New mandatory climate disclosure laws critical for investors to navigate the climate transition
Adviser Voice 22/10/2024
"Global index provider Scientific Beta has welcomed new Australian laws which will force large organisations including financial institutions to adopt mandatory climate disclosures.
ASIC has urged businesses to prepare for this mandatory climate reporting (24 – 205MR)[1] and says climate disclosures will grow in importance as more people consider environmental sustainability when making financial decisions.
From 1 January 2025, many large Australian businesses and financial institutions will need to prepare annual sustainability reports containing mandatory climate-related financial disclosures, following the recent passage of a major bill through Parliament. The legislation regulates how large businesses, and financial institutions report on climate-related risks and the integration of these risks into their decision-making processes.
From 1 January 2016, the new laws will apply to asset owners with more than $5 billion in assets under management, including superannuation funds. The law brings Australia into line with global reporting frameworks and boosts transparency on climate disclosures in the boardroom and on balance sheets.
“The new mandatory corporate climate reporting laws being introduced by the Australian government are a key step towards improving transparency and capital allocation in financial markets, in a context where investors have much to lose from climate change,” said Daniel Aguet, Deputy CEO and Index Director of Scientific Beta.
“Investors are right to be very concerned by the impact of climate risk on equity valuations. Analysis conducted for Scientific Beta-EDHEC Research Chair indicates that over 40% of global equity value is at risk if decarbonisation efforts do not accelerate, with losses exceeding 50% when climate tipping points are factored in. Prompt and robust action by regulators and companies is needed to keep losses below 10%,” Mr Aguet said.
“We welcome the action by the Australian government to bring local laws into line with those already in place in the UK, New Zealand, and the EU. When investing in assets that are at risk of significant loss from climate impacts and policies, investors need improved corporate disclosures to understand which companies are most at risk, and which stand to benefit.
“Now, with better corporate reporting that will be brought about by these new laws, investors can also more accurately steer their capital towards those companies making the most efforts to transition, and to those offering climate solutions.”
Mr Aguet said ASIC is right to stress the importance of improved corporate climate disclosures that the new laws bring. “Communicating standardised and publicly available raw data straight from the source is far more useful for investors than opaque, proprietary scores on ESG ratings from data vendors. Indeed, research from Scientific Beta has shown that ESG scores diverge significantly from one provider to another, and are largely unreliable,” Mr Aguet said."
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New mandatory climate disclosure laws critical for investors to navigate the climate transition
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