ACSI's response to proposed ASIC regulatory guidance on Sustainability Reporting.
Summary position
ACSI welcomes the release of draft ASIC regulatory guidance ('the guidance') for sustainability reporting. We strongly support the introduction of mandatory climate-related financial reporting, its proposed timeframe and phased implementation. Climate change represents a material financial risk that is deeply embedded across the economy. Mandating the disclosure of climate-change related information assists investors' investment analysis, risk assessment, stewardship activities and due diligence processes. We support the introduction of guidance that aims to support consistent and clear reporting, as well as to clarify ASIC's administration and enforcement of the disclosure requirements. We also welcome ASIC's stated intention to release further guidance as the reporting matures. The comments in this submission aim to improve the clarity of ASIC's proposed regulatory guidance.
Expanding guidance to encompass all reporters
ACSI welcomes the guidance, and notes as a general comment that it would be beneficial for further consideration to be given to referencing all types of reporters. In some areas of the guidance, it would be helpful to pull out more specific references to certain types of reporters. As the ISSB Standards were designed for listed companies, additional specific guidance that acknowledges the relevant context, including other regulatory or legislative obligations to which other types of entities may also be subject, would be beneficial. For example, registrable superannuation entities (RSEs) have a legislative obligation to act in their members' best financial interests. Additional clarity could be provided in the guidance by referencing this obligation, such as at RG 000.21 when it refers to "an entity's directors and management acting in the entity's best interests."
Potential unintended consequences should be carefully considered
ACSI understands that the intent of the guidance's focus on reporters to consider the AASB Standards is to support harmonisation of the reporting of sustainability reporting across multiple contexts. While we support the intent, we recommend that careful consideration is paid to the potential for unintended consequences. For example, reporters may interpret the term 'consider, and be informed by,' as requiring any non-mandatory climate-related disclosures to comply with AASB S2. This may act to cause confusion, for example, a perception that AASB S2 compliant disclosure is required within a Product Disclosure Statement (PDS). This is likely inconsistent with the policy intent, which we understand is to require climate-related disclosure at the whole of portfolio level. However, it would be appropriate, where climate-related information is set out in a PDS, for such disclosure to use terminology that aligns with the mandatory climate disclosures at RSE level. ACSI encourages ASIC to clarify its intent for the term 'consider, and be informed by,' within the guidance. For example, if it is to encourage common terminology rather than require AASB S2 compliant disclosures into for example, a PDS, we recommend this be further articulated. It would also be helpful to clarify the intent of the "consider, and be informed by," in relation to AASB S1, which is a voluntary standard. More specific guidance, and examples, of the meaning of "consider, and be informed by," will provide additional comfort to reporters when they are disclosing climate-related information for a range of purposes in different formats and locations.
More practical examples to underpin regulatory guidance would be helpful
In many cases, ASIC guidance focuses on identifying the location of relevant provisions in the AASB S2 standard or referencing the regulatory provisions. The guidance would benefit from providing examples of where practice would not fulfil requirements and cases where it would. One clear instance in which further explanatory guidance would be helpful is for the disclosure of forward-looking statements. The timebound period in which modified liability will be provided underlines the need for clear guidance on what constitutes reasonable grounds. Such guidance is also more likely to help preparers develop their reporting practice. Many organisations already successfully manage any perceived legal risks in respect of forward-looking statements, without the modified liability provisions. Consequently, it would be helpful for ASIC's guidance to specifically cross-reference existing provisions as well as provide guidance that articulates how an entity can provide a reasonable basis for such statements. In particular, guidance should seek to equip reporters to understand how the provisions referred to in RG 000.74 can operate in practice to support compliance, rather than moving immediately to reliance on the modified liability provisions.
Providing hypothetical case studies to illustrate some examples of how reporters may meet the aspects of Appendix D would aid clarity of understanding. It may also be useful to provide case study examples for different types of reporters. Further, it may be that it is ASIC's view that the materials referred to in RG 000.77 could form a 'reasonable basis' for a forward-looking statement to be made, in which case it would be helpful for the guidance to specifically articulate this position. It would also be helpful for the guidance to provide more detail in RG 000.31's comment that the "sustainability reporting requirements intersect with other key requirements in the Corporations Act – many of which are covered by regulatory guidance." For example, it would be useful to note obligations to avoid misleading and deceptive conduct (ASIC Act 12DA and 12DB) and guidance on avoiding greenwashing (Information Sheet 271).
Please see attached detailed responses to consultation questions.
