Climate-related risk a key director responsibility: ASIC

The Australian Securities and Investments Commission (ASIC) has outlined that managing climate-related risk is a key director responsibility.

ASIC wanted to ensure that listed companies that appropriate governance structures in place and that they would provide the market with information on climate-related risks and opportunities.

Writing for AICD Company Director magazine, commissioner Cathie Armour said the regulator began examining companies in the first half of 2019-20 across a variety of industries. It found evidence of board oversight of climate risk had led to material improvements in standards of disclosure.

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If climate risk was a material risk then that could affect the company’s achievement of its financial performance.

ASIC would monitor the adoption of Financial Stability Board’s Taskforce for Climate-related Financial Disclosures (TCFD) and the development of climate-risk disclosure practices by companies.

It would also consider enforcement action if there were serious disclosure failures.

She shared four recommendations for companies to improve their climate-change disclosures:

  1. Consider climate risk
    Directors and officers of listed companies need to understand and continually reassess existing and emerging risks that may be applicable to the company’s business, including climate risk. This should extend to both short- and long-term risks. Boards should ask if they have considered climate risk in their decision-making process.
  2. Develop and maintain strong and effective corporate governance
    Strong governance facilitates better information flows within a company and facilitates active and informed engagement and oversight by the board in identifying and managing risk. Boards should consider if they are comfortable with the level of oversight they maintain over climate risks and opportunities and the governance structures in place to assess, manage and disclose these risks and opportunities.
  3. Comply with the law
    Directors of listed companies should carefully consider the requirements relating to operating and financial review (OFR) disclosures in annual reports under s299(1)(a)(c) of the Corporations Act 2001. ASIC considers that the law requires an OFR to include a discussion of climate risk when it is a material risk that could affect the company’s achievement of its financial performance. Depending on the circumstances, disclosure of climate risk may also be required by the law in other contexts, such as a prospectus or continuous disclosure announcement. Boards should ask if material climate-related disclosures have been made and updated where necessary and appropriate.
  4. Disclose useful information to investors
    The voluntary disclosure recommendations issued by the TCFD are specifically designed to help companies produce information useful for investors. ASIC recommends listed companies with material exposure to climate risk consider reporting under the TCFD framework.

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