Check against delivery

Thank you, Dean and hello everybody. It's lovely to be here. I think I was here last year but on the screen because I had just broken my foot. So nice to see you all in person and to be walking again.

I understand you've covered a really wide range of things and even catching the end of that, you've been in [sessions about] lots of different reporting frameworks and issues that are much broader, so, forgive us, we're going to go back down to something quite specific and that's climate reporting.

The reason I've chosen to do this today is because we've reached a particular point in relation to mandatory climate reporting that is important and ASIC’s at a point where we can share some early observations in relation to the reports that have been filed with us. So that's the purpose of my discussion today in my remarks, but really once we're in the Q&A section, if there's other things that you want to talk to me, or ask me about in ASIC world, don't limit yourself to these ones, anything is fine. We can go broader than that if you'd like to.

Introduction

So, let me just give the observations about climate reporting. I hope you find them helpful and interesting. If I start with a couple of quotes:

“A once in a lifetime systems innovation, of great promise and magnitude...” 

“A brave new world in financial reporting...”^[1] 

I’m not talking about climate reporting – these are quotes from when we had [International Financial Reporting Standards], when [they] first introduced the standards. So that idea of it being momentous, hard, and new is somewhere we've been before. In this case, it was decades ago, but that's where we've been most recently in relation to climate reporting, we recognise the sort of scale of change here. And so that idea of it's not always easy to turn principles into practice. It is a significant change and a lot of work involved in it. The theme of today's conference, I understand is really pertinent for where we're up to in relation to mandatory climate reporting.

The rubber’s hit the road. Now we're actually getting the reports, a lot of you will have read them as well but we've certainly been reviewing them as the regulator administering the process. So I wanted to share some early observations with the purpose of saying: we hope they're helpful but ... this is the beginning of a journey, it's difficult. People are going to get better at the reports as we get going. So, we want to kind of help each other through those early stages of what is a significant change for us all.

General observations

So before I get to specific observations from the reports, some general observations.

It has been a long time, talking about climate change as a set of commitments, targets, principles, and frameworks, very forward leaning. And I think the thing about disclosure is that it is a levelling force. I heard one of the people before talking about who's doing it well, who can actually read through the information and see what companies are actually using this information with that risk lens and internalising it in that way.

So now for the first time investors can really look at apples and apples, rather than apples, oranges, and everything else in the trolley because of the consistency that is provided by having mandatory standards.

So it helps with making risk, climate risk in this case, more transparent and that sense of it ultimately being financial risk and tying through to the financial information about a company as well.

I did want to acknowledge that the in last week's Budget, the government has proposed some ideas around streamlining climate-related financial disclosures in the context of regulatory burden. I don't know whether you saw the Treasurer's suite of measures on productivity that were in there along with other things that have got quite a lot more profile, but important parts of the Budget as well. So ASIC will be a part of that consultation process. One of the ideas that was put on the table is around guidance, questions about assurance and otherwise. So, we'll be part of that and expect lots of you will want to be as well. Our understanding of the intent of that announcement is to improve the efficiency of the framework, but to nonetheless, maintain the kind of core sustainability requirements. And in the meantime ... ASIC will continue the work that we're doing in a pragmatic, and proportionate way to really support implementation.

So, the other general thing I wanted to say is that we think Australia has started from a position of real strength. We had such a high rate of voluntary reporting in the ASX 200 at least, against TCFD [Task Force on Climate-Related Financial Disclosures] at that point. So that's a lot of people starting from a real position of strength. We've got a very sophisticated professional services cohort in Australia, very sophisticated scientific resources, and a sophisticated investor base. So all of the component parts that can come together, you know, in that case in our super funds but other investors as well.

So we're not starting from scratch. We've got a lot of strengths to start from. But like I said at the beginning, they are really big changes to the reporting [framework], so we need a kind of generational uplift in the capabilities, the frameworks, the governance frameworks, and risk management. As we did, when the IFRS financial reporting standards were introduced.

Mandatory reporting – what we have seen 

So in relation to the reports that we've seen through, we do want to congratulate those [who have already reported in the first wave]. If any of you in the room prepared them, thank you. We recognise that this was a first wave and not just an Australian-first wave, a world-first wave. It's easier to follow a path than make a path, so we really wanted to acknowledge the work and efforts that have been made so far [and] celebrate the progress which has been made with the first round. And I hope for those people who are in that category, it's a lot easier the second time around.

It means for all of us we’ve got a baseline for comparability and consistency of climate-related financial disclosures. And we think that that will evolve over time. Already in the voluntary space, we saw people's reports get better each year and similarly, we think that will be the same here.

So, if we go back to the fruit analogy, the supermarket analogy, instead of apples and oranges, we’re kind of in the orchard where the apples come in different shapes. They're not kind of that uniform [shape] that you see in the supermarket yet, but they are all apples for apples. And we're moving into the comparability that's much easier than we were in the apples and oranges world.

So it's not surprising [that there is still some variability]. It's the first year. People were all doing it independently. Of course, they're not going to come to similar approaches and that's absolutely as we expected, we expected that level of variability.

And like I said, we do think these reports will become better over time. We don't want the baseline to become the benchmark. We can see people thinking about this and getting better and better over time.

And I think users of the information, so some of you might be preparers [but] a lot of you I suspect are users of the information, and I think that you have a really important role to play as well in, raising the bar. And ASIC has some things that we're doing which I'll mention at the end to help you do that.

So, we have reviewed a sample of the first tranche of sustainability reports. These are from the listed half of the December 31 reporters and we will be having a look at the unlisted half as well and putting together a much [longer report] with more detailed findings later in the year.

But because we've had a lot of interest particularly from people who are reporting 30 June, we thought we'd pull together some observations. So I've got six that I'll step through.

Early observations

So the first one is the importance of being clear and effective on the judgements that are applied in preparing climate statements.

This is a AASB [S2] requirement and it's absolutely [necessary]. One of the most important parts of the report is the fact that you've had to use judgement, judgement’s critical. But understanding as a reader which parts are the subject of judgement and where having sort of proximate description of those judgements near the information is really valuable for people to understand how much certainty is attached to particular measurements.

So yes, we think that close attention is required to disclosure of judgements for helping readers understand what weight to put on information.

So, the second observation is, ensuring the disclosure of voluntary or additional climate-related information doesn't obscure the mandatory and material climate-related financial information.

This is partly a transition story. So people have been preparing voluntary reporting and want to use much of it or the frameworks as they go. And in our regulatory guide we do say you don't have to have two separate documents, you know, it can be together. But it's got to be clear within that document which is the mandatory climate reporting to meet the requirements.

There was a lot of latitude historically, including putting it together, and we recognise people might want to convey additional information as well. There's no problem with that. It's just about [ensuring] the line between the statutory information is well defined and any other information. So you know, tables, index tables, which show which are the mandatory parts might be one way, it’s not the only way. You might do that just so people can find, ‘Okay. When I'm looking for the S2 information, where is it in this report?’.

The third is in relation to cross-referencing. So, standards in relation to cross-referencing are actually quite specific and prescriptive. So the cross reference to another report to introduce that into the report has to be available on the same terms and at the same time. So we have seen issues where people were cross-referencing to things that didn't meet that requirement, and it's got to be to a particular part of a report, rather than a whole report.

The fourth was with some issues around disclaimers. It's a little bit different from judgements. I understand, they're related, but [what] we saw weren't judgements, they were full disclaimers that were in conflict with the statutory framework and indeed the objectives. So, we've had, as ASIC, this issue in relation to prospectuses and other documents. It's not new. But if they go too far, if people try and disclaim the capacity to rely or use the information too far, then that's inconsistent with the requirements of the climate reporting [framework]. And so we'll keep an eye on that.

So, then number five is around entities using past events, current conditions, and forecasts consistently. So we saw some instances where people had prepared their risk disclosure without referencing past events that happened to that company. So, looking at the requirement to include those past events, current conditions, and forecasts consistently, and also in association with that judgement that I mentioned in terms of identifying risks.

And then the final one, which really only applies to people who have included climate-related targets. Lots have, but they were varied, especially whether they had a climate-related target. So different approaches to the assessment of whether targets had to be met under law or regulation ... so just that concept of whether it's required or not. So [this] was another area that stood out for us.

So, these aren't exhaustive lists. Like I said, we'll have a full report coming later in the year, but a lot of them go to how the reports that come together: cross-referencing the inclusion of information, assumptions, judgements, disclaimers.

So, that helps to guide, I hope, some of the thinking that you'll be doing, for those of you who are yet to report. And I hope for people who are reading it, some guidance from ASIC will help reports become more and more consistent.

What ASIC is doing

So what is ASIC doing is the last thing that I wanted to touch on.

Our role in relation to this has been very much about providing materials, guidance, relief, and educational materials as well in support of people preparing their reports.

We've also had a sort of adjacent action effort in ASIC – a piece of work on simplification – which has been trying to help people find, use and understand regulatory information, especially that we administer.

So we've got our Regulatory Guide 280, I think lots of you will be familiar with that, [on] who must report, how they must report and how we’ll both monitor that and enforce compliance in this three-year period, during which there's modified liability provisions.

We've also at ASIC been providing capacity-building resources, we've done this in partnership with the AASB and with UTS [University of Technology Sydney]. So there's been PDF and interactive modules that are available on our website. And then, over the last month, we've had in-person lectures and workshops [in] Melbourne, Sydney, Brisbane, Perth. So I popped into the Sydney one, I don't know if any of you came to the Melbourne one, but it was fantastic. There were people from all different types of companies, as well as consultants or advisors, but lots and lots of different people interested to understand some of the foundational concepts as well as have an opportunity to compare notes with other people around their table or in the room. And so, one attendee told us it helped remove the fear of knowing where to start. So some people [were] at that point and other people were further down the journey in their preparation. So we're going to present webinars as well throughout June. If you look out on the ASIC website, you'll see information on those.

So we're taking a pragmatic and proportionate approach to supervision and enforcement as the requirements are being phased in. I think you will have heard me or someone else from ASIC saying that. So we will really be trying to understand, support, and understand.

Yes, we've got a directions power. Yes, we've got enforcement tools, but our aim is to really support. That's the posture that we've approached [this with].

We do have discretionary powers to grant relief from the reporting requirements and have in limited circumstances done so. So the statutory thresholds, the criteria that will apply are described both in the regulatory guide, but we've prepared a little register of relief application decisions that have been made and that's available through our website as well, so you can have transparency. And like I said, we'll be reviewing reports, both another sample from the 31 December year-end, so that we can publish a full report likely in October.

So we also wanted you to make your views known on the standards. You've observed as users standards in the reports, areas for improvement, and we've really appreciated that. RIAA, ACSI, and others have given us feedback about their assessment of reports. So we'd be pleased if anyone in the room wants to get in touch and we'd be pleased to hear those observations.

Conclusion

So just to sum up, it's hard to go from principles to practice. You know, ideas are easy, implementation’s hard. But we have done it in relation to [IFRS] financial reporting and I know we're very confident we'll all do it again for this climate reporting and ASIC is making our efforts to try and help make that implementation a bit easier and to help entities get this right.

So we're at the beginning of this journey, but the principles are there and now we need to keep going on the journey. So thank you. That's all I wanted to say by way of introduction and looking forward to answering questions. Thanks Dean.

^[1] Ray Ball, ‘IFRS – 10 Years Later’ (2016) 46(5) Accounting and Business Research 545, 545–71