Ready or not: Mandatory disclosure is coming to Australia

A recent Treasury consultation paper sought input on the architecture of the scheme but the basic commitment is made: climate risk disclosure will be mandatory.

There are two drivers for this. The first is climate change itself, which poses a fundamental risk to Australia’s economy, society and institutional stability if global warming is allowed to exceed 1.5 degrees above the long-term global average. The second driver is investors. Recognising that climate change transition and physical risk pose significant risk to earnings, investors are seeking transparent, consistent and decision-useful information about climate risk because they need to know that companies and governments can manage that risk.

The starting point is the draft disclosure standard prepared by the International Sustainability Standards Board, which ISSB has indicated will come into force in January next year. For ease and consistency of reporting and to attract international capital, the Australian framework needs to be consistent with international baselines, including in the disclosure of material Scope 3 emissions, but there’s a case for Australia to go further than ISSB and others in the disclosure framework for physical risk.

Unlike transition risk, physical risk is not limited to a particular window of time and will escalate even if the Paris temperature agreement goals are met. The consequences of physical risk are not limited to particular sectors, but will broadly, profoundly and irreversibly affect every aspect of Australia’s society and economy. The latest update from the Network for Greening the Financial System scenarios for climate risk make it clear that, “For all scenarios and time scales, physical risks outweigh transition risks.”^[1]

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