Feeling the Heat: Mandatory Climate Disclosure Requirements
By Prateek Vijayvergia, Business Leader – Key Accounts, Australia & New Zealand
Like it or not, legislative changes have made climate disclosure mandatory in Australia. Insurers would be wise to prepare.
It’s not just in Australia. Legislative and regulatory bodies across the world are imposing stricter Environmental, Social and Governance (ESG) protocols. For example, under the Corporate Sustainability Reporting Directive in the EU, all large companies and listed SMEs that operate in the EU (that’s around 50,000 businesses) are required to report on their climate impact – and begin publishing regular reports in 2025 for the financial year 2024. Also, in March this year the U.S. Securities and Exchange Commission (SEC) approved final rules for the enhancement and standardization of climate-related disclosures. This requires publicly traded companies to disclose climate-related information in annual reports and registration statements.
Closer to home, the Australian Government passed amendments to the Corporations Act 2001 and the Australian Securities and Investments Commission Act 2001 earlier this year, resulting in mandatory climate reporting for larger businesses in Australia.
At a recent webinar for the Underwriting Agencies Council, I had the pleasure of speaking with Sharanjit Paddam of Finity Consulting. We talked of the awareness, commitment and urgency that we see in the Australian market around Environmental issues in particular. 75% of ASX200 companies were committed to or already performing climate reporting – although this number falls significantly when we look at all ASX companies.
From 31st December 2025 large companies will need to submit a Sustainability Report in addition to their Annual Reports. This Sustainability Report will be the opportunity businesses need to demonstrate compliance with regulations. Indeed, Sharanjit referred to it as “the home for ESG disclosures”.
In essence, there are four pillars underpinning the disclosure standards – governance, strategy, risk management, and metrics and targets. And the devil is in the detail.
“You not only have to disclose the financial impacts on your balance sheet today and your income statement today, but also in the short, medium and long-term future,” Sharanjit commented. He added that the ASIC and APRA “want hard numbers to be put in the accounts about how climate change is financially going to affect the operations of the company.”
The purpose of the legislation, we concluded, was to ensure that businesses understand the financial impacts of climate change and allocate capital and make investment decisions accordingly.
Importantly – if Australia is to halve emissions by 2030 – businesses also need to understand their own impact on climate change.
Sharanjit said: “These are mandatory standards – this is locked in, and it will be required to happen over the next few years, and it is intended that these standards will change the economy and they will drive changes throughout the way we do business.”
So, what do organisations need to do?
For starters they will need to harness quantitative data to show far more than what is being done within its operations. Scope three – “emissions indirectly generated by the activities of an organisation” – will be the biggest source of emissions that businesses are required to report on. It will also be the most challenging due to lack of data, methodology and resources.
That’s where tech can help. And businesses like Xceedance can enable insurers to establish systems and workflows for integrating and standardizing data, thereby facilitating timely regulatory reporting.
Organisations impacted by these changes include those that produce accounts under the Corporations Act and that meet any two of the following criteria: consolidated assets more than $25m; consolidated revenue more than $50m; or with 100+ employees. This will inevitably capture larger insurers, underwriting agencies and brokers.
Research from data management firm ESG Book shows that ESG regulation has increased by 155% over the past decade, reflecting the rapid growth of sustainability-based policy interventions. This legislation is the Australian Government’s attempt to force large businesses to take more environmentally-friendly actions and investments.
Our webinar closed with Sharanjit offering this advice to affected businesses: “It’s an opportunity to look at the services that you are providing and … where you could uplift your services in this respect. The things we insure, the things we invest in, are all intended to change as a result of these disclosures, and getting your heads around that quicker than your competition is going to be very important.”
