Australia’s first mandatory climate disclosures are exposing a structural blind spot for institutional investors, with companies flagging significant climate risks but failing to translate them into usable financial data.
Analysis by sustainability consultancy ERM of 33 disclosures filed under the Australian Sustainability Reporting Standards has found two-thirds of companies identified at least one climate risk as material, yet fewer than a third quantified the financial impact on earnings, balance sheets or cash flows.
The standards came into force in January 2025 and the largest companies must disclose their climate governance, strategy, risk management and metrics/targets.
That gap is emerging as a core challenge for asset owners, including superannuation funds, which depend on consistent, decision-useful disclosures to assess risk, set valuations and allocate capital across long-term portfolios increasingly exposed to climate transition and physical risks.
Without quantified impacts, investors are effectively being asked to price risk in the dark, particularly in sectors where climate exposure is material but not yet embedded into forward earnings expectations or balance sheet assumptions.
The analysis estimates between $2.5 billion and $4.5 billion in annualised climate-related financial risk has already been identified by early reporters, representing what ERM describes as only the “first visible fraction” of a much larger pool of unreported exposure.
Capital allocation is not keeping pace with risk identification, with most companies committing little or no funding to address disclosed exposures, while links between climate risk and executive remuneration, capital deployment and internal pricing frameworks remain limited.
“Australia’s mandatory climate reporting regime is doing exactly what it is designed to do, it’s getting the climate conversation tabled in the boardroom,” ERM lead partner corporate sustainability and climate change ANZ Mary Stewart said.
“Now companies have publicly acknowledged the financial risks associated with climate change, the next step is to build a strategy to remain profitable in a world that is decarbonising and physically changing, and back their commitments with a credible transition plan.
“Investors in particular need decision-useful information, and the onus is on reporters to quantify the risks they are declaring as material, including financial impacts, and explain how they intend to mitigate them.”
Regarding institutional portfolios, the early disclosures are beginning to draw clearer distinctions between sectors, with energy and mining companies showing more advanced integration of climate risk into capital allocation and strategy, while financial services firms are lagging on metrics and targets that demonstrate whether risk is being actively managed.
“Climate disclosure maturity reflects proximity to risk. Energy and mining companies have been living with transition pressure for years, and that shows up in a more sophisticated understanding of climate risk and a more strategic approach to managing it.
“For financial services the exposure is just as real, but the urgency to act just isn’t there from some of the early reporters. This should worry investors,” Stewart said.
That divergence carries portfolio implications, particularly for super funds with significant allocations to financials, where governance frameworks appear relatively mature but underlying measurement of climate exposure remains underdeveloped, potentially masking systemic risk.
While governance structures and board accountability have strengthened, the analysis suggests climate risk is not yet influencing the decisions that drive long-term value, with credible transition plans, emissions abatement pathways and capital commitments largely absent across early reports.
“The gap between identified climate risk and capital deployed to address it is stark. Companies are disclosing significant financial exposures in one breath while allocating next to nothing to address it in another. That is not a disclosure challenge, it is a governance challenge,” Stewart said.
The findings arrive at a time of heightened macro uncertainty, with energy market volatility and geopolitical pressures already reshaping cost bases and risk profiles across corporate Australia, reinforcing the importance of forward-looking risk assessment for long-duration investors.
ERM is urging investors to use the upcoming AGM season to press companies on how climate risk is being quantified, managed and embedded into strategy, including whether exposures are reflected in capital allocation, executive incentives and scenario testing.
With more companies set to enter the regime through 2026 and beyond, the next phase of reporting is expected to shift from risk identification to accountability, placing increasing pressure on companies to align disclosures with financial outcomes and giving institutional investors a clearer basis to reprice risk across portfolios.
