Are persistent gaps undermining sustainability reporting progress in Australia?

In a stride toward environmental sustainability, the majority of Australia’s ASX200 companies are embracing mandatory climate reporting, setting a promising precedent for sustainable business practices. While nearly 70% of the index’s constituents now actively reporting in accordance with the Taskforce for Climate-related Financial Disclosures (TCFD) framework, significant gaps in terms of detail, depth, comparability, and credibility remain.

Recent research conducted by the Australian Council of Superannuation Investors (ACSI) comes at a crucial juncture as communities worldwide grapple with the tangible impacts of extreme weather events. As the world battles climate change, the research illustrates a surge in net-zero commitments, showcasing 61% (121 entities) of ASX200 companies publicly pledging to achieve net-zero emissions. This marks a notable increase from the 48% recorded in the previous year.

Interestingly, the research highlights that larger corporations are at the forefront of this shift, with a staggering 80% of the ASX200 market capitalisation now represented by companies firmly committed to net zero. However, not all net-zero commitments are created equal, exposing gaps in terms of detail, depth, comparability, and credibility.

Considering that in 2017 a mere 10% of companies adhered to the TCFD framework, the shift in approach is noteworthy. The rapid transition to this reporting standard signals the maturity of the ASX200 index, providing a strong foundation for the impending introduction of mandatory climate reporting by the Federal Government.

Louise Davidson, CEO of ACSI, commented about the potential impact of this shift, saying “Mandatory climate reporting, aligned to the TCFD, will not only provide investors with comparability, it will also bring Australia into line with jurisdictions abroad. It will focus the minds of the 30% of ASX200 companies that continue to provide limited information on climate risk to the market. It’s time all companies realise that they, along with the entire economy, face climate risks that they must manage.”

The research also illuminates a growing trend of detailed target setting among companies, accompanied by a notable 25% surge in companies adopting medium-term emissions reduction targets.

Ms Davidson emphasised “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. 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 – for years.”

Adding to the urgency of environmental stewardship, Members of Parliament recently expressed the government’s commitment to addressing climate change after a decade of inaction and dysfunction. The Hon Ged Kearney, Assistant Minister for Health and Aged Care, referred to Australia’s first National Health and Climate Strategy consultation, acknowledging the World Health Organisation’s warning that climate change is the greatest threat to public health in the 21st century.

The ACSI research underscores that, while progress is evident, the urgency to limit global warming to 1.5°C above pre-industrial levels necessitates even swifter action. The ASX200’s shift to science-based targets that align with climate science stands at 25%, showcasing a need for acceleration in this aspect. Notably, 5% of companies are committed to transitioning to science-based targets.

However, the report highlights notable gaps, especially in addressing Scope 3 emissions. A mere 22% of ASX200 companies have established some form of Scope 3 target, despite 110 companies reporting Scope 3 emissions. As these companies move forward, strategies for reducing these emissions will be a critical next step.

Additionally, the research raises concerns about carbon offsets. While 49% of companies reference carbon offsets in their climate strategies, limited disclosure on their quantity, type, projects, and hierarchy of use is observed. A mere 29% of companies emphasise first reducing emissions through abatement, relying on offsets solely for residual emissions.

An encouraging uptick is observed in scenario analysis, as 59% of the ASX200 integrate this practice into their strategies. Impressively, 91 of these companies adopt scenarios aligned with the Paris Agreement’s temperature goals of 1.5°C or below 2°C.

Despite these advancements, Ms Davidson underscores the long journey ahead, saying “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.”

The findings of this research, which draws on information publicly reported by ASX200 companies up to March 31, 2023, serve as a rallying cry for businesses to proactively engage in sustainable practices and transparent climate reporting.

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