Crunching the numbers on climate risk without greenwash

Mandatory climate reporting will change the landscape for investors, expert Rob Fowler says. (PR HANDOUT IMAGE PHOTO)

The carbon emissions of contractors or customers are no longer someone else's problem under comprehensive reporting that will thoroughly quantify climate-related risks.

"It's the board now that has to say, 'yes we stand by these numbers,' and it does have financial implications," sustainability expert Rob Fowler told AAP.

Mandatory climate reporting is due to be phased in from 2024, starting with large organisations under a framework being finalised by the federal government.

"The corporate regulator is saying that's just as important as the financial stuff, which is a pretty big change," Mr Fowler said.

But the new rules will not require a total and costly re-engineering of how workplaces collect information.

"What we're talking about is layering on more information in the current flows," said Mr Fowler, a partner at global management consultancy Partners in Performance.

For example, companies already collect financial information from a business unit and - often less systematically - safety data from work accidents. 

"That's the first step - figure out what you're doing because you don't want to have to reinvent things," Mr Fowler said.

"It's much easier to bolster existing processes than to create brand new ones."

But he said the framework would reshape the landscape for investors, banks, corporations and trusts.

Most organisations already think about their carbon footprint, mainly by calculating energy use to measure emissions.

"(The challenge) is to bring it all together in verifiable information that the board is going to stand behind," he said.

"Your upstream and downstream emissions are someone else's direct emissions, and so that pushes everybody - small and big - to start to think about these kinds of metrics."

Directors will be required to sign off on detailed disclosures that will have a legal status on par with financial results and be accountable for any greenwashing or exaggerated claims.

"Everyone will need to have a story and 'greenwash' is when the story doesn't match the facts," Mr Fowler said.

The new reporting regime will mean companies must report emissions, do a scenario analysis and provide a transition plan that maps out the specific changes that will make them carbon neutral.

The climate compliance cycle will run the same as the financial reporting and auditing cycle, starting from the 2024/25 financial year.

Government spending on natural disasters is expected to triple due to climate change, according to the latest Intergenerational Report which also warns of lower crop yields and higher food prices as temperatures rise.

A Deloitte Access Economics report commissioned by National Australia Bank recently detailed how Australia could lift its game via increased investment and productivity in energy, green hydrogen, critical minerals and battery manufacturing.

Expanded economic capacity in green industries supports an increase to Australia’s exports of about $420 billion by 2050, Deloitte found.

Governments would play a role by setting clean energy standards, emissions targets, and other regulatory and policy mechanisms, including accurate and credible reporting on climate risks.

"As both a user and preparer of climate-related financial disclosure statements, NAB supports the government’s proposed introduction of mandatory climate-related financial disclosures," the bank's chief climate officer Jacqueline Fox said.

"We participated in consultations with government through the ABA (Australian Banking Association) and will continue to engage as these important proposals take shape."

But Mr Fowler said the finance sector is on a harder road because they need to also report the emissions they bankroll through loans.

"They have a pretty tough time figuring out their financed emissions," he said.

Everything from apartment blocks to new roads and future battery mineral mines have emissions that need to be tallied during construction and use.

The move to mandatory reporting is a major shift in business practice and will require directors, report preparers and assurance professionals to upskill.

Smaller industrial firms could also find it tough to get their suppliers and contractors to provide enough information to comply. 

Getting ready over the next 10 months will also help crystallise the scale of their particular risk, Mr Fowler said.

At the very least, every company covered by the regime will need a person dedicated to the task of getting it right.

Mr Fowler said consistency with international practice was also front of mind for federal officials who are finalising the framework.

"That's very intentional, because capital flows can't be threatened by this and our trade flows can't be threatened," he said.

"All the digital systems you need are there and easy to put up and set up."

But business sustainability expert Shivin Kohli at tech advisory firm Access Partnership said investors who believe in net-zero should be worried.

Mr Kohli said there was heated debate but little progress at the Bonn Climate Change Conference in June, which is the mid-way checkpoint for the next international talks set to begin in the United Arab Emirates in November.

There was intense disagreement on the pace of carbon cuts and climate finance, and no deal on hosting a fledgling "loss and damage" fund to help countries on the frontline.

If governments were to back-track on their emissions reduction ambitions, that would mean less public funding for new technology and stymied momentum on sustainability reporting standards, Mr Kohli said.

Measuring the impact of climate finance could be transformational and immeasurably help investors, as well as vulnerable members of the community, he added.

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