As corporations prepare for a new climate-related financial disclosure regime commencing next year, ASIC commissioner Alan Kirkland has addressed those who are sceptical of the regulator’s focus on greenwashing and sustainability claims.
Earlier this year, Treasurer Jim Chalmers confirmed Australia’s largest companies will be subject to a series of new climate reporting standards come 2025, with the Treasury Laws Amendment (Financial Market Infrastructure and other measures) Bill introduced to Parliament in March.
This includes the implementation of new mandatory climate reporting requirements for big companies, which will commence from 1 January 2025 for Australia’s largest listed and unlisted companies and financial institutions.
The measure has been backed by an alliance of 15 Australian organisations representing business, finance, shareholders, and retail and institutional investors, which emphasised such a framework is “essential” to maintain Australia’s place in the global economy.
According to ASIC’s Kirkland, the nature of disclosures and representations by financial firms remains a “key area of interest” for the regulator.
In a speech at the Australian Finance Industry Association Risk Summit in Melbourne last week, he observed: “The overwhelming majority of global GDP (90 per cent by latest estimates) is now covered by a net zero target at or around mid-century. Locally, companies covering 80 per cent of the market capitalisation of the ASX 200 have set climate-related targets.
“Protecting market integrity through this transformation will be critical.”
He explained that, as with any new regime, the regulator will take a “pragmatic” approach to its supervision and enforcement in this area, which is expected to apply to over 6,000 entities once fully implemented.
The groundwork needs to be built now, Kirkland said, despite the regime being phased in over a number of years in order to allow time for necessary preparations.
“We encourage industry to start thinking seriously about what you need to do today to meet your obligations. This means considering and putting into place the necessary systems, processes and governance practices. It also means thinking about the data you will require – and how you will record it,” he said.
The regulator recently won its first greenwashing civil penalty action in March, against Vanguard Investments, and has two other proceedings underway in the Federal Court.
To date, it has issued 17 infringement notices in this area, totalling over $230,000.
Still, Kirkland said, there is a bit of curiosity regarding why this has been treated as an area of priority by ASIC.
“I have to say that I’m somewhat bemused by that reaction,” he said.
“Our work in this area is grounded in the prohibition of misleading or deceptive representations that has been a feature of Australian consumer protection law for 50 years.
“And I make that point because it signals an important feature of ASIC’s approach to enforcement in areas of emerging harm: while we welcome and support law reform where it can improve market integrity and consumer protection, we won’t wait for law reform where we see misconduct that breaches existing requirements.”
Earlier this month, ASIC chair Joe Longo elaborated the regulator’s expanded focus on the governance around sustainable investing, terming it a “logical extension” of its greenwashing scrutiny.
“While this work is ongoing, an early observation we can make is that we have seen instances of investments made by delegated portfolio managers or sub-managers that do not align with the responsible entities’ representations to investors,” Longo said at the RIAA Conference Australia 2024.
“This falls short of our expectations that responsible entities exercise care and diligence in monitoring trading done on behalf of their members.”
He, too, warned companies against scrambling to comply with a new regime.
“It’s simply not an option for industry to put off preparations, and then scramble to comply. Reporting entities have to be doing the work now – marshalling the data, embedding the capabilities, and keeping the necessary records,” Longo stated.
