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ASIC: Disclosing and managing climate risk a key director responsibility

ASIC Commissioner Cathie Armour says the Australian Securities and Investments Commission has previously highlighted climate-related risk as a systemic risk in our market that has the potential to significantly impact companies, investors and consumers.

She says that ASIC’s focus is on ensuring listed companies have appropriate governance structures in place to manage the issue, and provide the market with reliable and useful information on their exposure to material climate-related risks and opportunities.

Just before the pandemic struck, ASIC looked at a selection of listed companies to assess how they were managing and disclosing this issue. The focus was on reporting by companies under the framework established by the Financial Stability Board’s Taskforce for Climate-related Financial Disclosures (TCFD).

ASIC had previously recommended the TCFD framework to listed companies, including via the guidance on Prospectuses and Operating and Financial Reviews in annual reports. The ASX’s Corporate Governance Principles and Recommendations include a similar recommendation.

ASIC surveillance began in the first half of 2019-20 with examinations of several large listed companies spanning a range of industries, including energy, financials, industrials, property and consumer discretionary.

Overall, ASIC observed that voluntary adoption of TCFD reporting by some larger listed companies had materially improved standards of climate-related governance and disclosure in the market. Among larger listed companies, ASIC clearly observed a significant and meaningful increase in the level of engagement, and disclosure, on climate-related matters since last examining this area in 2017-18.

ASIC found evidence of board oversight of climate risk across all surveillance targets and noted that TCFD reporting generally led to material improvements in the standards of disclosure.

ASIC considers that the law requires an operating and financial review to include a discussion of climate risk when it is a material risk that could affect the company’s achievement of its financial performance.

But Commissioner Armour said that, notwithstanding these steps forward, there was still a way to go and some companies were much further along than others. Unsurprisingly, she saw that solid governance of this risk generally leads to better disclosure.

Visit the ASIC website for more information.

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