Governance Institute advocates for alignment and flexibility in climate-related financial disclosure standards

In a recent submission to the Australian Accounting Standards Board (AASB), Governance Institute highlighted the need for alignment with international standards and flexibility in implementing climate-related financial disclosure requirements.

Titled Exposure Draft ED SR1 Australian Sustainability Reporting Standards – Disclosure of Climate-related Financial Information, the submission outlines key recommendations aimed at fostering harmonisation and adaptability within the evolving landscape of sustainability reporting.

Governance Institute has called for close alignment with ongoing changes to International Financial Reporting Standards (IFRS) S1 and S2, stressing that it is essential for facilitating comparability and effective risk assessment across global capital markets.

According to Governance Institute’s CEO, Megan Motto FGIA FCG, it’s crucial that the reporting standards cater for all organisations of all sizes.

“Our submission reflects our commitment to ensuring that climate-related financial disclosure standards are not only aligned with international best practices but also flexible enough to accommodate the diverse needs of reporting entities.”

A key recommendation from the submission is the adoption of ‘Option 2’ of the standards, which entails implementing two ASRS (Australian Sustainability Reporting Standards) with consistent requirements for disclosures of governance, strategy, and risk management. This approach not only ensures alignment with international standards but also emphasises the need for flexibility within the standards to accommodate the diverse needs of reporting entities.

The submission also highlighted the need for clear and practical guidelines regarding materiality assessment. Our members have stressed the importance of a clear definition of materiality and guidance on assessing materiality risk in compliance with the Corporations Act. Likewise, the submission proposed limiting the minimum number of scenarios for reporting entities to no more than two, with practical guidance on scenario analysis/reporting, particularly for smaller entity types.

Our members have also expressed concerns relating to executive remuneration disclosure, advocating for clarity and practicality in requirements. Governance Institute recommends abolishing or deferring proposed remuneration disclosure standards due to practical difficulties and lack of clarity, particularly regarding the impact of climate-related considerations on executive remuneration.

As sustainability reporting continues to evolve globally, such recommendations are crucial for fostering transparency and comparability across diverse entities and capital markets.

You can view the full submission by visiting Governance Institute website.