Companies ‘not ready’ for mandatory climate change disclosure, Zenith warns

Many companies and funds are not ready for mandatory climate-related financial disclosures that could come in as early as July 2024, Zenith’s head of responsible investment has warned.

Many companies and funds are not ready for mandatory climate related financial disclosures that could come in as early as July next year, Zenith Investment Partners’ head of responsible investment, Dugald Higgins has warned.

Speaking at lunch in Sydney on Thursday, he said the Treasury had issued a consultation paper on mandatory reporting, but many companies did not realise its implications.

“A lot of businesses in Australia are not ready for the implications of this,” he said.

“A lot of them have said: ‘It’s a consultation paper. It probably wont happen’.”

But he warned those that dismissed it as not going to happen would probably find themselves “on the wrong side of history”.

He said Australian regulators knew that many other countries were moving towards mandatory disclosure regimes and there was pressure for global reporting standards. Most of the submissions made to Treasury on the issue had supported the introduction of a mandatory reporting regime which is expected to apply initially to big ASX listed companies, banks, superannuation funds and insurance companies.

But the “horizon” for the introduction of mandatory reporting could be a lot earlier than many businesses thought, potentially as early as July next year.

Mr Higgins said he expected that the new mandatory reporting regime would be introduced on a phase-in basis for organisations, starting with the larger ones but many companies and funds still believed that the new laws would not apply to them.

He said the new disclosure laws could prove an expensive exercise for companies in tracking their own carbon emissions and those of their clients.

In the US the Securities and Exchange Commission (SEC) is looking at introducing a mandatory reporting regime for listed companies using the standards of the Task Force on Climate Related Finance Related Disclosures (TCFD). Recent estimates were that it could cost the average US company more than $US500,000 a year to assemble the data needed for the disclosure needed to comply with the SEC’s proposed new requirements.

“It (mandatory disclosure) has big implications for a lot of the market,” he said and this highlighted the complexity of the requirements for climate-related disclosures.

“The earlier you start, the easier the transition is going to be.

“There is going to be a huge cost, but we have to remember that, just as happened with global accounting standards, as everyone moves towards using a global standard on climate-related disclosure, the cost will come down.”

He said he hoped that Treasury would take into account the potential cost implications for smaller companies and funds and potentially delay applying the law to them until there was more readily available market data on climate change risks and carbon emissions.

“There is a lot of stuff in there (the proposed Treasury consultation paper) which is coming quickly.

“Businesses need to be asking themselves how they are going to handle mandatory disclosure, including the governance needed around the process and having the internal capabilities to handle the requirements.

“1 July 2024 is not very far away.”

He said the mandatory reporting of Scope 1 and Scope 2 emissions by companies was “definitely on the table” for Australian business in the current round of discussions by Treasury. But it could take longer to impose mandatory reporting of Scope 3 emissions – the emissions of customers and companies in their supply chains.

Mr Higgins said it would be good for the government to delay imposing mandatory reporting on Scope 3 emissions as there were still no globally agreed reporting standards in this area.

He said company directors, investment managers and super fund trustees were “caught in a bear trap” between the regulations around climate change reporting and regulators.

“The regulations are saying you need to be more transparent around what you are doing,” he said. “The regulators have got the magnifying glass out making sure you don’t put your foot over the line, poised to crack down on those not being transparent on claims.

“We suspect that many businesses have not considered the reach and implications of new regulations and the complexity, effort and cost to deliver.

“You are going to have to quickly work out what resources to create or who you need to partner with to deliver on these issues,” he said.