GILES RAFFERTY, Media and Financial PR
As Trump 2.0 begins to coalesce, are the requirements for Companies to report on greenhouse gas emissions going up in smoke? A quick review of headlines such as:
-
-
- ‘Coalition vows to scrap emissions reporting as Trump prepares rollback’ – AFR, 2 January 2025,
- ‘Investor climate group suspends activities after BlackRock exit’ – Reuters, 14 January 2025, or
- ‘Trump’s climate retreat will cost America influence in the Pacific’ – The Lowy Institute, 17 January 2025
-
could create the impression the multi year efforts, across multiple jurisdictions to introduce mandatory frameworks for climate reporting are at risk of being undone.
On 1 January 2025 Australia joined early adopters[1], The European Union[2], the United Kingdom[3] and New Zealand[4] by introducing mandatory climate disclosure requirements for Companies. Other countries, such as Japan[5] and Canada[6], have well advanced programs to introduce mandatory climate reporting standards in some form.
In Australia the timeline to amending the Corporations Act to introduce mandatory climate-related financial disclosures, as of the first of January 2025, can be traced all the way back to the establishment of the Intergovernmental Panel on Climate Change (IPCC) by the United Nations in 1988,[7] see table 1.
TABLE 1 Development of climate-related financial disclosures in Australia
| Year | Climate Action | Comment |
|---|---|---|
| 1988 | Intergovernmental Panel on Climate Change (IPCC) | Established by the United Nations to prepare a comprehensive review of Climate Change |
| 1992 | United Nations Framework Convention on Climate Change (UNFCCC) | A treaty to combat dangerous human interference with the climate system – Informed by the IPCC, Australia is a signatory |
| 2015 | The Paris Agreement, (developed under the auspices of the UNFCCC) | Adopted by 196 countries to strengthening the global response to the threat of climate change, Australia is a signatory |
| 2015 | Task Force on Climate-related Financial Disclosures (TCFD) | Established in 2015 by the Financial Stability Board at the request of the G20 finance ministers and central bank governors |
| 2017 | TCFD published its final recommendations | A voluntary, consistent climate-related financial risk disclosures framework for use by companies |
| 2018 | Voluntary TCFD reporting initiated by Australian listed companies | Australian Securities and Investment Commission (ASIC) recommend a voluntary approach to reporting climate-related risks |
| 2021 | ISSB established by International Financial Reporting Standards (IFRS) Foundation | The ISSB is to develop a high-quality, comprehensive global baseline of sustainability disclosures for investors and the financial markets |
| 2022 | Climate Change Act | Legislation relating to Australia’s contributions under the Paris Agreement |
| 2023 | IFRS S1 and S2 standards published by ISSB | IFRS S1: General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2: Climate-related disclosures |
| 2023 | TCFD disbanded | TCFD responsibility transferred to the ISSB |
| 2024 | AASB reporting standards | Australian Accounting Standards Board’s AASB S1 and S2, based on ISSB and using IFRS S2 as a baseline, approved |
| 2025 | Roll out of mandatory AASB S2 reporting in Australia | Large businesses to begin preparing annual sustainability reports containing climate-related financial disclosures in the 1st instance |
It is certainly the case that Donald Trump appears determined to rescind the U.S. corporate regulator, the SEC’s, Climate Disclosure Rules introduced in 2024. And Shadow Treasurer, Angus Taylor, has been reported as vowing the Liberal/National coalition, will repeal the new Australian laws requiring businesses to disclose their greenhouse gas emissions, if his Party forms government following the election due by the end of May 2025. The rationale for this position appears to be that to increase the climate related financial disclosure burden and costs in Australia, at time when the new US administration is rolling back similar regulations, will make Australia a less competitive business jurisdiction.
These political declarations of climate reporting roll backs come as passive fund manager, BlackRock, decided to withdraw from the Net Zero Asset Managers (NZAM) initiative on 9 January 2025[8]. Blackrock is the world’s biggest passive fund manager, with A$14 trillion under management, and four days after its withdrawal the NZAM suspended its activities. NZAM had been holding signatory organisations responsible for supporting the goal of net zero greenhouse gas emissions by 2050. Prior to suspending its activities, the NZAM had reported more than 325 asset managers, representing over US$57.5 trillion[9], had made individual net zero commitments. BlackRock explained its withdrawal by saying its membership of NZAM caused confusion about its practices and subjected the firm to legal inquiries. Blackrock also said, however, its active portfolio managers will continue to assess material climate-related risks.
Looking beyond the headlines reveals reports of the death of ESG are an exaggeration. Donald Trump is in the position to issue an Executive Order advising the SEC to consider rescinding its mandatory climate-related financial risk disclosure rules. Trump would be using the same approach that President Biden took to getting the Department of Labour to rescind, and then replace, its ESG legislation in May 2021 under Executive Order 14030[10]. With Trump’s appointee, Paul Atkins, at the helm as SEC chairman, it is likely the new U.S. mandatory climate-related financial risk disclosure rules will be rescinded.
But such changes would be at the federal level. That means companies that operate in the State of California, for instance, will still need to comply with California’s climate disclosure laws[11]. And U.S. Companies that operate in the European Union will still have to comply with the EU’s Corporate Sustainability Reporting Directive (“CSRD”)[12]. In addition, rescinding the new U.S. mandatory climate-related financial risk disclosure rules will not remove the SEC Guidance Regarding Disclosure Related to Climate Changes[13] that has been in place since 2010, which are, admittedly, not particularly prescriptive.
A Company’s decision to publish a Sustainability Report that discloses ESG data is not solely driven by regulations. Financial Markets have identified they have a key role to play in both funding the transition to a carbon neutral future and encouraging voluntary corporate sustainability reporting. In response, Companies have committed to ESG disclosure practices in order to be included as an investment option for funds with mandates that include sustainability requirements and for inclusion in indices that require ESG disclosures from their constituents. In addition, an awareness of the negative economic impact of extreme climate events is also creating an expectation amongst many customers and other stakeholders in Companies that they will be taking action to help to mitigate climate change and be seen to do so.
It is likely that any roll back of Governmental regulations around climate reporting will not remove the other imperatives for Companies to generate sustainability reports, including performance against a standardised set of environmental metrics. At FIRST Advisers we have many years of experience advising on sustainability reporting and have forged a partnership with NetNada to help our clients access actionable tools and insights to make measurable progress towards reducing their carbon footprint.
-
- https://asic.gov.au/about-asic/news-centre/find-a-media-release/2024-releases/24-205mr-asic-urges-businesses-to-prepare-for-mandatory-climate-reporting/
- https://finance.ec.europa.eu/capital-markets-union-and-financial-markets/company-reporting-and-auditing/company-reporting/corporate-sustainability-reporting_en
- https://www.gov.uk/government/publications/climate-related-financial-disclosures-for-companies-and-limited-liability-partnerships-llps
- https://environment.govt.nz/what-government-is-doing/areas-of-work/climate-change/mandatory-climate-related-financial-disclosures/
- https://www.ssb-j.jp/en/exposure_drafts/y2024/2024-0329.html
- https://www.osfi-bsif.gc.ca/en/news/osfi-continues-building-climate-resilience
- https://asic.gov.au/regulatory-resources/sustainability-reporting/historical-development-of-climate-related-financial-disclosures/
- https://www.netzeroassetmanagers.org/statement-on-blackrocks-departure-from-the-initiative/
- https://www.netzeroassetmanagers.org/net-zero-asset-managers-initiative-publishes-report-on-signatories-target-disclosures-as-the-initiative-grows-to-over-325-signatories/
- https://www.federalregister.gov/documents/2021/05/25/2021-11168/climate-related-financial-risk
- https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=202320240SB219
- https://finance.ec.europa.eu/capital-markets-union-and-financial-markets/company-reporting-and-auditing/company-reporting/corporate-sustainability-reporting_en
- https://www.sec.gov/files/rules/interp/2010/33-9106.pdf