The Financial Services Council (FSC) has labelled the Climate Change Bill “just the beginning”, while arguing that more focus needs to be placed on a mandatory principle-based climate risk disclosure regime which would require companies to report climate-related financial risks and opportunities.
In its submission to the Senate Environment Committee, the FSC noted that funds need reliable information about the emissions of investee companies, and the risks and opportunities climate change may bring to these investee companies.
“As part of their stewardship activities, funds currently encourage investee companies to enhance their disclosures when it comes to climate risk. Currently, 103 of the top 200 ASX-listed companies in Australia voluntarily meet the Task Force on Climate-related Financial Disclosures (TCFD) framework. However, the consistency and quality of disclosures around scope 1, 2 and 3 emissions across companies can vary,” the FSC highlighted.
It also drew attention to “inconsistency” in the use of scenario analysis and a “lack of transparency” on assumptions and metrics behind scenarios.
“This makes it difficult for funds to assess whether a company is truly aligned with the targets they have set to align their activities with the goal to limit warming to well below 2 degrees above preindustrial levels or 1.5 degrees,” the FSC said.
According to the FSC, a mandatory climate risk disclosure regime in line with the TCFD framework, would lift the other half of the listed company sector currently not reporting according to the TCFD framework up to best practice, boost investor confidence and further facilitate the allocation of capital towards the transition.
“The lack of certainty on climate policy has inhibited investment opportunity in Australia and restrained the funds management sector from effectively managing climate risk,” said the CEO of the FSC Blake Briggs in a statement accompanying the submission.
“The investments underpinning the transition to net zero have long investment horizons, that require policy certainty across multiple governments,” Mr Briggs continued.
“Global and local investors are seeking long-term value and opportunities in entities that are well prepared for the economic transition to a low-carbon economy, in sectors as varied as mining, energy and utilities, housing, transport and agriculture.”
Mr Briggs noted that the details of what a mandatory reporting regime looks like is something the FSC are keen to work through with government and legislators.
The FSC earlier this month released its Climate Risk Guidance for Australian fund managers, which sets expectations for the industry when setting net zero targets, labelling investment products, and fulfilling their legal obligation to disclose climate-related risks.
