Australian regulators welcome global sustainability standards push

Australian regulators have largely supported the announcement made at the Glasgow UN COP26 Global Summit on Climate Change that the International Financial Reporting Standards Foundation will establish an International Sustainability Standards Board (ISSB).

The formation of the board is a major global development that is expected to see the consolidation of various, competing sustainability frameworks into a single, well-accepted model. Such a step will be welcomed by investors and directors alike, who have complained about the current lack of consistency and comparability.

Shortly prior to Christmas, ASIC issued a press release in which Commissioner Cathie Armour welcomed the establishment of the ISSB. “The establishment of the ISSB is a major step in setting global sustainability standards and addressing climate risk. ASIC supports the ISSB giving priority to a standard on climate-related disclosures. Consistent, comparable and relevant information is critical to fully informed decisions by investors,” she said.

The welcoming of the ISSB by ASIC follows similar moves by standard setting bodies such as the Australian Accounting Standards Board (AASB) and the Auditing and Assurance Standards Board (AUASB) as well as the body that oversees them, the Financial Reporting Council.

These bodies have issued a position statement where they outline an approach by which the AASB intends to develop a voluntary reporting approach for sustainability-related information, simultaneously with the relevant assurance standards developed by the AUASB. They propose that this should occur under their auspices, rather than via a separately established body at this time.

APRA has not commented on the ISSB proposal. However, it has recently released a Prudential Practice Guide on Climate Change Financial Risks. This essentially incorporates the Taskforce for Climate-related Financial Disclosures (TCFD) framework into the risk management framework of APRA-regulated entities and the TCFD is expected to underlie the first climate-reporting standard to be released by the ISSB.

The statements by regulators and standard-setters will provide further encouragement for the Australian government to locally adopt the ISSB standards when they are released. This, however, will ultimately be a decision for the government to make. The AICD will continue to engage with members, regulators and government on this topic over the course of 2022.

Directors seeking further support on climate governance matters can access  guidance and resources from the Climate Governance Initiative Australia here.  The Climate Governance Initiative Australia is hosted by the AICD, in collaboration with expert partner bodies, and is committed to lifting practice in this important area.