Australia will soon legislate climate-related financial disclosures. In 2024, Treasury released draft legislation, largely based on the ISSB standards in 2023. These International Financial Reporting Standards on sustainability related (S1) and climate related (S2) reporting detailed what you must disclose to comply with IFRS. We’ve explored why they’re important, how they will transform ESG reporting.
With a closer look at each of the categories, here we consider implications on Risk Management.
You must detail risks when disclosing your strategy. You must explain how you came to include those risks - what’s your assessment process? And how well does your team’s risk assessment process compare to risk assessment across the rest of the company?
On the subject of risk management, S2 is more detailed than S1, so we focus on S2 here. You’ll need to be able to indicate:
There’s a lot of detail here. If someone on your team has written (or read) the methods section of a scientific article before they’ll understand that describing your practices so that they can be replicated isn’t an easy task. You need to be documenting references, making any code or scenario analysis you’re producing reproducible and understandable, and providing a well-reasoned explanation for your decision making at every step of the process.
Someone reading your sustainability and climate reports needs to see that is supported by sufficient explanation. That your strategy for dealing with risk is based on a well thought-out and informed methodology. Demonstrate you’re not just inventing numbers based on sloppy assumptions.
In contrast to governance and strategy where you could arguably get by with consultation and hard work, Risk Management requires more specialist knowledge. Make this a hiring priority. For a brief look at different climate scenarios and effects on supply chain and manufacturing, see these example IPCC reports, specifically summaries for Policymakers.
To develop your existing Risk Management team’s capability into climate topics, you can embark on training, experienced hires, and utilise external support and tools and platforms.
To learn more, get in touch with the Getting to Zero team. We can get you started on making sure your risk assessment is ready to disclose when it becomes essential to do so.
1. What is the status of climate-related financial disclosures in Australia? Australia is moving towards legislating climate-related financial disclosures, with Treasury releasing draft legislation in 2024 largely based on ISSB standards from 2023. These standards, including International Financial Reporting Standards (IFRS) S1 and S2, outline mandatory disclosures for compliance with IFRS.
2. How do these disclosures impact Risk Management? Climate-related disclosures require organisations to detail risks within their strategy, including assessment processes and comparisons to company-wide risk assessments. The focus here is on IFRS S2, which requires detailed information on climate scenarios, data sources, risk assessment methods, monitoring, and changes over time.
3. Why is detailed disclosure important for Risk Management? Detailed disclosure ensures that strategies for managing climate-related risks are well-founded and informed. It demonstrates a commitment to robust methodologies and informed decision-making, rather than relying on assumptions.
4. How can organisations build capacity for climate-related Risk Management? Building capacity involves prioritising specialist knowledge within Risk Management teams through training, experienced hires, and utilising external support, tools, and platforms. This ensures readiness for essential disclosures.
5. How can I learn more about climate-related risk assessment and disclosure? For further insights and assistance in preparing for climate-related risk disclosure, reach out to the Getting to Zero team. We can provide guidance on developing your risk assessment methodologies and ensuring compliance with upcoming disclosure requirements.
