“Phased-in” approach needed for climate-related disclosures, insurers say

The ICA welcomed mandatory climate and sustainability disclosures and said that some members are “already completing voluntary reporting”. It also said it supported jurisdictional alignment on a global scale.

“Clear and comparable disclosure of sustainability and climate-related information is one of the foundational building blocks of a well-functioning global financial system. It is essential that Australia’s climate disclosure regime also aligns,” it said in a consultation paper response.

However, the ICA noted that the cost and capability burden and the existing data gaps require a phased-in approach for climate and sustainability disclosures.

“There is a range of mechanisms that can assist in mitigating risks associated with making these forward-looking statements while climate data and capability gaps persist,” it said. “These include applying safe harbour provisions to forward-looking statements, applying safe harbour for specific categories of Scope 3 emissions, and/or public enforceability only.

“The ICA and its members stand ready to collaborate with the AASB, Treasury, relevant government departments, regulators, and key peak bodies to determine the most appropriate mechanisms, noting the solution must strike the balance of mitigating these material risks for preparers while enabling an appropriate amount of information to be provided to investors to inform their decision-making.”

How to improve the climate-related financial disclosure

The ICA suggested that the mandatory disclosure framework should initially apply to large listed for-profit Australian entities, including global companies with large Australian subsidiaries, and large pension funds or superannuation providers.

Afterwards, the regime should phase in medium and small entities, with the effective date at least two years from the final standards’ release. Therefore, 2025 should be the effective date for large entities.

“This aligns with both the development of the audit standard that the International Auditing & Assurance Standards Board is developing for sustainability reporting assurance and allows time for the development of required measurement methodologies, data collection processes, and adequate resourcing,” the ICA said.

“While 2025 is an appropriate, effective date for mandatory disclosure, early adoption of the standards should be encouraged, noting urgent action is required to transition to a sustainable economy and limit the impacts of global warming.”