Australia’s mandatory climate reporting regime has moved from preparation to implementation. This shift is giving organisations their first real insight into the practical challenges of achieving high quality and compliant climate reporting.
The experience of the first cohort highlighted that high value climate reporting is far more than a disclosure exercise. It requires strong organisational governance, alignment and integration into strategy and risk management processes and reliable data.
A common theme emerging is that climate reporting cannot sit separate from other organisational reporting processes, it must be embedded. Organisations that approached climate reporting as a standalone sustainability project often faced challenges aligning governance, risk assessments, strategic planning and disclosures.
Those that navigated the process most effectively were those that treated climate reporting as an extension of their existing governance and enterprise risk management frameworks.
Ownership and accountability
Climate reporting draws information from multiple areas within an organisation, including finance, risk, operations and governance functions. As a result, clear ownership and accountability for the preparation and maintenance of systems and processes that support the climate reporting outputs are essential.
Many organisations underestimated the level of collaboration required to produce robust disclosures. In practice, successful reporting depends on clearly defined responsibilities, adequate resourcing and a shared understanding of what needs to be delivered. Organisations that established these foundations early were generally better positioned to respond to reporting requirements and assurance expectations.
Data quality
For some entities, identifying, validating and documenting the underlying data was a challenge. Climate-related information is often dispersed across multiple systems and business units, creating challenges around data completeness, consistency and reliability.
The first reporting cycle also highlighted the importance of documenting information outside of existing enterprise systems. Key assumptions, methodologies, controls and data which support climate risk and opportunity assessments, scenario analysis and other disclosures need to be developed and maintained throughout the year, rather than assembled at the time of reporting. Strong processes and documentation not only improve reporting quality but also provide the organisation with strategic opportunities to mitigate risk and improve commercial outcomes.
As more entities are captured within the mandatory disclosure regime and entities move into their second reporting cycle, expectations on the quality and content of climate disclosures is evolving. Regulators, boards, investors and assurance providers are placing greater emphasis on the quality and reliability of disclosures. This increases the focus on governance, control environment and quality of supporting evidence. In future periods there will be less tolerance for highly manual processes and reporting frameworks that rely heavily on yearend effort.
The focus is increasingly shifting from what organisations report, to how they support those disclosures. Stakeholders want confidence that climate-related information is generated through robust, repeatable processes and that it is subject to appropriate governance oversight and aligned with broader strategy and risk management processes.
Looking ahead
A key lesson from first time climate disclosure reporting is that compliance is only the starting point. Organisations should now focus on embedding climate risk assessment, governance and reporting into “business as usual” operations. Those that invest time and effort to integrate will not only reduce their year-end reporting burden, but are also more likely to achieve better commercial outcomes.
Ultimately, sustainability reporting should become part of how organisations’ manage risk, allocate capital and make strategic decisions. The businesses that take this approach are likely to derive far greater value from the process than those that view climate reporting simply as another compliance obligation.