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Better reporting to drive climate-change mitigation: CBA

The report said there was a significant increase in demand from global investors for climate-related information, along with a push from global regulators to mandate corporate reporting on climate risks.One emerging global standard, called the Taskforce on Climate Related Financial Disclosures, had won widespread support from the private sector, with more than 2600 organisations around the world supporting the framework as of last October.In 2020, a record 80 ASX200 companies had adopted the TCFD framework for climate risk reporting.A further 34 companies had either committed or were reviewing the framework – the preliminary steps to issuing their own TCFD disclosures.“Support for the TCFD framework has accelerated rapidly both in Australia and abroad, with the number of companies that have endorsed TCFD recommendations increasing by more than four times over the 2017-2020 period,” said CBA economist Carol Kong, who authored the report.“The rapid uptake of climate reporting has come despite the fact that many jurisdictions, including Australia, have not made this type of reporting mandatory.“Instead, companies are choosing to improve their financial and risk disclosures to meet the strong interest from stakeholders, including investors, employees, business partners and customers.”Ms Kong said a shift to mandatory reporting could come with compliance costs.However, voluntary uptake of the disclosures was likely to continue without regulatory action.Businesses capable of demonstrating achievement of predetermined sustainability performance indicators and targets could potentially be rewarded with a lower cost of funding.Reliable and transparent information enabled financial markets to properly price risks and opportunities associated with sustainability issues.Capital would therefore be allocated to sectors and companies capable of delivering better sustainability outcomes.The IFRS Foundation, which has developed and promoted international accounting standards, indicated at the Glasgow climate summit late last year that it would build on the work of the TCFD while developing its first climate standard.The Australian Securities & Investments Commission recommended before Glasgow that companies facing big climate risks should consider reporting under the TCFD framework.It said voluntary adoption of TCFD reporting by some larger listed companies had materially improved standards of climate-related governance and disclosure.“However, there remains a way to go, and challenges remain for both users and preparers of TCFD disclosure,” ASIC commissioner Sean Hughes said.“This is particularly the case with certain elements of the TCFD framework, including scenario analysis and physical risk disclosures.”Ms Kong said roughly half of ASX200 companies reported on scope 1 emissions occurring from sources controlled by the organisation, such as owned facilities and vehicles, as well as scope 2 emissions – the indirect emissions linked to the purchase of electricity, steam or cooling.However, only half of those companies contracted an independent third party to audit or verify their reported emissions.Scope 3 emissions, which come from sources outside of the company’s control such as from suppliers, were more challenging for companies to reportThe key challenge, according to the report, was accessing relevant data. However, as more companies lifted scope 1 and scope 2 reporting, the growing trove of climate-related information would make scope 3 reporting more attainable.As companies dug deeper into their suppliers’ data, they were more likely to partner with their suppliers to find ways to drive down emissions.“We expect more Australian businesses will introduce or reassess their emissions reduction targets, and in particular, we anticipate more companies to set targets that meaningfully address scope 3 emissions as market-wide emissions accounting and reporting improves,” Ms Kong said.

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