Failure to implement digital ESG reporting or meet ESG compliance obligations can leave financial services directors walking a tightrope of risk, according to PwC.
Speaking at an event run by tech company Workiva, PwC partner Carolyn Cosgrove, who specialises in ESG reporting, said ESG compliance obligations are the responsibility of company directors and cannot be ignored.
More than 6,000 entities will be required to report under new mandatory government climate-related disclosure requirements in the next few years which will ask businesses and financial institutions to disclose climate-related risks and opportunities.
However, a recent Director Sentiment Index from the Australian Institute of Company Directors (AICD) for the first half of FY24 found 23 per cent are “totally dissatisfied” with their board structures for climate and sustainability reporting, up from 20 per cent in the first half of FY23. Some 44 per cent said they expected the upcoming mandatory climate reporting would affect their business.
The complexity of reporting requirements was the top concern regarding the upcoming mandatory climate reporting, mentioned by 31 per cent of directors.
Cosgrove said directors could be walking a tightrope of risk if they fail to implement digital ESG reporting, she warned. If there was a problem, she stressed ASIC may look to make an example of the firm if it discovers they are intentionally or unintentionally overstating their sustainability action.
The corporate regulator has already taken action against firms including Morningstar, Vanguard, Mercer and Active Super. Earlier this year, it successfully won its first greenwashing case in the Federal Court against Vanguard for misleading claims.
The Federal Court ruled on 28 March that Vanguard broke the law by making misleading claims about certain environmental, social and governance (ESG) exclusionary screens applied to investments in an index fund run by the firm.
Cosgrove said: “Organisations are facing increasingly challenging sustainability reporting requirements, which are getting sharper focus from stakeholders and come with expanded liability for company directors. Leveraging existing skill sets from finance functions, establishing accountability across the organisation and enabling technology solutions will be integral in delivering credible, accurate and timely reporting.”
Speaking this week about the upcoming reporting regime, ASIC commissioner Alan Kirkland said the firms should be already be preparing themselves.
“The time for preparation, though, starts now – and we encourage industry to start thinking seriously about what you need to do today to meet your obligations. This means considering and putting into place the necessary systems, processes and governance practices. It also means thinking about the data you will require – and how you will record it.
“While we welcome and support law reform where it can improve market integrity and consumer protection, we won’t wait for law reform where we see misconduct that breaches existing requirements.”
