TNFD Taskforce Publishes Final Draft Disclosure Framework
The Taskforce on Nature-related Financial Disclosures (TNFD) released the fourth and final beta...
This post was originally published on JD Supra. Republished with permission.
In Short
The Situation: After conducting a period of market surveillance, Australian Securities & Investments Commission ("ASIC") Commissioner Cathie Armour recently released a statement reiterating ASIC's expectation that disclosing and managing climate change risk is a key responsibility of directors.
The Result: ASIC identified that since its last review in 2017-2018 there has been a significant increase in the level of engagement and standards of disclosure on climate-related matters by Australian listed companies, and there is now broad-based board oversight of climate change risk in each of the companies included in the review.
Looking Ahead: Commissioner Armour's statement is consistent with an accelerating international trend of regulators raising the standards in relation to climate-related disclosures. While ASIC is adopting a consultative approach to improving disclosure practices, serious disclosure failures could lead to enforcement action. Accordingly, boards should continue to make climate change and related disclosures a corporate governance priority.
Overview of ASIC's Expectations for Climate Change Disclosures
The genesis of the Commissioner's statement was market surveillance by ASIC of the climate-related disclosures of a group of large listed companies. ASIC commenced this review prior to the COVID-19 pandemic.
In reporting the outcome of the review, Commissioner Armour's statement emphasises that:
Commissioner Armour also commented on disclosures by Australian listed companies under the Taskforce for Climate-related Financial Disclosures ("TCFD") recommendations. In 2017, the TCFD published 11 categories of recommended disclosures which fall within four thematic areas: governance, strategy, risk management and metrics.
Reporting under this framework is intended to be granular. By way of example:
ASIC has previously recommended that Australian listed companies voluntarily make disclosures in line with the TCFD framework, including via its guidance on Prospectuses and Operating and Financial Reviews in annual reports. The ASX's Corporate Governance Principles and Recommendations include a similar recommendation.
ASIC's Market Surveillance: General Levels of Improvement, but Challenges Remain
Given that the last review was in 2017-18, it is not surprising that in its latest review ASIC has observed notable increases in the level of engagement, and disclosure, on climate-related matters.
ASIC's assessment is that while the TCFD framework has improved the quality of disclosures, there is still a way to go. The key challenges include:
Focus on Increasing the Quality of Climate Change Risk Disclosure
Commissioner Armour's comments suggest no change to ASIC's position that disclosures under the TCFD framework will remain voluntary. However, expectations around the quality of disclosures continue to increase. This is a clear trend internationally. Most notably, in November 2020, the UK Government released a road map for mandatory climate-related disclosures under the TCFD framework, with some requirements flagged for introduction in 2023 and others in 2025.
The UK Government has also signalled that this will likely involve the legislating of more specific detailed disclosure requirements to promote consistent, comparable and enforceable disclosures across sectors.
ASIC's Practical Guidance for Directors
In its statement, ASIC encourages directors to approach climate change risk with the following in mind:
From a governance and disclosure perspective, we suggest that directors should also:
Directors are entitled to consider the current consensus science on climate change (rather than reinvent the wheel on the science) and should consider the shifting dynamics of stakeholder opinion and likely market and regulatory responses to climate change. This is part of directors' general duty of skill and diligence to be aware of the market and regulatory environment in which the company carries on business.
Three Key Takeaways
This post was originally published on JD Supra. Republished with permission.
The Taskforce on Nature-related Financial Disclosures (TNFD) released the fourth and final beta...
Current regulation, guidance, and impending mandatory climate risk disclosures are placing greater...
Firstly, what is a Climate Risk Disclosure?