Australia | Publication | June 2023
This article was co-authored by Simran Chawla and Dewy Sacayan.
On 13 June 2023, ASIC Chair Joe Longo delivered an exciting, forecasting speech at the Committee for Economic Development of Australia State of the Nation Conference. This followed a similar speech he delivered on 5 June 2023. Both speeches highlighted the extraordinary changes faced by the financial and corporate sectors as they embrace and prepare for the “megatrends” of ESG and the ever-changing requirements of ESG financial reporting and disclosure standards. Is your organisation ready for the coming changes?
ESG has become an absolute priority for Australian investors and companies. The priority given to ESG is in part driven by a change in societal expectations, but is also linked to demands from investors and stakeholders and a need to respond to the increased regulatory and disclosure requirements. A strong approach to ESG is also increasingly a requirement to attract and retain both customers and employees.
Mr Longo described it in these terms:
“ESG is not a trend. Nor is it about burdening companies with bureaucracy or shareholders with less-than-optimal returns.
It’s not a question of ‘shareholder returns or ESG’, but of ‘shareholder returns with ESG’… it’s a question of fair and efficient markets, and of confident investment.
ESG reporting is simply the next stage in a long series of important moves towards greater transparency and higher disclosure standards. Moves that benefit us all, from the consumer to the investor, to companies themselves – to say nothing of the planet.”
The regulatory environment is shifting to reflect this, with the Australian regulator’s crackdown against behaviours that are contrary to the objectives of ESG as a whole. Greenwashing is a prime example. Mr Longo made it clear that “ASIC will not overlook current misconduct – including greenwashing – because of the continuing developments in ESG. This is obviously not negotiable.”
Mr Longo’s comments are telling of the fact that conduct constituting greenwashing or non-compliance with ESG standards represent the biggest risks to Australian businesses in this new ESG landscape.
The rise of ESG is happening and at pace. As Mr Longo put it, “The signal is clear: major, transformational change has begun. And we all need to be ready”.
Amid the many forces of change, one which Mr Longo highlighted was the Taskforce on Climate-Related Financial Disclosures (TCFD) framework, which has been an impetus for transformation across business in relation to climate change disclosures. Last year, the Treasury released a consultation paper regarding the introduction of mandatory TCFD reporting. Mr Longo highlighted that ASIC encourages voluntary reporting under the recommendations of the TCFD and noted further standards are coming:
“Firms should be well advanced in embedding robust corporate governance practices ahead of more rigorous reporting requirements that are imminent in the standards being released by the ISSB in two weeks. These ambitious standards will require companies to adopt a systematic approach to collecting and analysing data across the company itself, and its supply chains. Preparation for that should be starting now.”
He also highlighted the work of the Taskforce on Nature-related Financial Disclosures (TNFD), which comes hot on the heels of climate related disclosures. Read more about the TNFD here: Biodiversity and nature in the spotlight | Global law firm | Norton Rose Fulbright.
The question remains as to whether business is beginning the “preparation” that Mr Longo is calling for quickly enough and whether organisations’ current governance is adequately robust. Compliance with “ambitious standards” requires a deep understanding of the market’s legal and regulatory objectives and their effective implementation and incorporation in a manner consistent with ASIC’s vision. Equally important is complying with industry standards in a way that complements an organisation’s commercial strategies and interests.
Preparing for these disclosures provides the prime window of opportunity for organisations to have a real shift in governance mindset when it comes to their business, their value chain, and expectation on directors’ duties in relation to ESG and climate change.
“This is the challenge of the changing face of ESG: to respond, to renew, and to improve. And we begin by making ourselves ready today”.
As we reflect on Mr Longo’s speeches and the need to be prepared and ready to embrace the changes in ESG generally and in ESG reporting specifically, we believe that for companies to adequately respond to these changes, now is the time to invest in more advanced governance and technological frameworks as well as to renew and improve existing strategies that respond to ESG, including for climate change and nature. Similarly, with the greater regulatory focus on greenwashing, now may be a good moment to review all commitments and public disclosures and ensure that they are substantiated and compliant with the Australian Consumer Law.
Our ESG and Risk Advisory practices have worked together with many of our clients to navigate these upcoming changes and ensure their ESG strategy is fit for purpose. We offer a full range of ESG services, including in relation to climate change, carbon markets, biodiversity and net zero, supply chains, sustainable finance, disclosures and corporate reporting, M&A transactions, governance and business ethics, litigation and greenwashing risk mapping and mitigation and support in contentious ESG disputes.
The need for informed, professional and commercial legal guidance in this area has never been greater. As one of the world’s largest corporate law firms we can help you be ESG ready. Reach out if you need assistance with your ESG transition or find more about our ESG services on our website: Environment, social and governance (ESG) | Australia | Global law firm | Norton Rose Fulbright.
Click here to read a full copy of Mr Longo’s speech of 13 June 2023: ESG: Major change is underway, and we need to be ready | ASIC and here for the speech of 5 June 2023 ASIC Chair’s AFR ESG Summit speech | ASIC.
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