Historical development of climate-related financial disclosures

Global policy response to climate change

In 1988, in response to emerging scientific understanding, the UN General Assembly established the Intergovernmental Panel on Climate Change (IPCC) and tasked it with preparing “a comprehensive review and recommendations with respect to the state of knowledge of the science of climate change, the social and economic impact of climate change, and potential response strategies and elements for inclusion in a possible future international convention on climate.”

Informed by the work undertaken by the IPCC, the United Nations Framework Convention on Climate Change (UNFCCC) was established in 1992 as an international environmental treaty to combat ‘dangerous human interference with the climate system’ by stabilizing greenhouse gas concentrations in the atmosphere.

In 2015, the Paris Agreement was adopted by 196 countries under the auspices of the UNFCCC. The Paris Agreement commits nations to strengthening the global response to the threat of climate change, in the context of sustainable development and efforts to eradicate poverty, including by:

limiting the increase in global average temperatures to well below 2 degrees Celsius above pre-industrial levels by 2050 (while pursuing efforts to limit the temperature increase to 1.5 degrees);
increasing the ability to adapt to the adverse impacts of climate change and foster climate resilience and low greenhouse gas emissions development, in a manner that does not threaten food production; and
making finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development.

Under the Paris Agreement, each signatory commits to implement domestic actions to:

reduce the sources and enhance the sinks of greenhouse gas emissions (mitigation); and
adapt to the actual and expected effects of climate change (adaptation).

These contributions take the form of a nationally determined contribution (for mitigation) and an adaptation communication (for adaptation). The UNFCCC hosts a public register housing each signatory’s most recent contribution.

Australia is a signatory to both the UNFCCC and the Paris Agreement. Accordingly, Australia has submitted both a nationally determined contribution and adaptation communication.

Australia’s nationally determined contribution is legislated in the Climate Change Act 2022.

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Emergence of climate-related financial disclosure frameworks

The Task Force on Climate-related Financial Disclosures (TCFD) was established in 2015 by the Financial Stability Board (FSB). This was at the request of the G20 Finance Ministers and Central Bank Governors and in response to the growing acknowledgement of the impact climate risk may have on the financial system. This was a particularly salient issue at the time, given that 196 countries had, that year, committed to significant mitigation and adaptation action under the Paris Agreement.

The FSB identified a need for greater transparency and better information to support informed investment decisions and improve understanding and analysis of climate-related risks. The TCFD was tasked with developing voluntary, consistent climate-related financial risk disclosures for use by companies. The TCFD published its final recommendations in 2017.

The TCFD’s disclosure framework established a conceptual framework for thinking about and categorising climate-related risks and opportunities. The concepts of transition risk, physical risk and climate opportunity were introduced in recognition of the risks and opportunities that would arise for businesses from both the actual and expected physical impacts of climate change as well as the current and future efforts of governments, businesses, investors, communities, and individuals – both within Australia and internationally – to undertake climate change mitigation and adaptation. These foundational concepts have subsequently been adopted by the International Sustainability Standards Board (ISSB™) and the AASB and underpin Australia’s climate-related financial disclosures regime.

In 2021, the ISSB™ was established by the International Financial Reporting Standards Foundation. The ISSB™ was tasked with developing, in the public interest, a high-quality, comprehensive global baseline of sustainability disclosures focused on the needs of investors and the financial markets. The ISSB™ took a ‘climate first’ approach to its standard setting. Building off the recommendations of the TCFD, the ISSB™ published IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information (IFRS S1) and IFRS S2: Climate-related disclosures (IFRS S2) in 2023.

The work of the TCFD, and later the ISSB™, responds to growing investor demand for more consistent, comparable and decision useful disclosures by large businesses and financial institutions about their climate-related governance, strategy, risk management and metrics and targets.

The introduction of mandatory climate-related financial disclosures in Australia

In 2024, the Corporations Act was amended to introduce climate-related financial disclosure requirements, for large businesses and financial institutions in Australia. These entities are required to prepare a sustainability report in accordance with the standard set by the Australian Accounting Standards Board (AASB), using IFRS S2 as a baseline.

Australia’s climate-related disclosure requirements are based on financial materiality. This means that the focus centres on the actual or expected financial impacts of climate-related transition risks, climate-related physical risks, climate-related opportunities, and any responding strategy, on the reporting entity’s prospects and performance.

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Climate-related financial disclosures: a chronology

December 2015: The G20 Financial Stability Board establishes the Taskforce on Climate-Related Financial Disclosures (TCFD) to develop recommendations on the types of information that companies should disclose to support investors, lenders, and insurance underwriters in appropriately assessing and pricing risk related to climate change.
June 2017: The TCFD publishes its final recommendations.
September 2018: ASIC recommends directors adopt a probative and proactive approach to climate-related risks, and encourages listed companies with material exposures to consider reporting voluntarily under the recommendations of the TCFD: see Report 593: Climate Risk Disclosure by Australia’s Listed Companies.
November 2021: At the 2021 United Nations Climate Change Conference, the IFRS Foundation announces the establishment of the International Sustainability Standards Board (ISSB™) to develop a comprehensive global baseline of high-quality sustainability disclosure standards to meet investors’ information needs.
March 2022: the ISSB™ prioritises climate change as its first standard-setting priority, publishing exposure draft standards, building off the recommendations of the TCFD.
April 2022: the AASB conducts Australian consultation on the ISSB’s™ exposure draft standards.
June 2022: the Australian Government files an updated Nationally Determined Contribution under Article 4 of the Paris Agreement, committing to the application of ‘new standardised and internationally aligned reporting requirements for climate risks and opportunities for large businesses.’
December 2022: Treasury issues a consultation paper seeking initial views on key considerations for the design and implementation of a potential climate-related financial disclosures regime.
June 2023: Treasury issues a second consultation paper, seeking views on proposed positions for the detailed implementation and sequencing of a standardised and internationally-aligned climate-related financial disclosures regime.
June 2023: the ISSB™ issues its inaugural standards: IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosures.
July 2023: the International Organisation of Securities Commissions, of which ASIC is a member, endorses IFRS S1 and IFRS S2, confirming they would serve as an “effective and proportionate global framework of investor-focused disclosures on sustainability- and climate-related risks and opportunities”.
August 2023: the Australian Audit and Assurance Standard Board releases for consultation the International Audit and Assurance Standards Board’s proposed standard on general requirements for sustainability assurance engagements.
October 2023: the AASB releases an exposure draft of Australia’s inaugural sustainability reporting standards ED SR1 Australian Sustainability Reporting Standards – Disclosure of Climate-related Financial Information.
October 2023: the TCFD is disbanded, and its responsibilities are transferred to the ISSB™.
January 2024: the Australian Government announces the final policy design for corporate climate-related financial disclosure requirements and releases final exposure draft legislation.
September 2024: the Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Act 2024 (Cth) receives Royal Assent and the Corporations Act is amended to introduce the new mandatory climate-related disclosure requirements.