The Australian Accounting Standards Board (AASB) has released proposed sustainability reporting standards based on the International Sustainability Standards Board’s disclosure framework.
The three draft standards are out for consultation until 1 March and include general requirements for climate-related financial information and disclosures.
The AASB standards are solely focused on climate risk and don’t include any provisions for broader sustainability issues.
The AASB does not have the power to make standards, but a proposed bill in the Australian senate that would mandate climate-related disclosure would change that.
The proposed standards as well as the ISSB standards have a single-materialty framework approach, which is “a missed opportunity to better understanding systemic risks to the economy and financial markets,” as a double-materiality framework would provide more insight on the transition to a green economy, said Nishtha Aggarwal, an analyst at Australian think tank Climate Energy Finance.
Double materiality in climate reporting includes disclosing both physical and financial impacts for a company. Climate advocates argue that it’s a better measure of climate change risk.
One key difference, however, is that the AASB has proposed a provision for companies that are not materially impacted by climate change to opt out of most disclosures.
“How this actually works is unclear and needs to be clarified in the enacting legislation,” Aggarwal said.
Like other standards, the AASB has a few loopholes. For instance, the standard allows companies to “scenario shop” to determine the risks that impact their business. Instead, says Aggarwal, the AASB “should be more prescriptive in what scenarios companies should use in stress tests”. The standard is also indefinitely deferred for government entities, making it difficult for asset managers with exposure to Australian bonds to assess their own risk.
If the timeline proposed by the Australian Treasury remains, the reporting standards would be rolled out between 1 July 2024 and 1 July 2027.
Australia isn’t the only country considering adopting ISSB-inspired climate rules. Brazil recently announced it would incorporate the standards in its regulatory framework.
This page was last updated November 7, 2023
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