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A new study by KPMG Australia indicates just how far behind best practice ASX 200 companies are in respect of their disclosures of climate-related concerns.
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ASX 200 failing on climate reporting, KPMG research finds
29 October 2021
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KPMG Australia’s study of company reports has revealed that only 35 per cent of ASX 200 companies currently detail their climate impact in their annual report with reference to the recommendations made by the Task Force on Climate-related Financial Disclosures (TCFD).
The TCFD’s guidance is acknowledged globally as best practice for climate impact reporting. It’s widely anticipated that the organisation’s recommendations will form the basis of the first standard to be issued by the International Sustainability Standards Board (ISSB), a forthcoming offshoot of the International Financial Reporting Standards Foundation that’s expected to formally launch during COP26.
Of the 65 per cent that do not mention the TCFD in their annual reports, several provided a supplemental record containing TCFD-related material online, while 25 per cent of ASX 200 company reports neglect to mention TCFD but refer to climate risk in their risk section, KPMG found.
Further to that, less than half (47 per cent) of the companies included in the study were said to have included material metrics related to environmental, social and governance (ESG) issues in their discussion of ESG performance.
Nick Ridehalgh, KPMG Australia’s head of better business reporting said that ultimately the majority of ASX 200 companies reported on climate risk in some capacity, but noted that those that don’t follow the TCFD recommendations, along with the roughly 40 per cent that do not report on their climate impact at all, will have a tough road ahead when the new climate standard is introduced – likely next year.
“Those who have already adopted TCFD – and there has been a significant increase in the numbers doing so in the past two or three years – will be much better placed to cope with the new standard,” Mr Ridehalgh said.
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“Our report shows that many still have much to do in terms of understanding their climate risk and opportunity, applying the TCFD Recommendations and then reporting their response and likely impact in their primary report, ahead of the new standard.”
Mr Ridehalgh added there was also work to be done on ESG disclosures, noting that expectations on that front were growing from both investors and regulators.
“Only around half include meaningful metrics on performance in managing ESG matters for long term value,” he said. “Currently many still have a separate section on sustainability, which is not well connected to group strategy and the creation of enterprise value.”
The international sustainability reporting standard will be a game changer in pushing companies to properly integrate climate data into their annual disclosures, according to Mr Ridehalgh.
“It is driven by global investors and is being introduced to give sustainability information the same rigor and comparability that the capital markets expect of financial information,” he explained.
“Market transparency requires that companies provide a more complete view of how their long-term value is created, not just short-term financial results. The interconnectivity between sustainability related information and financial information is now being recognized, and effective capital allocation and investment flows in global markets [demand] ‘investment grade’ sustainability information.”
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