Jim Chalmers to force business to show green credentials by mandating climate risk disclosure

Jim Chalmers says the government will mandate climate risk disclosure reporting for the country’s largest companies from next year.

Treasurer Jim Chalmers has already written to the country’s regulators asking them to double down on efforts to combat greenwashing. Picture: NCA NewsWire / David Swift

Jim Chalmers says the government will mandate climate risk disclosure reporting for the country’s largest companies next year, warning that a lack of transparency on sustainability measures has created a “handbrake” on the investments needed to move the economy away from fossil fuels.

The Treasurer says he has ­already written to regulators asking them to double down on efforts to combat greenwashing.

“The major contributor to high and rising energy prices right now is Russia’s invasion of Ukraine,” Mr Chalmers will tell the Australian Sustainable Finance Institute.

“But that’s been exacerbated in no small part by a preceding decade of energy policy chaos and lack of investment certainty at home. Because we can’t have a more resilient economy without cleaner, cheaper, more reliable ­energy. And we won’t get that without more investment – investment that’s informed and aligned with our climate goals.”

The government’s first priority will be on disclosures, with Mr Chalmers telling the forum that Australian businesses needed to make “credible disclosures to ­remain competitive in global markets”. Treasury will consult on who the new requirements will apply to, and which organisation will enforce the standards.

There will be similar requirements for federal entities.

Investor groups have been campaigning for the government to make climate-risk related disclosures mandatory to prevent companies using questionable assumptions in claiming green credentials. The most-used global standard is known as the Task Force on Climate-related Financial Disclosures, which includes guidelines on providing information about how the company deals with climate risks to its business, how it measures those risks, how its strategy takes into account various global warming scenarios and its greenhouse gas emissions.

“Global markets are on the move, and countries left waiting will get wedged. We don’t have another decade to waste. It’s crucial that we provide that leadership now – and we are,” Mr Chalmers will say.

“If the financial system is going to play this much-needed role ­mobilising capital and managing risks and opportunities in the transition, then we need a more co-­ordinated and more ambitious approach to risk disclosure and sustainable finance.”

Disclosure requirements will be placed on the nation’s largest companies, with mandatory reporting requirements set to be phased – both in terms of entities covered and the reporting required. The government intends to release a more detailed proposal once the International Sustainability Standards Board releases its own framework next year.

Mr Chalmers’ remarks, and the move to kick off consultation, follows the government’s election commitment to introduce climate risk reporting standards.

While consulting on climate disclosure reforms, the government will also work to develop a comprehensive sustainable finance strategy to improve transparency and deepen Australia’s green finance markets.

This strategy, to be led initially by Treasury, will focus on cracking down on so-called greenwashing, or deliberate misinformation released to enhance green credentials. The Treasurer has written to the Council of Financial Regulators, which includes the Reserve Bank and the Australian Securities & Investments Commission, seeking support for a broader sustainable finance agenda.

The corporate regulator has ­already begun to take action against companies misleading investors about their green credentials.

In late October, Tlou Energy became the first ASX-listed company fined for greenwashing after it told investors that it was equally concerned with producing “clean energy” through the use of solar and hydrogen as it was with developing its gas-to-power project.

But Tlou’s primary asset was predominantly a fossil fuels project based on the exploitation of natural gas reserves, the regulator concluded.

The government’s pursuit of a sustainable finance strategy will also see it consider the role green bonds may play as part of Australia’s transition to net zero, Mr Chalmers will say.

Sovereign green bonds are used in some countries, including the UK, as a means of supporting the development of sustainable finance markets and funding green investments. Treasury will work with the Australian Office of Financial Management to consider the merits of these bonds.