The storms and floods that have battered Australia and Aotearoa New Zealand in the past 12 months have been a stark reminder that climate change isn’t just an abstract risk that may affect us in the future. The effects of a changing climate are already being felt by businesses and communities throughout the region.
There is growing pressure on organisations to analyse and report on what a changing climate means to them. That’s because a changing climate poses major risks to businesses, financial systems and the global economy. This doesn’t just include physical hazards like more frequent storms, but also so-called ‘transitional hazards’ like an increased price for carbon or new climate policies and regulations your company has to comply with.
Some businesses might feel that they’ve just got their heads around environmental, social, and corporate governance (ESG) reporting and are now faced with a whole new raft of acronyms.
Here’s a quick run-down on what you need to know about climate-related disclosures.
Do I have to report climate-related disclosures?
In New Zealand climate-related disclosures are mandatory for:
- large, listed companies (large meaning a market capitalisation of more than $60 million)
- large, registered banks
- licensed insurers
- credit unions
- building societies and managers of investment schemes, and
- some Crown financial institutions.
For everyone else, reporting on climate-related risks is optional. But we think it’s worth doing for every company (at thinkstep-anz we have done it with our Integrated Report.
In Australia, it currently is still optional for businesses to disclose climate-related financial risks and opportunities. But the steady increase in demand for disclosures by investors and jurisdictions has many companies already publishing them. The Australian Treasury has released a consultation paper in December 2022 to update the country’s reporting requirements.
Why should I voluntarily report on my climate-related risks and opportunities?
Climate-related reporting has benefits that extend beyond compliance and finance. It will help you to prepare for climate risks, understand opportunities and act on this information. Disclosing climate-related risks and opportunities in a transparent report will show that your organisation has a plan to deal with upcoming challenges. This will make you more attractive to investors.
What is the Task Force on Climate-related Financial Disclosure (TCFD)?
TCFD stands for the Task Force on Climate-related Financial Disclosure. The Task Force was set up in 2015 by the Financial Stability Board, an international body that promotes global financial stability. People also use the term ‘TCFD’ as shorthand to refer to a set of internationally recognised guidelines issued by the Task Force. The TCFD's 11 disclosure recommendations span four different areas: governance, strategy, risk management, and metrics and targets.
What is the International Sustainability Standards Board (ISSB)
International investors with global investment portfolios want reporting that is high-quality, transparent, reliable and comparable. It needs to cover how a company is dealing with climate change and other ESG matters. Since being introduced at COP26 in Glasgow in 2021, the ISSB has developed sustainability-related financial reporting standards that meet the needs of capital markets. They are part of the International Financial Reporting Standards (IFRS) which set global accounting standards.
In 2022 the ISSB released drafts of a General Sustainability-related Disclosures Standard (IFRS S1) and a Climate-related Disclosures Standard (IFRS S2). These standards will become effective in 2024. The climate-related elements of the ISSB framework have been modelled on TCFD recommendations. They aim to be the global baseline for climate disclosures.
What is the difference between the TCFD and the ISSB?
The main difference is TCFD is a reporting framework for climate-related financial risk. ISSB is creating a global baseline for non-financial reporting, that incorporates the TCFD framework.
What is happening with the Sustainability Accounting Standards Board (SASB)?
The SASB has been around since 2011 and identified subsets of ESG issues most relevant to the financial performance for 77 different industries. These standards are being integrated into the ISSB’s S1 and S2 standards.
How does Integrated Reporting <IR> fit in?
The <IR> Framework aims at providing stakeholders with more meaningful information about how an organisation creates value over time. It highlights the commercial, social and environmental context in which it operates.
Organisations take a holistic view on reporting the value they create by looking at six interrelated capitals: financial, manufactured, natural, human, intellectual and social and relationship.
The
The <IR> Framework was set up and maintained by the Value Reporting Foundation, a global non-profit organisation. In 2022 the VRF became part of the IFRS to support the ISSB in developing a comprehensive baseline of sustainability-related financial disclosures. The ISSB is using the concepts in the Integrated Reporting Framework to describe how sustainability and financial value creation are connected.
What is the Global Reporting Initiative (GRI)?
GRI is an independent, international organisation that provides a common language to communicate (and take responsibility for) the impacts of businesses and other organisations. The GRI Standards help businesses understand and report on their impacts on the economy, environment and people in a comparable and credible way.
What is the difference between the GRI and ISSB?
The ISSB’s aim is to develop a global baseline of investor-focused sustainability disclosures for the capital markets. The GRI sets standards for sustainability reporting for a broader range of stakeholders such as investors, customers and employees.
While the ISSB’s standards are based on the Integrated Reporting Framework the organisation is working with the GRI to harmonise their standards. The goal is to create two ‘pillars’ of international sustainability reporting. The ISSB will develop investor-focused market standards and the GRI sustainability reporting requirements designed to meet the needs of investors, customers and employees.
What is the New Zealand External Reporting Board (XRB)?
The XRB develops and administers financial and climate reporting standards and frameworks in New Zealand. It used international frameworks like TCFD and ISSB to develop its own climate-related standards. In New Zealand, climate-reporting entities have to report to the XRB’s Aotearoa New Zealand Climate Standard from 1 January 2023. The framework helps organisations consider the risks and opportunities that climate change presents for their activities over the short, medium and long term.
What is the Australian Accounting Standards Board (AASB)
In Australia, the AASB administers financial and climate reporting standards and frameworks. It uses international frameworks like the TCFD and ISSB to develop its own climate-related standards. It is currently developing sustainability-related financial reporting standards.
With a better view of the organisations and standards behind the acronyms, you’re ready to start to understand how climate change might affect your business. Don’t forget, there are not only risks, if you tackle them right, but there are also opportunities waiting for you to create a world that is better for the planet, people and your profit!
Want to know more about climate-related reporting and the TCFD? Read our Need to Know or watch our Masterclass we have recorded for New Zealand's Climate Leader Coalition.
20 March 2023