders, including investors, employees, business partners and customers.”
CBA said that about half of the companies in the ASX 200 currently report on scope 1 emissions, which occur from sources that are owned or controlled by the company, and scope 2 emissions, which include the indirect emissions from the generation of purchased energy.
Meanwhile, 42 per cent of ASX 200 companies report on scope 3 emissions, which cover all of the indirect emissions that are outside of a company’s control including from their suppliers.
Of those companies reporting greenhouse gas emissions, only around half had their reports audited or verified by an independent third party.
If Australia were to follow the lead of the US Securities and Exchange Commission, which has proposed making the reporting of scope 3 emissions mandatory when they are deemed material or if the company has made a scope 3 emissions reduction target, CBA said local companies could be hit by “potentially significant compliance costs”.
But the bank noted that increased transparency on climate disclosures would likely incentivise companies to partner with their suppliers to find ways to drive down their emissions.
“We expect more Australian businesses will introduce or reassess their emissions reduction targets, and in particular, we anticipate more companies to set targets that meaningfully address scope 3 emissions as market-wide emissions accounting and reporting improves,” concluded Ms Kong.
Last month, UN Secretary-General António Guterres slammed governments and businesses for their continued use of fossil fuels after the latest Intergovernmental Panel on Climate Change (IPCC) report revealed “immediate and deep emissions reductions” are now required.
Describing the report as a “file of shame”, Mr Guterres said that the empty pledges catalogued in the report were set to make the world unlivable.
“Some government and business leaders are saying one thing – but doing another. Simply put, they are lying. And the results will be catastrophic,” he said.
The IPCC report found that global greenhouse gas emissions must peak before 2025, and fall 43 per cent by 2030, to limit global warming to 1.5 degrees as set out by the Paris Agreement.
Jon Bragg
Jon Bragg is a journalist for Momentum Media's Investor Daily, nestegg and ifa. He enjoys writing about a wide variety of financial topics and issues and exploring the many implications they have on all aspects of life.
