ASX companies step up climate change reporting: ACSI

Australian companies face increasing pressure from investors to follow the global trend towards more climate risk disclosure.

Most ASX 200 companies are ready for the start of mandatory climate reporting, with almost 70 per cent of the index now reporting against the Taskforce for Climate-related Financial Disclosures framework, according to the Australian Council of Superannuation Investors.

Australian companies are under increasing pressure from investors to follow the global trend towards more climate risk disclosure, ACSI chief executive Louise Davidson said.

They also face increasing regulatory pressure, including the prospect of mandatory reporting coming in as early as next year, as a result of policy changes introduced by the Albanese government over the past year.

“We are seeing progress on disclosures, particularly at the larger end of the ASX,” she said.

“Policy settings are tightening, including the prospect of mandatory climate reporting.”

ACSI’s latest annual research on climate-related disclosures by ASX 200 companies shows there has been a 31 per cent increase in companies reporting their risks against the globally accepted TCFD framework over the past year.

An increasing number of ASX-listed companies are committing to achieve net zero emissions by 2050, with 61 per cent of ASX 200 companies now making this commitment compared with only 48 per cent the year before.

Large companies are moving faster, with 80 per cent of ASX 200 market capitalisation now covered by companies committed to the net zero goal.

The latest figures represent a significant increase from the 10 per cent of ASX 200 companies using the TCFD reporting framework when it was released in 2017.

There has also been an increase in companies committing to medium-term emissions reduction targets.

“The majority of the ASX 200 reporting against it shows the index is mature enough for the federal government’s planned introduction of mandatory climate reporting,” Ms Davidson said.

She said mandatory climate reporting in line with the TCFD provided investors with the ability to compare the reports of companies.

“It will also bring Australia into line with jurisdictions abroad,” she said.

She said this put pressure on the 30 per cent of ASX200 companies that still provided only limited information on climate risk to the market.

“By managing and reporting climate risks against the TCFD, companies provide investors with decision-useful, comparable and consistent information,” she said.

But she said there were some significant differences in the net zero commitments of companies with some “significant gaps in detail, depth, comparability and credibility”.

“Net zero targets don’t mean much without the detail of how companies plan to transition their operations, so we’re pleased to see more companies detailing targets to meet long-term goals” she said.

“Investors need to be assured that net zero commitments are robust.

“We have been very clear on this in company meetings, where we’ve been strongly encouraging improvement in the management and disclosure of climate risks – and opportunities.”

But she said there were still some notable gaps in disclosure levels, particularly around how companies are dealing with Scope 3 emissions – emissions by clients, customers and suppliers of a company.

While 110 of the ASX 200 companies reported their Scope 3 emissions, only 43 of them set some form of target for these emissions.

She said more companies needed to develop strategies to reduce these emissions as well as Scope 1 and 2 emissions.

She added there was also a need for more detail on the management of transition and physical risks under different climate scenarios and on the use of carbon offsets.

“While nearly half of the index refers to carbon offsets in their climate strategies, just 29% of companies refer to the intention to first reduce emissions through abatement and use offsets only for residual emissions.

“This research does show a maturing system, which is heartening, but there is a very long way to go, and not a lot of time before Australia must complete its transition to a low-carbon economy if there’s a hope of keeping warming to 1.5°C,” she said.

Originally published as ASX companies step up climate change reporting: ACSI