Climate risk disclosure – coming your way soon?

18 June 2020

Climate Change Minister James Shaw has recently signalled that the proposal to implement – on a ‘comply or explain’ basis – the recommendations of the Taskforce on Climate Related Financial Disclosures (TCFD) may be extended to large and/or high emissions privately owned companies and public entities.

This would require a number of privately owned companies and public entities to report forward-looking information on their climate-related financial risks pursuant to the TCFD recommendations. Entities potentially covered by these requirements will want to understand the TCFD proposals and consider engaging with Government on applicability and scope.

TCFD reporting involves a step change from traditional climate reporting and goes far beyond reporting emissions data. The risks required to be considered include not only physical risks related to climate change impacts but also the legal/policy, market, technology, and reputation risks associated with a transition to a climate change affected future.

It is not yet clear exactly how the extension will work in practice but an opportunity to submit on the final proposal is expected after the September elections.

The consultation document, issued in October last year, initially proposed limiting the new requirements to listed issuers, asset managers, asset owners, banks and general insurers. However, following a number of submissions seeking an extension to cover other large businesses or public entities that have material exposure to climate-related risks, the Government appears to be considering an extension. Climate Change Minister James Shaw signalled the policy extension in a Webinar discussion on 28 May with Mark Carney, UN Special Envoy for Climate Action & Finance, and Reserve Bank Governor Adrian Orr.

Shaw also signalled that the new TCFD disclosure would be through new standards administered by the External Reporting Board (XRB).

The TCFD model has been widely adopted around the world, including by 80% of the top 1,100 global corporates and by regulators in Australia, the UK and the European Union. It encourages organisations to disclose:

  • their governance arrangements around how they will manage climate-related risks and opportunities, regardless of the materiality of that information, and
  • the actual and potential impacts of climate-related risks and opportunities on the organisation’s business, strategy and financial planning, and the metrics and targets used to assess and manage such risks and opportunities, in each case to the extent such information is material.

For a fuller analysis, see our commentary: Making the right investment choices for a low carbon economy.

We are working with a number of organisations who are preparing for TCFD reporting, including through the establishment of climate-specific governance structures, physical and transition risk identification measures and the imposition of climate risk metrics and targets. To discuss the practical implications for your business, or to make sure you are on the right track for TCFD reporting, please get in touch with one of our contacts.

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