Countries are mandating climate-related financial disclosures

Is Australia next?

Written by Clare De Silva
Reviewed by Duncan Redden, Dr Craig Blundell, Owen Morrison, and Felipe Avancine

24 July 2022

Large organisations have seen massive changes in recent years: understanding and acting on the effects of climate change are just one of these transformations. As the effects of climate change interfere with the stability and safety of assets both now and in future, stakeholder pressure is continuing to build on companies to act – particularly multi-national and financial institutions. Climate-related financial disclosures have thus emerged with particular focus on climate risks.

Central banks have been assessing the risks that climate change has on the stability of the economy of its jurisdictions. If banks, funds and large companies are affected by physical or transitional risks, it could become a significant threat to the national and global financial system.

With the mammoth scale of this challenge recognised, Michael Bloomberg founded The Task Force for Climate Related Financial Disclosures (TCFD). This framework aims to evaluate and disclose the associated climate risks intrinsic to certain organisations. The task force has rapidly become the central and trusted system for climate disclosures across the world, with multiple nations now implementing mandates using the TCFD or similar frameworks.

More and more countries are getting on board – with nations such as the United States, Mexico, South Africa and Switzerland announcing commitments to introducing mandatory reporting on climate risks to major sectors of their economy. See below the countries which have already implemented mandates.

  • New Zealand:
    New Zealand has led the pack with “comply or explain” rules around TCFD reporting. By 2023, TCFD-aligned reporting will be mandatory for major players in the financial industry – accounting for 200 companies.
  • United Kingdom:
    By April 2022, 1,300 of the UK’s largest businesses were required to include statements on climate risks in their annual financial reporting.
  • European Union:
    In April 2021, the European Commission proposed a Corporate Sustainability Reporting Directive (CSRD) that would amend existing reporting requirements.
  • Japan:
    Similar to the UK, April 2022 was the deadline for 4,000 large businesses to disclose climate risks.
  • Brazil:
    Focusing on the banking sector, the Central Bank will mandate inclusions of climate-related risks in their stress tests. This will be required for all banks by July 2022.
  • Hong Kong:
    By 2025, listed companies and financial institutions will be required to disclose climate risks in their reporting.
  • Singapore:
    As with the other countries mentioned, financial institutions are in the spotlight, with all banks, insurers, and asset managers required to align their reporting with TCFD in June 2022.

So, is Australia next?

The Australian Prudential Regulation Authority (APRA) and the Reserve Bank of Australia (RBA) released a joint statement, announcing both bodies consider it best practice for any disclosures to be produced in line with the framework established by the TCFD.

In mid-2021, the Investor Group on Climate Change, Carbon Disclosure Project (CDP) and Principles for Responsible Investment (PRI) released a plan for mandating TCFD-aligned disclosures in Australia. The plan noted that although similar reporting practices are increasing in Australia, the lack of mandates have slowed its adoption and the economy is already hurting as a result. The plan proposed a framework for implementing the mandate by 2025, involving legislative changes and clearer guidelines from major Australian regulatory bodies. Additionally, the current ASX Corporate Governance principles and recommendations state that “a listed entity should disclose whether it has any material exposure to environmental or social risks and, if it does, how it manages or intends to manage those risks. Where those risks include climate-related risks, consideration of the TCFD recommendations is encouraged.” So, even within the current structure of the ASX TCFD is recommended, it is yet to be mandated.

Regardless of when or if the mandate is implemented in Australia, in a globalised world it is clear the bottom line is that all businesses will be impacted by climate change. The TCFD framework provides legitimacy to the claims that companies make regarding their sustainability plans. With greenwashing announced as one of the Australian Competition & Consumer Commission (ACCC)’s priorities in 2022, it’s imperative for organisations to be on the front foot with reporting, evidence and due diligence to legitimise marketing and communications strategies.

Aligning to the TCFD will benefit not only investors, but the workforce, and the future of many companies. Acting now can ensure the longevity and stability of a range of businesses. Pangolin Associates provide advisory services for businesses aligning their reporting with TCFD requirements. Get in touch today to start understanding the risks to your business and how to act.


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