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Acting for You, August 2022

By Catherine Maxwell FGIA FCG General Manager, Policy & Advocacy, Governance Institute of Australia

As previously reported to members (Acting for You, July 2022), the International Sustainability Standards Board (ISSB) and the International Accounting Standards Board (IASB) have released draft standards related to sustainability and climate change disclosures for capital markets.

The significance of climate change risk to Australian business is underscored by the fact that Governance Institute has joined a number of other influential Australian business and finance peak bodies to support the introduction of a new climate change reporting regime that aims to set a global baseline. In a joint submission prepared in response to the two exposure drafts we welcomed the draft standards.

 

The peak bodies together represent more than 400 companies, approximately 300 investors with US$33 trillion assets under management, and 500,000 business and finance professionals. The group considers clear, transparent, comprehensive and comparable disclosure of sustainability-related information to be part of the foundation of a well-functioning global financial system.

 

We expressed support for a global approach to the development of sustainability disclosure standards as well as our view that the ISSB should be the global body to issue these standards. We consider the overarching goal should be a globally consistent, comparable, reliable, and verifiable corporate reporting system to provide all stakeholders with a clear and accurate picture of an organisation’s ability to create sustainable value over time.

 

We consider it is critical that the ISSB and other jurisdictions developing sustainability standards take a coordinated approach to avoid regulatory and standard setting fragmentation by aligning key definitions, concepts, terminologies, and metrics on which disclosure requirements are built. For this reason collaboration and coordination between sustainability disclosure initiatives and financial accounting standard-setting is important. We consider the ISSB is best placed to achieve this given its connection to the IASB. The Group noted that climate represents a first order risk to the Australian economy, the financial system and investors and expressed its support for the Paris Agreement and its objective to take into account the needs of a just transition while achieving a net zero emissions economy and resilient Australia.

 

The Group considers, to avoid large-scale financial risks from a disorderly transition to net zero emissions and the physical impacts of climate change, there must be clear and comparable disclosure of sustainability-related and in particular climate related information. The Group has also written to the Treasurer The Hon Jim Chalmers MP to confirm its intention to work with the Australian Government and key national and international stakeholders as the new climate change reporting regime is finalised and introduced over the course of the next 12 months and beyond.

 

Governance Institute has adopted a Policy position on Climate Change and Net Zero and has also recently released a Guide for boards and management on the path to net zero.

We will keep members informed on developments on this important issue.

Director IDs — update

As previously advised to members (Acting for You, February and May 2022) from 5 April 2022, newly appointed first-time directors must apply for their director ID before appointment. A director ID is a unique 15-digit number that directors keep for life, regardless of the organisation they belong to. Approximately 600,00 directors have already applied for their director IDs.

The Australian Business Registry Services (‘ABRS’) is currently identifying newly appointed directors who have not applied for a DIN to make them aware of the obligation and to encourage application. It has advised that initially its focus will be on education and awareness and will support directors who have not applied in time. It is possible to apply for an extension of time using an online application form available on the ABRS website.

 

From 30 November 2022 all directors appointed before 31 October 2021 must apply for their ID. For new Australian based directors this process is usually relatively straightforward and can be carried out online. For new overseas directors this process can take time and this time should be factored into any director appointment process. Directors who are unable to obtain a director ID in time can apply for an extension.

 

We will continue to keep members updated about this issue.

 

Risk management for directors: A guide

This guide has remained one of our most in demand resources since it was first published in 2016. Recent high-profile corporate events where risk management has often been highlighted as a failing, have served as a strong reminder of the importance of board oversight of risk management. The recent global pandemic, with its corresponding impacts on supply chains and its acceleration of new patterns of work and cyber security threats, has also fundamentally challenged how boards identify, mitigate and monitor risk.

Shareholders, investors and members increasingly expect boards to demonstrate and publicly disclose effective oversight of risk management, especially on climate and cyber risks. Public sector entities with boards also face increasing scrutiny from parliaments, ministers, departments, integrity bodies, ombudsmen and auditors general. There is growing recognition that the board’s ability to effectively manage and disclose risk impacts a wider array of stakeholders, including employees and the communities in which organisations operate. The guide aims to equip new, existing and prospective directors to fulfil their duties. It is intended to spark challenging questions in the minds of individual directors and healthy debate around the boardroom table and is designed to assist directors in all sectors.

The updated guide reflects the growth in risk maturity among Australian boards and organisations since its first launch. It also reflects the impact of royal commissions into financial services and aged care and APRA’s prudential inquiry into CBA. The new edition also takes up the challenge in relation to other areas such as culture and non-financial risks including cyber security – areas where the guide has a renewed focus.

Submissions

ISSB/IASB Consultation on proposed standards, 15 July 2022

Media Releases

Governance Institute of Australia welcomes release of major corporate governance report but concerned at underreporting on climate risk and diversity stagnation, 29 June 2022

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