DRAFT

Climate risk disclosure by
Australia’s listed companies
September 2018

Report 593
About this report
This report contains our key observations and findings from a surveillance project examining climate risk disclosure by listed companies
in Australia. It sets out some high-level recommendations relating to the consideration and disclosure of climate risk.

REPORT 593: Climate risk disclosure by Australia’s listed companies

About ASIC regulatory documents
In administering legislation ASIC issues the following types of regulatory
documents.
Consultation papers: seek feedback from stakeholders on matters
ASIC is considering, such as proposed relief or proposed regulatory
guidance.

Disclaimer
This report does not constitute legal advice. We encourage you to seek
your own professional advice to find out how the Corporations Act andother applicable laws apply to you, as it is your responsibility todetermine your obligations.
Examples in this report are purely for illustration; they are not exhaustive
and are not intended to impose or imply particular rules or requirements.

Regulatory guides: give guidance to regulated entities by:•explaining when and how ASIC will exercise specific powers underlegislation (primarily the Corporations Act)•

explaining how ASIC interprets the law•

describing the principles underlying ASIC’s approach•giving practical guidance (e.g. describing the steps of a process
such as applying for a licence or giving practical examples of how
regulated entities may decide to meet their obligations).

Information sheets: provide concise guidance on a specific process orcompliance issue or an overview of detailed guidance.
Reports: describe ASIC compliance or relief activity or the results of a
research project.

© Australian Securities and Investments Commission September 2018

Page 2REPORT 593: Climate risk disclosure by Australia’s listed companies

Contents

Overview

Overview ................................................................................................... 3

Climate change is a foreseeable risk facing many listed companies in theAustralian market in a range of different industries. Directors and officersof listed companies need to understand and continually reassess existingand emerging risks (including climate risk) that may affect the company’sbusiness. This extends to both short-term and long-term risks.

Background ............................................................................................... 5
Climate risk disclosure by ASX 300 .......................................................... 7
Climate disclosure in annual reports and prospectuses ........................... 9
ASIC’s high-level recommendations ....................................................... 12
Appendix: Accessible versions of figures ................................................ 13

Listed companies should provide meaningful and useful risk disclosure toenable investors to make fully informed decisions. In some cases, theCorporations Act requires listed companies to disclose material businessrisks.
We conducted a review of climate risk disclosures:•by 60 listed companies in the ASX 300•

in 25 recent initial public offering (IPO) prospectuses•

across 15,000 annual reports.

This report sets out our findings and high-level recommendations forlisted companies and their directors and advisers on climate risk
disclosure.

‘Australia’s changing climate represents a significant
challenge to individuals, communities, governments,
businesses, industry and the environment. Australia has
already experienced increases in average temperatures
over the past 60 years, with more frequent hot weather,fewer colder days, shifting rainfall patterns and rising sea
levels. More of the same is expected in the future.’
Commonwealth Scientific and Industrial Research
Organisation (CSIRO)© Australian Securities and Investments Commission September 2018

Page 3REPORT 593: Climate risk disclosure by Australia’s listed companies

Key findings on climate risk disclosure
17% of listed companies in our sample identified climate risk as amaterial risk in their operating and financial reviews (OFRs).

Key recommendations for listed companies
Consider climate risk
Directors and officers of listed companies should adopt a
probative and proactive approach to emerging risks, including
climate risk.

General (as opposed to specific) risk disclosure is not useful forassessing climate risk exposures.

Fragmented climate risk disclosure practices make comparisonsdifficult.

The majority of the ASX 100 companies in our sample had, to someextent, considered climate risk to the company’s business.

Develop and maintain strong and effective corporate
governanceStrong and effective corporate governance helps in identifying,assessing and managing material risks.

Comply with the law
Section 299A(1)(c) requires disclosure of material business risks
affecting future prospects in an OFR, which may include climatechange: see Regulatory Guide 247 Effective disclosure in an
operating and financial review (RG 247).

Disclose useful information to investors
There is limited climate-risk-related disclosure outside of the ASX
200.

Specific disclosure is more useful than general disclosure. The
voluntary framework developed by the TCFD may help listedcompanies in considering how to disclose material climate risks
and what type of information to disclose.

A number of listed companies in our sample intend to adopt therecommendations (either in full or in part) of the Task Force on
Climate-related Financial Disclosures (TCFD).

© Australian Securities and Investments Commission September 2018

Page 4REPORT 593: Climate risk disclosure by Australia’s listed companies

Background
What is climate risk?
The TCFD divided climate-related risks into two main categories, risks
related to the transition to a lower-carbon economy and risks related tothe physical impacts of climate change:•

Transition risks – transitioning to a lower-carbon economy may
entail extensive policy, legal, technology and market changes toaddress mitigation and adaption requirements related to climatechange.

•Physical risks – physical risks resulting from climate change canbe acute or chronic. Acute physical risks refer to those that are
event-driven, including increased severity of extreme weather events,
such as cyclones or floods. Chronic physical risks refer to longerterm shifts in climate patterns (e.g. sustained higher temperatures)that may cause sea level rises or chronic heat waves.

Recent developments
Final report issued by the TCFD
In 2016, the G20 Financial Stability Board established the TCFD, an
industry-led task force, to help identify the information needed byinvestors to appropriately assess and price climate-related risks andopportunities. The TCFD released its Final report: Recommendations of
the task force on climate-related financial disclosures (PDF 2.77 MB) in
June 2017 which set out a framework for voluntary, consistent climaterelated financial disclosures that would be useful for investors, lenders
and the market generally.

© Australian Securities and Investments Commission September 2018

A number of listed companies have recently indicated that they intend tocommence disclosing climate risk under the TCFD framework (either infull or in part), including, in some cases, adopting the framework’s
scenario analysis.
Australian Government response to climate risk disclosure and
TCFD
In 2017, the Senate Economics References Committee released theCarbon risk: a burning issue report (Senate Report) which acknowledgedthat the risks associated with climate change present material risks toAustralian businesses. The report also highlighted the importance ofadequate climate risk disclosure for investors and set out a number ofrecommendations around climate risk disclosure, including around theimplementation of TCFD reporting.
In March 2018, the Australian Government issued a Government
response. The Government welcomed the final report of the TCFD andencouraged stakeholders to carefully consider its recommendations. The
Government also suggested that ASIC should consider its high-levelguidance on disclosure to ensure it remains appropriate.

Law and policy
Operating and financial review (OFR)
The Corporations Act requires listed entities to prepare a directors’ reportas part of their annual reporting requirements: see s292(1). The directors’
report must contain information that shareholders would reasonably
require to make an informed assessment of the entity’s operations,financial position and business strategies, and prospects for futurefinancial years: see s299A(1)(c).

Page 5REPORT 593: Climate risk disclosure by Australia’s listed companies

RG 247 states that it is likely to be misleading to discuss prospects for
future financial years without referring to the material business risks that
could adversely affect the achievement of those prospects. This includes
climate risk.

Climate risk is front of mind

48%

Disclosure documents
In Australia, most offers of securities to retail investors require a
disclosure document, which is commonly called a prospectus. A
prospectus must contain all the information that investors and theirprofessional advisers would reasonably require to make an informed
assessment of the assets and liabilities, financial position, andperformance and prospects of the company that is to issue the securities:
see s710.
In Regulatory Guide 228 Prospectuses: Effective disclosure for retailinvestors (RG 228) we state that a prospectus must disclose the risks
associated with a company’s business model and explicitly cite both
environmental and regulatory risk as key categories of risk to beconsidered by persons preparing a prospectus.

40%

of Australian CEOs surveyed by KPMG for its 2018
Global CEO outlook: The Australian perspective report(PDF 1.39 MB) considered environmental/climate change
risk as a risk to their organisation’s growth.
of Asia Pacific CEOs responding to PwC’s 21st CEO
survey: The anxious optimist in the corner office(PDF 1.08 MB) reported that they were ‘extremely
concerned’ about the threat posed by climate change andenvironmental damage to their organisation’s growthprospects.

The World Economic Forum’s The global risks report 2018: 13th edition(PDF 8.34 MB) cited failure of climate change mitigation and adaptation as a
top five global risk in terms of likelihood and impact, and warned of thedepth of interconnectedness between environmental risks and other risks.

Voluntary disclosures
A significant volume of climate change and climate-risk-related disclosure
is provided by listed companies on a voluntary basis, outside of statutory
disclosure. Disclosure under the TCFD recommendations, the Carbon
Disclosure Project (CDP), and environmental, social and governance(ESG)/sustainability policies are examples of voluntary disclosures. The
Senate Report provides comprehensive analysis of the various
disclosure frameworks.

© Australian Securities and Investments Commission September 2018

Page 6REPORT 593: Climate risk disclosure by Australia’s listed companies

Climate risk disclosure by ASX 300
Which entities did we look at?
We selected a sample of 60 ASX listed companies from the largest
300 companies by market capitalisation as at 31 December 2017.
We chose a range of different sized companies from within the top
300 companies: 20 companies from the top 100 companies by market
capitalisation, 20 companies ranked between 100 and 200 by market
capitalisation, and 20 companies ranked between 200 and 300 by market
capitalisation. We selected companies which operate across a wide
variety of industry sectors rather than just focusing on industry sectorsthat might be subject to more direct or obvious exposure to climate risk.
Each grouping of 20 companies contained a similar proportion of entities
from each industry sector.

What did we look at?
We reviewed disclosures in the company’s most recent annual report(excluding 2018 annual reports), including the directors’ report and the
OFR, the company’s most recent corporate governance statement, and,if applicable, any sustainability report and/or public climate change policy
issued by the company.
First, we focused on whether climate risk had been specifically identified
as a material business risk in the OFR (and, if so, how the risk wasdisclosed). Second, we holistically looked at the climate risk disclosure
provided by each of the target companies in the reviewed documents.

How did we define climate risk disclosure?
We focused on the presence of any explicit climate risk disclosure(i.e. specific disclosure on physical or transition risks and/or related
climate metrics and targets). We did not consider very general disclosureon ‘environmental risks’ or ‘regulatory risks’.

What did we find?
Table 1 summarises the findings of our surveillance work and highlights
the main vehicles for the dissemination of climate risk disclosure used by
the companies we reviewed.
Table 1: Climate risk disclosure vehicles used by the ASX 300
ASX 1–100

ASX 101–200

ASX 201–300

20 companies
reviewed

20 companies
reviewed

20 companies
reviewed

Material risk in theOFR

8 (40%)

1 (5%)

1 (5%)

Annual report,
including integrated
reports (excludes theOFR)

16 (80%)7 (35%)

6 (30%)CDP

14 (70%)5 (25%)

2 (10%)

ESG, sustainability or
climate policy

11 (55%)9 (45%)

3 (15%)

Disclosure vehicle

Note: The table above does not set out all disclosure vehicles we identified but rather themost common and relevant for our purposes. We excluded corporate governancestatements because, in most cases, these cross-referenced the other sources identified.
Some companies disclosed across multiple vehicles.

© Australian Securities and Investments Commission September 2018

Page 7REPORT 593: Climate risk disclosure by Australia’s listed companies

commentary and detailed discussion may have helped users of thedisclosure better understand the nature and potential consequencesof the relevant risk: see paragraph 64 in RG 247.

Fragmented disclosure practices•••

Many listed companies provided voluntary climate risk and climatechange-related disclosure to the market (i.e. beyond statutory
disclosures). In some cases, this disclosure comprised a form of
narrative disclosure in the annual report (separate to the OFR), a
separate ESG report or climate change policy, or was part of a
submission to the CDP. A number of companies in our sample
reported greenhouse gas emissions and energy production andconsumption under the National Greenhouse Energy Reporting Act
2007.

We observed that the majority of companies in the ASX 100 sample
had considered climate risk in some manner (e.g. 70% of thosecompanies provided disclosure through the CDP). This was less sofor companies in the middle and bottom groupings of our sample
given that, in a number of those cases, we were unable to locate any
express disclosure indicating that climate risk had been considered.

The wide range of vehicles used to convey climate risk disclosure,and the varying forms that disclosure takes, limits the utility of that
information for users of the disclosure, particularly those users
seeking comparable data across industries or companies. The
materials we reviewed highlighted the fragmented and inconsistentnature of disclosures across our sample. For example, for somecompanies, we were required to consider multiple sources of
information to piece together a full picture of the relevant company’s
climate risk exposure.

Classification of climate risk

Our review also indicated that many disclosures were too generaland not comprehensive enough to be useful for investors. For
example, isolated, high-level statements such as (the paraphrased)‘we have considered the impacts of climate change on our business’
do not provide investors with any meaningful insight as to the depth
or extent of that consideration.

•

Some disclosures we reviewed combined climate risk disclosure withbroader climate-change-related disclosure (such as company
position statements on climate change or broader environmental
policies). This was particularly the case for some ESG reports or
specific climate change policy documents.

•

In some of these instances, we found it difficult to clearly identify theactual risks to the relevant company’s business model, strategy andprospects from the broader climate-change-related backgroundinformation.

OFR disclosure••

Only 10 (or 17%) of the listed companies selected explicitly identified
climate change or climate risk as a material business risk in the OFR.
For these companies the relevant disclosure was consistent with therequirements in RG 247 – although, in some cases, more analytical© Australian Securities and Investments Commission September 2018•

A recurring observation from our entity-level surveillance was theabsence of any broadly consistent approach to defining climate risk
or classifying its component parts. It was often difficult to discern
whether general references to climate change risk related to physicalor transition climate risks or both.

Climate risk disclosure versus climate-related disclosure

Page 8REPORT 593: Climate risk disclosure by Australia’s listed companies

Climate disclosure in annual reports
and prospectuses

Figure 1: Percentage of annual reports of all listed companies
containing ‘climate change content’ (2011–2017)22%
19%

Annual reports: What did we do?

17%

16%

15%

We undertook a high-level review of the prevalence of climate risk andclimate-change-related content in annual reports for all listed companies
for the calendar years 2011 to 2017 (inclusive). We searchedapproximately 15,000 reports and analysed the aggregated results
across listed companies over time and by market capitalisation.
We defined ‘climate change content’ as a reference to any of thefollowing key terms: climate change, global warming, carbon emission,greenhouse gas, climate risk or carbon risk.
This is a relatively simplistic approach which did not involve assessing
the context within which our key terms were used. Our analysis was notdesigned to produce qualitative conclusions but rather to provide highlevel insight into the prevalence of express disclosure on climate-changerelated topics in listed company annual reports.

2011

2013

2012

2014
Year

2015

14%

14%

2016

2017

Note: See Table 2 in the appendix for the data shown in this figure (accessible version).

Figure 2: Percentage of annual reports containing ‘climate change
content’ (2011–2017): ASX 300 companies versus non-ASX 300

47%

44%
39%

Annual reports: What did we find?

39%

39%

42%
38%

ASX 300

Generally low levels of ‘climate change content’ in annual reports
18%

We found that few companies included ‘climate change content’ in theirannual reports (only 14% of annual reports in 2017 mentioned our key
terms): see Figure 1.
We suspect that higher rates of inclusion of ‘climate change content’ inannual reports in the earlier part of this decade may be because oftransition climate risk at that time in the form of legislative change under
the Clean Energy Act 2011 (Cth).

© Australian Securities and Investments Commission September 2018

2011

15%

2012

Non-ASX 300
13%

2013

12%

11%

10%

10%

2014
Y

2015

2016

2017

Note: See Table 3 in the appendix for the data shown in this figure (accessible version).

Page 9REPORT 593: Climate risk disclosure by Australia’s listed companies

Figure 3: Percentage of ‘climate change content’ in annual reportsof companies within the ASX 300 (2011–2017)
65%
60%
55%
49%

58%
53%

46%
42%

31%

54%

53%
40%

31%
25%

37%
33%

32%

27%

27%

21%

2011

2012

2013

ASX 100

2014
Year
ASX 101–200

2015

2016

24%

2017

ASX 201–300

Prospectuses: What did we do?
We selected a sample of 25 prospectuses lodged during the financial
year ended 30 June 2018 for the purposes of an IPO of securities.
For each selected prospectus we reviewed:•

key risk disclosure in the investment overview•

disclosures about the company’s business model•

any corporate governance policies incorporated by reference into theprospectus.

Section 710 of the Corporations Act requires a prospectus to contain,
among other things, all information reasonably required by investors tomake an informed assessment of the prospects of the company that is to
issue the securities. It is misleading to discuss the prospects of thecompany without discussing the risks that may affect their achievement.

Note: See Table 4 in the appendix for the data shown in this figure (accessible version).

Annual reports of top 100 companies in the ASX 300 are far more likely
to include ‘climate change content’ than the bottom 200 companies. Thismay, in part, be because of higher levels of adoption of integrated
reporting within that cohort – with more climate change content featuring
in ESG disclosures.

‘[the annual report] is one of the key sourcesof information about entities and therefore
plays an important role in promoting theaccountability of boards. It provides theinformation required for shareholders todetermine whether to continue to invest in theentity.’Paragraph nine in RG 247© Australian Securities and Investments Commission September 2018

Prospectuses: What did we find?
We found limited examples of companies explicitly citing and disclosing
climate risk (either physical or transition) as a relevant risk factor. Noneof the prospectuses we reviewed expressly identified any physicalclimate risks. One of the prospectuses reviewed cited transition climate
risk as a key risk, highlighting public concern around the issue of climatechange and the possible impact of regulatory responses as a risk to therelevant company’s business model. The relevant disclosure also
explained how different regulatory responses may affect the company’s
operating and financial performance.
However, in the majority of prospectuses reviewed, while both
environmental and regulatory risks were generally cited as risks to thebusiness model of the relevant company, there was insufficient detaildisclosed to enable an investor to determine if climate risk formed part ofPage 10REPORT 593: Climate risk disclosure by Australia’s listed companies

those broader risk categories, and, if so, how and to what extent. In somecases, the lack of specific climate risk disclosure may be warranted, but
we generally consider that it is preferable for directors and advisers tofocus on providing specific rather than general risk disclosure toinvestors: see paragraphs 78–82 of RG 228.
A number of the prospectuses reviewed disclosed business models thatwere in some way connected to the transition to a low-carbon economy(e.g. renewable energy firms). In these instances, the underlying trend ofclimate change and the opportunities it provided for the company was not
explicitly cited. These relevant ‘big picture’ background factors were
implied by the disclosure but not explicitly dealt with.
Furthermore, a number of companies in our sample followed oursuggested policy in paragraph 126 of RG 228 and provided potential
investors with disclosure advising where the company’s corporate
governance policies could be located. On review of such policies, we did
not identify any specific climate change or climate risk related policies
beyond very generalised disclosure on governance and risk management
practices.

© Australian Securities and Investments Commission September 2018

Page 11REPORT 593: Climate risk disclosure by Australia’s listed companies

We consider that the law requires an OFR to include a discussion ofclimate risk when it could affect the entity’s achievement of its
financial performance or disclosed outcomes. Directors should also
consider the requirement to include any relevant analytical comments
and specify how risk factors that are within the control ofmanagement will be managed: see paragraph 64 in RG 247.

ASIC’s high-level recommendations
Disclosure practices in this area are still evolving, not only in Australia but
also globally. Set out below are some high-level recommendations toassist directors in developing their climate disclosure practices.
•

Consider climate risk•

Directors and senior managers of listed companies need tounderstand and continually reassess existing and emerging risks that
may be applicable to the company’s business, including climate risk.
This should extend to both short-term and long-term risks.

•

Regardless of whether a company follows the disclosure
recommendations of the TCFD, we recommend that directors andsenior managers consider the TCFD’s final report which serves as a
useful reference for climate risk and its assessment, governance andmanagement.

Disclose useful information to investors•

The voluntary disclosure recommendations issued by the TCFD are
specifically designed to help companies produce information that isuseful for investors (among others). We do not consider there is any
legal or policy impediment to listed companies reporting under the
TCFD recommendations provided that the disclosure is not
misleading or deceptive. We recommend that listed companies withmaterial exposure to climate risk consider reporting under the TCFD
framework.

•

Regardless of whether TCFD reporting is adopted, we recommend
that, where appropriate, listed companies assess and disclose
climate risk with reference to the broad categories formulated by the
TCFD: physical and transition risk. Further, listed companies should
strive for consistency between the categorisation of climate risk
adopted across voluntary and statutory disclosures.

•

We also recommend that listed companies consider disclosing
climate separately to other general risk categories, such asenvironmental or regulatory risk, and focus on ensuring risk
disclosure is sufficiently clear and specific.

Strong and effective corporate governance••Strong corporate governance facilitates better information flow within
a company and facilitates active and informed engagement andoversight by the board in identifying and managing risk.
Transparency is one of the fundamental tenets of strong corporate
governance. When climate risk is material, consideration should begiven to disclosing the company’s governance and risk management
practices around climate risk.

Comply with the law•

Directors of listed companies should carefully consider therequirements relating to OFR disclosure under s299A(1)(c).

© Australian Securities and Investments Commission September 2018

Preparers of disclosure documents should consider the relevant
issuing company’s exposure to climate risk as part of any due
diligence process and, when that risk is material, the prospectus
should disclose it in a clear, concise and effective way: see s710 and
RG 228.

Page 12REPORT 593: Climate risk disclosure by Australia’s listed companies

Appendix: Accessible versions of
figures

Table 4: Percentage of ‘climate change content’ in annual reports ofcompanies within the ASX 300 (2011–2017)

This appendix is for people with visual or other impairments. It provides
the underlying data for each of the figures included in this report.

2011

60%

49%

31%

2012

55%

46%

31%

Table 2: Percentage of annual reports of all listed companies
containing ‘climate change content’ (2011–2017)

2013

53%

42%

21%

2014

53%

40%

25%

Year

Percentage of entities that mention the‘climate change content’

2015

58%

33%

27%

2016

54%

32%

27%

2011

22%

2017

65%

37%

24%

2012

19%

2013

17%

2014

16%

2015

15%

2016

14%

2017

14%

Year

Percentage Percentage of ASX
of ASX 100
101–200

Percentage ofASX 201–300

Note: This is the data contained in Figure 3.

Note: This is the data contained in Figure 1.

Table 3: Percentage of annual reports containing ‘climate change
content’ (2011–2017): ASX 300 companies versus non-ASX 300
Year

Percentage of ASX 300 Percentage of Non-ASX 300

2011

47%

18%

2012

44%

15%

2013

39%

13%

2014

39%

12%

2015

39%

11%

2016

38%

10%

2017

42%

10%

Note: This is the data contained in Figure 2.

© Australian Securities and Investments Commission September 2018

Page 13