When it comes to financial sector regulation, Australia is typically a fast follower of other overseas jurisdictions. The most mature Australian organisations are therefore looking at how Europe, the UK and Singapore are implementing the International Sustainability Standards Board’s (ISSB) sustainability disclosures to understand what might be in store. 

Our latest analysis evaluates the breadth and sophistication of disclosure across Australia’s financial services companies. We found that the larger organisations are already disclosing against most of the Australian Accounting Standards Board’s (AASB) proposed new disclosure standards, but are not fully prepared for increased sophistication and depth of disclosure, a key feature of the new regulation.  

What can Australian firms glean from looking overseas? 

There are several benefits to looking at overseas regulation: 

  • International sustainability reporting standards provide sample frameworks from overseas government bodies and regulators or help inform a roadmap for prioritising internal capability uplift.  
  • Multinational firms are often already reporting to these higher standards, and those international insights on best practice will inform what they do in Australia.
  • Firms can get ahead of scrutiny from international investors and other stakeholders - Australian companies’ sustainability disclosures will be scrutinised by an international body of stakeholders, whose expectation of disclosures are shaped by more advanced overseas standards.  

The UK and EU are two examples where this country-by-country variation is evident, and where Baringa has helped clients to both comply and drive commercial value. 

The Transition Plan Taskforce 

In the UK, companies are obliged to detail their net-zero transition plans using a framework defined by the Transition Plan Taskforce (TPT).  Baringa worked closely with the UK’s TPT whose guidance stands out as the gold standard globally. The TPT has three themes – Ambition, Action and Accountability – aiming to ensure that transition plans are science-based, sector-specific and embedded into business’ operational and financial planning processes.  

This additional layer of regulation is intended to supplement the ISSB’s S1 and S2 standards, which both require some degree of transition plan disclosure. 

For Australian firms, the TPT provides a useful framework to support compliance with the proposed AASB standards – which at its heart require quality quantitative climate scenario analysis

The Corporate Sustainability Reporting Directive 

In the EU, the Corporate Sustainability Reporting Directive (CSRD) will require companies to report according to the European Sustainability Reporting Standards (ESRS) – these pre-date the ISSB and are far more prescriptive. Companies must, for example, perform a double materiality assessment, and set transition plans consistent with a 1.5C global warming increase target, in line with both the Paris Agreement and the EU’s net-zero 2050 target. 

For Australian firms, the CSRD should be seen as the high bar of sustainability disclosure, and the likely direction for governments and markets internationally within the next five years.  Strategic capability, such as the ability to perform double-materiality assessments, while not a specified requirement of the ISSB, are in effect required given the need to consider and plan for potential strategic and financial impacts on an organisation through its external activities and impacts. 

What’s next? 

Australian companies should look both inwards and outwards – understanding both the extent of their current operations, and the progress of sustainability disclosure requirements overseas: 

  • Address your imminent obligations: Understand your geographic footprint: corporate structure, balance sheet, profit and loss (P&L) statement and employee numbers. This will inform your in-scope status, and phasing-in period for relevant jurisdictions.
  • Uncover global best practice, and map to your current requirements: Analyse the ISSB’s component parts and be guided by the most ambitious reporting standards of the international community as you set your ambition.
  • Plan your transition: Identify your strategy and pathway to net-zero and build out your business and financial planning processes to embed and support these plans. 

By learning the lessons of overseas jurisdictions, Australia’s companies can more accurately plan for the capability uplifts that will be required to meet Australia’s future disclosure regulations and beyond.  

Find out more by downloading our report Beyond box-ticking or to discuss the points raised in this article, please reach out to a member of the team below. 

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