Commuters captured under tough climate regime

The extent of the challenge was yet to dawn on most company managers, said Jo Gorton, audit and assurance managing partner at Deloitte’s, even though class action lawyers would be shut out for the first three years while ASIC enforced the rules.

“You cannot underestimate the significance of this change,” she told The Australian Financial Review on Sunday. “It’s very broad and it is not just limited to listed companies, like some jurisdictions overseas.

“Everyone knows that ASIC is very focused on this. They have already started to take action against companies on greenwashing.

“You have a lot of companies who will have to start reporting next year, who haven’t put out any climate or sustainability information.”

Federal Treasury is finalising laws that will enforce the mandatory climate disclosures and while they have given companies a three-year grace period from class-action lawyers, Ms Gorton did not expect directors to be given a safe-harbour defence or any further concessions for business.

“A number of the disclosures are forward-looking, which is what a lot of corporate Australia is not comfortable with and will be new for them to grapple with,” she said.

Focus on ‘climate’ disclosure

The Australian Accounting Standards Board, responsible for developing the Australian climate disclosure standards, said that its exposure draft, being released on Monday, largely stuck to the draft international standards released at the end of June.

The Australian standards extend to the not-for-profit sector but are more narrow in the sense they focus on “climate” disclosure, rather than broader sustainability reporting.

“What we’re focused on at the moment is climate reporting, so reporting emissions with a similar status to financial reporting, there’s a lot of other sustainability reporting matters which may be addressed down the track in separate standards,” AASB chairman Dr Keith Kendall said.

The standards include a number of forward-looking statements and not just scope 1 and 2 emissions but the more difficult to report scope 3 emissions.

Scope 1 emissions are a company’s direct emissions such as factories, and scope 2 emissions are indirect emissions from the electricity and energy the company uses.

But scope 3 includes emissions from customers, suppliers and employees. UK climate group Carbon Trust says that for most companies scope 3 emissions can represent 65-95 per cent of their carbon impact.

Double counting

“A major question is how you get the data and the quality of that data, but scope 3 is necessary if you are trying to get a comprehensive picture of the state of emissions going through an economy,” Dr Kendall said.

“The scope 1 or scope 2 emissions of your supplier, for example, become your scope 3 emissions,” he said, acknowledging there could be double counting. “That’s one of the matters I’ve been advocating that need to be addressed. I haven’t seen how it’s been addressed yet.”

The standards also allow some leeway where “reasonable and supportable data related to the current reporting period is not available ... without undue cost or effort”, which will be a matter of enforcement for ASIC.

“Undue cost and effort does not mean no cost and no effort,” Ms Gorton said. “You would have to be able to demonstrate that you’ve properly analysed what it would cost to do it and satisfy ASIC.”

But the standards include other aspects such as disclosure on climate targets for executive remuneration.

She said it would take the scrutiny by investors and environmental groups of net-zero emission targets to a new level.

“It will force companies to be very clear about their commitments and how they plan to achieve them, and whether they are actually including scope 3 emissions in their targets. It will drive a lot of more detail for stakeholders.”