The call for consistent and comparable reporting of climate-related risks and opportunities in Annual Reports has escalated with remarkable speed over 2021, following a brief shift in focus while the globe came to grips with the impacts of the COVID-19 pandemic.

The engagement of regulators and standard-setters, both internationally and in Australia, has reinforced the imperative for organisations to consider what information to include in Annual reports and the basis for this information.

Importantly, the recommendations of the Taskforce for Climate-related Financial Disclosures (TCFD) are uniformly supported as the basis for climate-related disclosures and are at this time considered to represent the source for best practice disclosures in Annual Reports of listed Australian entities.

ASIC has welcomed the announcement of the International Sustainability Standards Board (ISSB), together with the prospect of global standard setting relating to climate and sustainability disclosures. ASIC has reiterated its support for, and encourages listed Australian entities to use, the TCFD as the primary framework for voluntary climate-related disclosures.

APRA has also expressed support for the TCFD framework in relation to disclosures in its final Prudential Practice Guide CPG 229 Climate Change Financial Risks released in November 2021.

We encourage you to make a submission to the AASB on the future of sustainability reporting in Australia (more information provided in this Reporting Update).

Continuing impact of COVID-19

International developments

The ISSB, a sister board to the International Accounting Standards Board, was announced at COP26 in November 2021. The announcement was accompanied with the release of two prototype standards to give the ISSB a running start in developing its first two exposure drafts.

These prototypes have been released and cover:

  • climate-related disclosures, underpinned by the TCFD recommendations and Sustainability Accounting Standards Board (SASB) industry-based standards
  • general sustainability disclosure requirements.

The climate-related disclosure standard is expected to be the first of a proposed suite of sustainability disclosure standards issued by the ISSB, with an exposure draft expected in the first half of 2022.

An overview of the international sustainability reporting developments can be found on our global Sustainability reporting website.

Climate-related disclosures – AASB support for TCFD recommendations

In November 2021, following the announcement of the ISSB and release of the prototype standards, the AASB issued an Invitation to Comment (ITC 48 Extended External Reporting) to seek feedback on its updated position relating to climate-related disclosures. The AASB as an initial step, is proposing to endorse the voluntary adoption of the recommendations put forward by the TCFD, which forms the basis for the ISSB prototype standard on climate reporting.

ITC 48 seeks comments on three questions:

  • Should the AASB adopt an immediate position with respect to climate reporting, or await international consensus through the ISSB project?
  • Should organisations be required or encouraged to voluntarily adopt the recommendations of the TCFD?
  • Is the TCFD framework the appropriate framework to support until the ISSB issues a final standard on climate reporting?

Submissions on ITC 48 are open until 28 January 2022.

We strongly support the adoption of the TCFD framework by all entities when disclosing the impacts of climate-related risks and opportunities in their annual report. This framework is endorsed globally and by all Australian regulators.

We believe the TCFD recommendations should be adopted immediately by entities on a voluntary basis and urge the AASB and FRC to start the due process required to make climate-related reporting mandatory as soon as practicable. Entities that adopt the TCFD framework when making their climate-related disclosures will be well-placed when the new ISSB standards are finalised, and entities need to comply with them.

Adrian King
Partner in Charge, Sustainability & Climate Change

Australian standard-setters’ developments

In response to the international developments and local scrutiny, the Australian Financial Reporting Council (FRC), announced the adoption of an Extended External Reporting regime that will sit within the current institutional framework in place for financial reporting.

Specifically, the AASB are tasked with developing reporting requirements for non-financial information (including climate-related risks) and the AUASB will support this with updates to relevant assurance standards and guidance. The FRC will continue to provide strategic oversight of the Boards.

This model has been designed to take advantage of the significant experience, expertise and credibility that the AASB and the AUASB have in standard setting.

AASB 2022–2026 Agenda consultation

In addition to ITC 48, the AASB has another ITC on its 2022-2026 work plan (ITC 46). Sustainability reporting is identified as a potential AASB project on this work plan. This ITC seeks comments on:

  • whether sustainability reporting should be added to the AASB plan
  • the scope of the sustainability reporting project
  • the priority of the project relative to other proposed projects.

Submissions on the AASB agenda consultation are open until 18 February 2022.

Although the announcement by the FRC and issue of ITC 48 have to some extent made the sustainability related questions in ITC 46 redundant, we encourage organisations to use ITC 46 as an opportunity to comment on the broader scope of sustainability reporting and the direction Australian entities should take.

Zuzana Paulech
Partner, Department of Professional Practice

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