$150trn investor groups call on Australia to adopt ISSB standards

Australia's new climate reporting rules should match global best practice by including standardised and decision-useful transition plans, according to three alliances of investors, collectively worth an estimated $150 trillion.

The three groups - Investor Group on Climate Change, UN-supported Principles for Responsible Investment as well as the Carbon Disclosure Project - released a joint statement highlighting a lack of standardisation and regulatory guidance currently means that most companies’ disclosure of net zero strategies is "incomplete or inadequate" for investor needs.

They called for the adoption of the International Sustainability Standards Board's reporting principles in order "to put capital to work."

Their letter came after the Australian government recently announced it plans to set climate targets and pathways for the biggest sectors in the economy, with Australian businesses being obliged toinform investors and other stakeholders how they are planning to carry this out.

Currently neither investors nor governments get enough reliable information to make decisions about capital allocation, or companies’ climate risks and opportunities, the investor groups warned.

Recent analysis of 183 Australian companies reporting to CDP in 2022 shows that none of them met all the key indicators of a credible transition plan.

Global standards

The UK and EU have already announced requirements for companies to issue "robust standards", focused on detailed transition planning and reporting. Other jurisdictions are expected to follow.

The Australian government should help businesses and investors compete for global capital by establishing standards that build on international frameworks; the International Sustainability Standards Board (ISSB)’s baseline requirements, the groups argued.

This would make companies’ reporting more streamlined and efficient, while helping them stay attractive in global capital markets.

“Between now and 2050, businesses are going to seize all kinds of opportunities in the transformation to a low and ultimately net zero carbon economy," commented Quote from Rebecca Mikula-Wright, CEO of The Investor Group on Climate Change.

“They will also need to protect themselves against a myriad of increasing climate risks, and through all that change investors can’t be flying blind," she said.

“To help put capital to work in the right parts of the economy, investors need comparable, reliable and standards-based transition plans to be part of companies’ mandatory annual reporting," Mikula-Wright concluded.

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As reporting requirements become more detailed, more in-depth and more tailored, industry insiders recently told Net Zero Investor that they are increasingly taking up large amounts of time and resources at investors, their investee companies, banks and other key actors.

At nearly three in four companies now three or more internal teams need to scrutinise and sign off on any climate statements, sustainability reports or related disclosures.

Moreover, most impacted entities have appointed at least one employee to oversee climate-related reporting, a jump of 6% compared to last year.

The need to have dedicated staff is underpinned by the fact that most companies are now required to comply with two or more global regulations.

That is why the general consensus within the community is that ISSB's ESG standards offer several advantages. They establish a global set of sustainability disclosures, creating a common baseline for issuers of all sizes, sectors, or locations.

This uniformity in communication drives convergence with other reporting requirements and efficiencies in data capture across geographies.

It enables companies to deliver robust reporting efficiently and cost-effectively, particularly beneficial for businesses operating in multiple jurisdictions.

Initially launched following the COP26 climate conference in Glasgow in 2021, the ISSB aims to develop standards for a global baseline of sustainability disclosures.

The framework enables companies to provide comprehensive sustainability information to global capital markets.

Earlier this year, it was confirmed that the ISSB is to merge with the Task Force on Climate-Related Financial Disclosures (TCFD), considered a critical step forward in unifying the current climate disclosure maze, even though the decision was met with scepticism by some industry insiders.

However, the adoption of the ISSB's standards could still present potential challenges.

The global applicability of the ISSB's standards depends on individual countries and companies' willingness to implement them, which could be challenging due to varying regulatory landscapes and enforcement mechanisms.

The standards demand high transparency and detailed reporting, posing a challenge for companies lacking the necessary systems or processes.

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