Contents

• Examples of Human Rights Violations
• Toughening the Modern Slavery Act
• What these Changes Mean
• What Businesses Need to Do
• Anthesis Support
• Contact Us

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Modern Slavery and Human Rights Legislation: Actions for Businesses

Modern slavery is a global issue. According to the United Nations, 40.3 million people are subjected to modern slavery through forced labour each day. In the UK, there are estimates of as many as 138,000 people who are trapped in modern slavery. At COP 21, nearly 200 UN countries and territories aligned on this global concern and agreed to eradicate modern slavery and achieve UN Sustainable Development Goal 8.7 by 2030. This article reviews what changes have been made by governments and what businesses should do to maintain transparency within their supply chain.

In recent years, the media has repeatedly brought attention to human rights violations that have shocked the world, resulting in countries tightening their legislation in response. Countries with strong political will, high levels of resources, and a strong civil society that holds governments to account are taking the strongest action. For instance, the UK and US governments require companies to annually report on their supply chain and ensure that it is risk free from modern slavery. As of January 2024, Canada’s new modern slavery act came into effect, the ‘Fighting Against Forced Labour and Child Labour in Supply Chains Act’. Others, such as Australia, are facing increasing pressure from human rights organisations and trade unions to tighten anti-slavery laws in a bid to crackdown on forced labour goods from entering the supply chain.

Global Examples of Human Rights Violations  

Forced labour and slavery in supply chains is a hidden threat. It has the potential to affect all businesses. Unless a business has complete transparency across their supply chains, they could unknowingly be supporting such activities. The following examples are well documented examples of forced labour, however no country is free from modern slavery.

 Some recent examples of forced labour today, include:  

• Sumangali workers in South India where an estimated 100,000 girls are recruited from their houses to work in factories for several years under constant surveillance, precarious work conditions, limited freedom and low wages.
• Syrian workers who have fled the war in their home country and migrated to Turkey but are unable to receive the same rights as Turkish workers. Figures from 2019, show that out of the 3.6 million registered Syrian refugees in Turkey, only 31,000 received official work permits.

Toughening the Modern Slavery Act in the UK and global supply chains 

In January 2021, the UK Government released additional measures, toughening the response towards modern slavery and preventing goods linked to forced labour from entering the UK supply chain.

This builds on the 2015 Modern Slavery Act issued by the UK Government where Section 54 requires businesses with a total annual turnover of £36m or more to prepare a slavery and human trafficking statement for each financial year. The slavery and human trafficking statement should set out what steps organisations have taken to ensure that slavery and human trafficking is not taking place in its organisation or supply chain.

Other countries have also taken action against modern slavery. Australia introduced its Modern Slavery Act 2018, requiring Australian companies to report on the risks of modern slavery in their operations and supply chains under federal legislation. The US and Canada, meanwhile, have introduced targeted bans on certain goods imported from regions that they suspect carry a higher risk of forced labour.

What do forced labour legislation changes mean for UK brands, retailers, companies, and investors 

As of 2015, UK registered companies must take necessary human rights due diligence steps maintain compliance with laws in the United Kingdom, United States, Canada, Europe, and other jurisdictions. These laws prohibit the import of goods made with forced labour and mandate human rights due diligence, defined by the UN Guiding Principles on Business and Human Rights and the OECD Due Diligence Guidance for Responsible Supply Chains.

The UK Government provides guidance and support for all UK public bodies where they have identified human rights violations in their supply chain. Compliance will be mandatory for central government, non-departmental bodies, and executive agencies. The UK Government provides robust country-by-country guidance to UK businesses on international human rights risks in its Overseas Business Risks series. They set out the specific risks faced by companies with links to the relevant country and underline the challenges of effective due diligence supported by a government campaign. Companies face financial penalties if they try to cover up imports from any affected region and suppliers will be excluded by the Government when there is evidence of rights violations in their supply chains. Export controls will be reviewed to prevent the shipping of any goods that could contribute to such violations.

What businesses need to do now

As governments strengthen legislations on modern slavery, it is important to consider how businesses maintain transparency in their supply chain in line with these laws. The most critical actions businesses can take to ensure compliance are:

• Understand the source of raw material to finished product. Further reviews need to be undertaken to decide on the specific products that will be subject to new import controls and government sanction lists.
• Look at the Modern Slavery statement. Assess and establish a human rights due diligence programme to identify, prevent, mitigate, and account for actual potential human rights and environmental impacts in their operations.
• Identify salient risks within the business. Find gaps and develop new policies and action plans in relation to modern slavery mitigation.
• Build capacity within the organisation. Establish training and development on ethical trade, human rights, gender equality, modern slavery, as well as creating grievance mechanisms and worker representation models for global supply chains.

How we can help  

Anthesis can support businesses with the creation of human rights impact assessments and in developing strategy and direction towards human rights due diligence, with a focus on transparency and traceability in supply chains. Using our in-house tools, we can identify and rank where the key human rights and salient risks are located within your business, both geographically and within Environmental, Social and Governance (ESG) parameters.

For more information on how to identify if your organisation needs to publish a modern slavery statement, or guidance to ensure slavery and human trafficking are not taking place in your supply chains, contact us.

Juliana Bedggood

Principal Consultant

Australia

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The terms accounting for nature, environmental accounting and natural capital are increasingly popping up in business and climate conversations. As carbon neutrality turns mainstream and net zero targets are increasingly set, we are becoming accustomed to counting carbon and emissions reduction as a way to mitigate the worst effects of climate change.

However, this has also put a spotlight on the impact our economies and climate change have on biodiversity and our ecosystems. The widespread destruction of nature and dramatic loss of biodiversity is inextricably linked to climate change and for many industries poses just as big of a threat.

But unlike financial accounting or carbon accounting which are generally formulaic processes, accounting for nature is a complex process. How do you ‘quantify’ natural capital and measure change in the health of the environment? Here we explore what is meant by the term natural capital, why it’s important and how does the Accounting for Nature framework help us quantify nature?

What is natural capital?

Natural capital is generally defined as stocks of natural resources that are both renewable and non-renewable (e.g., plants, animals, air, water, soils, minerals) that provide valuable social, environmental and economic benefits to humans. These benefits are sometimes referred to as ecosystem services.

The earth’s natural capital is the most important input to the world’s economy. It is equally as important from a social and community aspect, not in the least as humans need clean water and fresh air to survive.

Since the industrial revolution and particularly over the last 50 years, the earth’s natural capital has been destroyed and degraded to levels that are unsustainable and, in some cases, past recovery. Massive loss in species biodiversity due to animal and plant extinctions, dramatic changes in forests and river ecosystems and ocean warming.

What are examples of natural capital?

Whether raw or ready-to-use resources, nature provides the majority of the capital businesses need for the production of goods and services and ecosystem services humans need to survive.

Some examples of natural capital include:

• Native flora: Foods, plant materials used for clothing and fuel or building materials and medicines. Carbon sequestration, microclimate regulation (i.e., heat island effect) and shade for cattle provided by forests and trees. Natural flood defences and stormwater management (i.e., Water Sensitive Urban Design) provided by forests and other vegetation. Natural protection from zoonotic diseases and vector-borne diseases which may thrive under a changing climate.
• Soil and Minerals: Soil to grow food, building materials and storing carbon. Minerals that are used in goods and services such as technology, for fuel, construction and medicines.
• Native fauna: Animals farmed for food, textiles and medicines but also used for labour or pets. Keystone species such as bees and pollinators.
• Fresh water: Water to drink and use for hygiene or sewerage and to grow food; but also for energy, production and construction.
• Marine: Food, employment, kelp and mangrove forests for carbon sequestration; plus tourism and recreation.

The problem with traditional western economic systems is that these invaluable ecosystem services that we rely on to thrive and survive, are generally taken from nature for free.  Therefore, natural capital is not adequately (or at all) quantified or valued by governments, corporations and consumers.

In many parts of the world this ignorance and mismanagement of natural capital has created an economic liability, and social and ecological liabilities that need to be addressed.

Why we need to measure natural capital

Nature (and biodiversity), climate and human society are interlinked. On the one hand, climate change poses a threat to human well-being and planet health. On the other hand, nature plays a critical role in climate and human systems.

For example, as best described by Sir David Attenborough in A Life on our Planet:

“Forests are a fundamental component of our planet’s recovery. They are the best technology nature has for locking away carbon. And they are centres of biodiversity. Again, the two features work together. The wilder and more diverse forests are, the more effective they are at absorbing carbon from the atmosphere.”

Sir David Attenborough

IPCC’s Sixth Assessment Report suggests that maintaining the resilience of biodiversity and ecosystem services at a global scale depends on effective and equitable conservation of approximately 30% to 50% of earth’s environmental assets, including land, freshwater and ocean areas.

The ability to measure the biophysical condition of environmental assets as well as changes to that condition allows for nature, and our impacts, to become more visible. With that, we can:

• Better understand the risks and opportunities of degradation and enhancement to the economy, human wellbeing and the climate.
• Establish targets (known as Condition Targets in the AfN) and track progress towards those targets as a way to mitigate risks or capitalise on opportunities.

What is the Accounting for Nature Framework and how does it help measure natural capital?

The Accounting for Nature Framework is underpinned by four core documents that outline the rules and processes to follow. These robust documents ensure the highest integrity and transparency of the environmental accounts.

1. The Accounting for Nature Standard: The Certification Standard (‘Standard’). This encompasses all the rules and processes needed to be adhered to for the preparation and certification of compliant Environmental Accounts.
2. Methods: Accounting for Nature Methods are separated by asset class such as soil, marine or native fauna and include detailed measurement, reporting and verification requirements. When preparing an environmental account, a specific Method must be chosen to adhere to for the account. *Note it is possible for project owners to develop their own Methods to be approved by AfN.
3. Claims Rules: This section outlines the rules around Certified/Self-verified Environmental Accounts and the use of AfN’s specific logos for certification purposes.
4. Audit and Verification Rules: The final section covers what is involved in audits under the Framework, and Accounting for Nature accredited Auditors.

Who is the Accounting for Nature framework for?

The Accounting for Nature Framework can be used by any organisation or individual, who wants to understand whether actions are improving or degrading natural capital and who wishes to use a world leading, scientifically rigorous methodology to create a certified environmental account.

Over the past decade, the framework has been tried and tested through a collaborative effort by around 200 world-leading experts. The framework is typically used by farmers, indigenous land managers, private conservation organisations, businesses, impact investors, governments and regional natural resource management organisations.

Are biodiversity credits the new carbon credits?

The robust measurement of natural capital provides the foundation we need to value it in a fiscal sense. Regulatory frameworks such as Accounting for Nature now help us quantify nature to specific and verifiable standards and offer a new way of protecting nature while promoting economic growth.

Just as the carbon market has grown rapidly in the last five to ten years, there is real scope for biodiversity credits to evolve on a similar trajectory. In her recent National Biodiversity Conference address, Australia’s new Minister for the Environment and Water recently expressed her enthusiasm for the scheme and that the government sees much potential in this space.

“I was fortunate enough to see Ken Henry’s address earlier this week – on accounting for nature and biodiversity credits. I think it’s a really exciting area of policy.  There is growing international effort to measure and account for nature – and Australia is a leader in this field.  If we can measure and describe improvements in biodiversity.  If we can formally credit a landholder’s efforts to enhance an area’s biodiversity. Markets can put a price on that work. Businesses can invest in it their credits. And landholders can then profit from their services to nature, creating a clear financial incentive for high-quality restoration work  [… ] similar to what we’ve done with carbon credits.

Minister for the Environment and Water, Tanya Pliberseck

Interested in measuring your natural capital or the Accounting for Nature Framework? 

We support companies in measuring their natural capital, reporting under the Accounting for Nature framework and developing Environmental Accounts for the Accounting for Nature Standard. With Accredited Experts on the AfN Register we’re here to support your project.
Email our team or Call +61 3 7035 1740. If you need advice on a wider climate change or sustainability strategy, we can help with that too.

Leila MacAdam

Senior Consultant

Australia

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Climate-related risk has become a well-researched and understood topic for organisations, but nature-related risk has taken a little longer to come into focus as a key area companies should be addressing. Climate and nature are interrelated and must therefore both be considered to truly achieve a net zero transition. While climate change has well-defined starting points and metrics like greenhouse gas emissions, assessing and categorising the impact on nature has proven more challenging. The forthcoming Taskforce on Nature-related Financial Disclosures (TNFD) framework aims to bridge this gap. Here we explore: what is the (draft) TNFD framework, what is the purpose of TNFD, who uses it, why consider reporting to the TFND and what are nature-related risks?

What is the TNFD framework?

The Task Force on Nature-related Financial Disclosures is a global initiative similar to the Taskforce on Climate-Related Financial Disclosures (TCFD) but is specifically focused on environmental risks and opportunities related to nature.

The TNFD framework aims to standardise and improve reporting on the impacts of business activities on nature, helping organisations assess and manage nature-related risks and opportunities effectively.

It is also an avenue to channel capital flows into positive action.

TNFD is in the process of testing and refining its framework. The release of Version v1.0 of the full framework for market adoption is expected to be released in September 2023.

What is the purpose of TNFD?

The TNFD serves to encourage businesses and financial institutions worldwide to evaluate and disclose the financial implications of their interactions with nature and biodiversity.

Similar to the TCFD for climate change, TNFD seeks to enhance transparency by enabling companies to assess nature-related risks and opportunities, facilitating informed decision-making that aligns with sustainable practices and the preservation of natural resources.

How does the TNFD framework define nature-related risks?

The TNFD framework defines nature-related risks as those arising from a company’s dependencies on and impacts on nature and biodiversity. These risks can have significant financial implications, as they may affect resource availability, disrupt supply chains, impact regulatory compliance, and result in reputational damage. For businesses, nature-related risks are intertwined with the benefits they gain from operating within biodiverse, healthy, and functional ecosystems. These benefits are extensive and cannot be easily measured or captured in a single indicator. Examples include:

• access to raw materials as a result of healthy soil, adequate water, successful pollination, and healthy oceans;
• the reliance of customers, staff and supply chain health on the essential functions provided by nature, such as filtering air and water or regulating the occurrence of storms, diseases and pests like insects;
• resilience of associated ecosystems to flood, drought and cyclones, erosion control (important for the stability of built infrastructure); and
• amenity value, mental and spiritual benefits, tourism and recreational opportunities associated with varied habitats, and their unique plant and animal species.  

All these nature benefits are threatened by biodiversity loss and ecosystem degradation.

The World Economic Forum ranks biodiversity loss as the third largest global risk over the next ten years. We do not have decades to gradually get used to the problem and take action, nature-related risks need to be studied and addressed now.

The TNFD framework aims to help businesses identify, assess, and disclose these risks to promote informed decision-making and sustainable practices.

Who reports to the TNFD?

The TNFD framework is designed to be used by a wide range of entities, including companies, financial institutions, investors, and other stakeholders.

The goal is to encourage both businesses and the financial sector to assess and disclose their nature-related risks and opportunities. While the framework is still being developed and refined, the expectation is that companies and financial institutions that have significant impacts on nature and biodiversity will be encouraged or required to report to the TNFD.

TCFD vs TNFD – what’s the difference?

TCFD (Task Force on Climate-related Financial Disclosures):

The TCFD focuses on climate-related risks and opportunities, encouraging reporting on emissions, energy use, and carbon pricing to integrate climate into financial strategies.

TNFD (Task Force on Nature-related Financial Disclosures):

Concentrates on nature-related risks and opportunities, aiming to integrate biodiversity, resource use, and ecosystem health into financial decision-making.

Both initiatives promote transparency, enabling informed decisions for sustainable practices, but TCFD deals with climate impacts while TNFD addresses biodiversity and ecosystem impacts.

In practice, these impacts may be inter-related. A changing climate increases stress on ecosystems, and climate-related impacts may be magnified if nature becomes more vulnerable.

A classic example is healthy mangroves along Australia’s coastline that buffer damage to infrastructure from cyclones that may become more frequent in a warming climate. If these mangroves become damaged due to nature-related risks, such as poor water quality, inadequate sediment or warming oceans, then their buffering of climate-related impacts may be lost.

Preparing TNFD reporting alongside TCFD reporting can provide a company with a more comprehensive and holistic understanding of both.

What is the LEAP assessment approach for nature-related risk?

The TNFD focuses on four key areas: Governance, Strategy, Risk Management, and Metrics and Targets.

To generate data to underpin the disclosures (along with other internal strategies, governance, and capital-related decisions), the TNFD has developed the LEAP assessment approach.

The LEAP assessment approach is as follows:

– Locate your interface with nature,
– Evaluate your dependencies and impacts,
– Assess your risks and opportunities,
– Prepare to respond to nature-related risks and opportunities and report.

LEAP is built on three core principles:

• Scope Clarity: It urges users to define their assessment scope thoughtfully before commencing.
• Stakeholder Engagement: Analysts and preparers are encouraged to collaborate with relevant stakeholders as they navigate the LEAP approach.
• Iterative Process: LEAP is designed to be iterative, aligning with enterprise risk management processes, reporting, and disclosure cycles. This applies across business locations and lines for corporations and across investment portfolios and asset classes for financial institutions.

It’s important to note that LEAP itself is not a mandated or recommended disclosure method by TNFD. Therefore, not everything identified, assessed, and evaluated using the LEAP approach necessarily needs to be disclosed as per TNFD recommendations.

Why should you consider reporting to the TNFD

TNFD reporting empowers organisations to navigate a changing business landscape, seize opportunities in the transition to a more sustainable economy, and contribute positively to environmental conservation.

There is also the possibility that in the future reporting to this framework may become mandatory, therefore companies who lean into understanding the framework early will benefit.

Drivers for reporting to the TNFD framework:

1. Risk Management: Identify and address nature-related risks that could impact your operations, supply chains, resilience and long-term financial stability.
2. Investor Confidence: Transparent reporting builds trust among investors and stakeholders by demonstrating your commitment to sustainable practices and may improve your access to capital.
3. Long-Term Resilience: Integrating nature considerations into decisions enhances your ability to navigate challenges like resource scarcity and regulatory changes.
4. Reputation and Innovation: Responsible reporting enhances your reputation, attracts sustainably aware consumers, and drives innovation for a competitive edge.

What steps can my organisation take now to understand our nature-related risk?

Organisations should consider the below steps to get a head start on nature-related risk measurement and management.

• Collate a spatial database of your company’s assets, key suppliers and licences, and key customers to support the identification of relevant local ecosystems.
• Review your company’s ESG policy to flag nature-related dependencies and risks that may need unpacking and further exploration.
• Identify what nature-related investments, certifications or regulations your company is already committed to monitoring and reporting against, such as:
  • Sustainable sourcing policies (e.g. deforestation-free products, or responsibly-caught seafood)
  • Water Stewardship
  • Maintenance of biodiversity offsets under the EPBC Act
  • Natural capital accounting, such as environmental condition monitoring via Accounting for Nature (AfN) or other standards
  • Waste management standards or circular economy mechanisms
  • Land-based GHG emissions accounts.

Want to understand more about the TNFD framework and how to report?

We support businesses across all stages of their climate and nature risk reporting including to the TNFD framework, the TCFD framework and also PCAF (Partnership for Carbon Accounting Financials) to enhance and integrate climate risk into internal processes.

To prepare for TNFD reporting, we can support your company to:

• Conduct a high-level ‘Locate and Evaluate’ assessment to identify material nature dependencies and risks,
• Analyse gaps and propose immediate opportunities for your business to consolidate data or improve monitoring of nature-related indicators, and
• Scope up a comprehensive process, including internal and external engagement, to conduct a full LEAP assessment according to those most material components.

We have team members who are on the TNFD Forum and are closely aligned with the latest developments in this space.

Tim Clare

Director

Contents

• Introduction
• Mandatory Disclosures
• For PRI Signatories
• Anthesis Support

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TCFD stands for Task Force on Climate-Related Financial Disclosures. It was formed after a review by the Financial Stability Board (FSB) into how the financial sector can best take account of climate-related issues. It was the first international initiative to examine climate change in a financial stability context.

The Task Force on Climate-related Financial Disclosures (TCFD), officially disbanded in late 2023, as the IFRS Foundation takes over responsibility for the monitoring of the progress on companies’ climate-related disclosures. 

The TCFD’s aim was to develop consistent climate-related financial risk – and opportunity – disclosures for use by companies in providing information to investors, lenders, insurers, and other stakeholders. The TCFD framework was adopted internationally at a rapid pace and became the backbone of climate-related disclosure.

Anthesis is proud to have joined over 1000 leading global organisations in being a supporter of the TCFD.

The TCFD considered the physical, liability and transition risks to an organisation and its assets associated with climate change and what constitutes effective financial disclosures across industries. TCFD helped companies to understand what financial markets want from disclosure in order to measure and respond to climate change risks, and to encourage firms to align their disclosures with investors’ needs.

Although a voluntary initiative, the TCFD mirrors a general trend for governments and central banks to increasingly require the disclosure of specific climate and wider sustainability related metrics and information.

Reporting in line with some of the TCFD’s recommendations is was a mandatory requirement for signatories of the UN Principles of Responsible Investment (PRI).

Mandatory Climate Risk Disclosures

In 2021, G7 countries backed moves to force banks and companies to disclose their exposure to climate-related risks. The UK became the first G20 country to make it mandatory for businesses to disclose climate-related risks and opportunities in line with the TCFD. A move which has accelerated the government’s commitment to make the UK financial system the greenest in the world.

Central banks and other financial regulators often feel left in the dark due to a lack of data around how exposed businesses on their territories are to climate risk. The new requirements helped investors and organisations to better understand the impact of climate change, and support pricing of climate-risks more accurately. The beauty of TCFD recommendations was that they provide a uniform way to assess how a changing climate may impact business strategy.

Disclosures for PRI Signatories

Since 2020, PRI signatories have been required to report to the PRI on several indicators regarding their management of risks and opportunities related to climate change. These indicators are modelled on the disclosure framework of the Financial Stability Board’s Task Force on Climate-related Disclosures (TCFD).

IN 2021, PRI signatories must disclose the organisation’s governance around climate-related risks and opportunities.

Recommended disclosures include:

• Describing the board’s oversight of climate-related risks and opportunities
• Describing management’s role in assessing and managing climate-related risks and opportunities

As of August 2021, this information does not need to be disclosed publicly as a standalone report or even as part of an annual report, although this is likely to follow as a requirement in the coming years. For now, a PRI signatory simply needs to disclose its governance structure within its PRI submission.

Nevertheless, the maturity of an organisation’s disclosure can range from limited to full disclosure. Therefore, it is important that the organisation is clear in explaining management’s role and any measures in place to increase board knowledge, and considers climate-related risks and opportunities from a physical, transitional and/or liability perspective.

How Anthesis can support you to report your climate risks

Understanding climate-related risks and building them into financial reporting is undoubtedly challenging. But the methods and tools that enable organisations to do so are maturing rapidly, as are the expectations of investors and regulators for better information. Companies that fail to grasp this agenda now face a range of risks and uncertainties. 

Anthesis believes that by investing in and implementing the right governance, risk management and strategic planning processes, companies can become more resilient to the risks associated with climate change and potentially also the opportunities posed. Through effective reporting, they will be in a strong position to make better decisions for their future business, as well as fully informing those stakeholders who have an interest in their activities. 

We believe now is the time to act and we are well positioned to support clients report on their climate risk and their wider climate change strategies via assistance with: 

• developing the wider climate change awareness and management frameworks within an organisation, often as part of a wider environmental, social and governance (ESG) program. 
• evaluating the climate-related risks and opportunities associated with an organisation and its strategy, including completing the scenario analysis on its material issues.
• developing climate risk mitigation strategies and programmes. 
• data identification, collection, analysis and reporting, including the calculation of an organisation’s Scope 1, 2 and 3 GHG emissions. 

Climate Risk Reporting Services

Maturity mapping

We will help you understand the quality of what your organisation already discloses  and how you stack up against the maturity of your peers’ disclosures and best-practices. Anthesis can support your company in developing a multi-year roadmap for an increasingly mature climate risk reporting and corresponding strategy that is in line with guidance and exemplifies climate leadership.

Governance

Anthesis can provide guidance on management and board-level oversight structures, change management, data governance, regular disclosure cycles and climate education. We can provide tailored climate education for stakeholders and upskill your entire workforce to build support and buy in at every level.

Scenario analysis

We offer industry-leading, data-driven climate modeling capabilities to conduct scenario analysis and stress testing, which will help your company better understand how its exposure to key climate related physical and transition risks may change over time and under many future climate worlds.

Strategy

Anthesis will provide guidance on climate change mitigation and adaptation strategies. Our in-house experts and external partners will help develop strategies to identify and implement solutions to build climate resilience as it relates to renewable energy, water management, net zero, lifecycle assessment, supplier engagement and other relevant climate risk mitigation efforts.

Reporting

We will integrate all your climate-related data and insights to produce comprehensive disclosures, so your company is prepared to report publicly; whether through your annual ESG report, Form 10-K or corporate disclosure.

Pauline Ledermann

Consultant

Adelaide

Contents

• What are the ASRS?
• Who is required to report?
• How to submit your Sustainability Report
• What is the reporting timeline
• Are there penalties for non-compliance?
• What are the assurance requirements
• Why do we need mandatory reporting?
• Benefits of reporting to ASRS
• How to prepare for ASRS
• Comparison to other standards
• 5 Key steps to take now

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Australia’s mandatory climate-related financial disclosures will began 1st January 2025 under the Corporations Act 2001 (Corporations Act). To comply with new rules in line with the mandatory Australian Sustainability Reporting Standard (ASRS) AASB S2, both large listed and private companies and financial institutions are required to assess and disclose information about their climate-related risks and opportunities in a ‘Sustainability Report’.

Whether your organisation falls under Group 1 starting from January 1, 2025, to report to ASRS and AASB S2, subsequent Groups 2 or 3, or is voluntarily reporting to align with stakeholders who must report and have heightened expectations for the supply chain, these new standards may still impact you.

This article covers the most common questions around ASRS and AASB S2, to help you understand the requirements and get started – or progress – your climate-related financial disclosures.

What are the Australian Sustainability Reporting Standards (ASRS)?

The Australian Sustainability Reporting Standards (ASRS) are new standards for assessing and disclosing information about an entity’s climate and sustainability-related risks and opportunities. The standards are internationally aligned with the International Sustainability Standards Board (ISSB) IFRS standards, to ensure consistent and transparent reporting globally.

What are ASRS AASB S2 and AASB S1 ?

The ASRS currently includes two standards – one is mandatory and one is voluntary (at this stage). They are:

• AASB S2 climate-related disclosures – applicable for mandatory climate reporting (integrates IFRS S1 and S2).
  ‘This Standard requires an entity to disclose information about climate-related risks and opportunities that could reasonably be expected to affect the entity’s cash flows, its access to finance or cost of capital over the short, medium or long term. For the purposes of this Standard, these risks and opportunities are collectively referred to as ‘climate-related risks and opportunities that could reasonably be expected to affect the entity’s prospects’. AASB S2 is available here from the AASB.
  
• AASB S1 general sustainability reporting requirements (voluntary for sustainability matters other than climate).
  “This Standard requires an entity to disclose information about all sustainability-related risks and opportunities that could reasonably be expected to affect the entity’s cash flows, its access to finance or cost of capital over the short, medium or long term. For the purposes of this Standard, these risks and opportunities are collectively referred to as ‘sustainability-related risks and opportunities that could reasonably be expected to affect the entity’s prospects’. More information on AASB S1 is available here from the AASB. 

As AASB S2 underpins mandatory climate reporting, it is the one business leaders are focusing their immediate attention on.

AASB S2 requires reporting entities to assess and disclose information about their climate-related risks and opportunities, with a focus on improving consistency, comparability and transparency of reported information.

Some Australian businesses are also considering AASB S1 to enhance broader sustainability-related disclosures and to prepare for future mandatory standards on nature and other topics.

The Australian Accounting Standards Board (AASB) developed the ASRS based on the International Financial Reporting Standards (IFRS) S1 and S2, issued by the International Sustainability Standards Board (ISSB), which set a comprehensive global baseline for sustainability-related financial disclosures.

The IFRS sustainability standards are being implemented by many jurisdictions globally and build on the work of the previous reporting guidance from the Taskforce for Climate-related Financial Disclosures (TCFD).

Does my organisation have to consider AASB S1 to comply with mandatory climate reporting?

No. In Australia, AASB S2 includes relevant provisions from AASB S1 / IFRS S1 for the purpose of climate-related disclosures, avoiding the need to consider AASB S1 separately.

You may wish to consider AASB S1 for nature and other sustainability-related disclosures.

Who is required to report in line with ASRS and AASB S2?

One of the first steps is to understand if and when you are captured by the new mandatory reporting rules. Your organisation may also choose to voluntarily report to ASRS and AASB S2.

Your organisation or financial product may be captured if it is required to publish financial statements under the Corporations Act, including if it is:

• A large proprietary company
• A listed company that triggers the company size thresholds
• An NGER reporter
• A Responsible Superannuation Entity or Managed Investment Scheme with 5 Billion or more in assets under management.

Reporting is being phased in based on a range of entity size and emissions criteria. To understand if your organisation falls under Group 1, 2 or 3, see the criteria below:

How to submit your mandatory climate-related financial disclosures – the Sustainability Report

Under the new mandatory climate reporting rules in Australia, companies must prepare an annual ‘Sustainability Report’ which forms part of annual reporting, alongside financial statements.

The timing of publication must be consistent with the requirements under the Corporations Act for corporate reporting. More on that below under timelines.

What type of information must be included in the Sustainability Report?

Under the Corporations Act, the Sustainability Report consists of:

1. the climate statements for the year;
2. any notes to the climate statements; and
3. the directors’ declaration about the statements and notes.

Climate Statements

Climate Statements must include information on climate-related risks and opportunities in line with AASB S2. This requires information including on:

• Governance and risk management processes, controls, and procedures;
• Climate resilience assessments underpinned by scenario analysis;
• Climate Transition Plans (CTP);
• Climate-related targets;
• Material climate-related risks and opportunities;
• Specific metrics and targets, including Scope 1, Scope 2 and Scope 3 greenhouse gas emissions.

Is the directors’ declaration for sustainability reporting the same as for financial reporting?

The directors’ declaration is a critical part of the Sustainability Report. This is similar but distinct from the director’s declaration for financial statements.

The declaration confirms that the climate-related disclosures (i.e. the climate statement and notes) comply with the Corporations Act and AASB S2.

What is the timeline for implementing reporting requirements in line with AASB S2?

Reporting commences from 1 January 2025 and applies to your first full reporting period on or after that date.

The reporting period for Sustainability Reports must align with your financial reporting.

• Group 1 – To start reporting for reporting periods from (i.e. the full reporting period starting on or after) 1 January 2025.
• Group 2 – To start reporting for reporting periods from 1 July 2026.
• Group 3 – To start reporting for the first full reporting period on or after 1 July 2027.

Given that Group 1 starts from 1 January 2025, do some Group 1 entities have to include a half-yearly report for FY25?

Report timing aligns with your first full financial reporting period on or after 1 January 2025. 

For example, if you complete financial reporting for the period 1 July to 30 June, your first reporting period is 1 July 2025 to 30 June 2026 (FY26).

Commonwealth public sector entities will also be captured by new Commonwealth Climate Disclosure requirements, tailored for the public sector. Read here for more information on Public Vs Private Climate-related Financial Regulations in Australia.

When is reporting on Scope 3 emissions required under the ASRS?

ASRS and AASB S2 allow for a 1-year relief for reporting Scope 3 emissions (which cover indirect emissions related to your organisation’s value chain and financing or investment activities). This means reporting Scope 3 emissions will be mandatory from your second reporting period.

Companies should be considering and putting into place the systems, processes and governance practices that will be required to meet new climate reporting requirements and adopt the necessary practices to avoid greenwashing. ​Doing this now will allow the best transition – and it will provide a surer foundation for a more profitable business – because a compliant business is a profitable business.”

Jo Longo, Chair ASIC (Keynote Speech April 2024).

Are there penalties for non-compliance with ASRS and AASB S2?

The non-compliance penalties under ASRS and AASB S2 closely mirror financial reporting penalties under the Corporations Act.

As the regulator, ASIC has stated it recognises there will be a period of transition as industry builds its capabilities and implements the organisational changes required to comply with these mandatory climate-related reporting requirements. Accordingly, they will take ‘a pragmatic and proportionate approach to supervision and enforcement as industry adjusts to the new requirements.’

ASIC is expected to release new or updated regulatory guidance in November 2024.

In line with non-compliance penalties for financial reporting, directors may face personal liability for misleading statements in Sustainability Reports due to a lack of due diligence. False or misleading climate statements could result in penalties up to $15 million or 10% of annual turnover, with directors personally liable.

Will small and medium-sized enterprises (SMEs) have to comply with the ASRS?

The smallest company size thresholds (i.e., in Group 3) match those for large proprietary companies under the Corporations Act, meaning most SMEs are excluded.

The Legislation allows the Minister to lower these thresholds in the future, potentially including more entities.

What are the assurance requirements for Sustainability Reports in line with ASRS and AASB S2?

The government has tasked the Australian Auditing and Assurance Board (AUASB) with phasing in assurance requirements for sustainability reporting. This will likely start with limited assurance of GHG emissions reporting from year 1.

Full assurance of climate disclosures will be from 1 July 2030 (in line with the amendments to the Corporations Act) and include an audit opinion (being a positive assurance that the report complies with the Corporations Act and applicable AASB standards).

The AUASB roadmap for phasing in assurance is expected by the end of 2024.

What are the key changes in the final ASRS from the initial Exposure Draft?

Following the AASB consultation process, the AASB has made some key changes to the final Standards. The overarching change is to more closely mirror the ISSB standards IFRS S1 and S2. This includes:

• Introducing AASB S1 aligned with IFRS S1, as a voluntary standard for general sustainability reporting on topics other than climate.
• Updating AASB S2 to better align with IFRS S2 for climate-related disclosures and ingrate applicable IFRS S1 provisions. This means some of the Australian nuances have been removed, reverting more closely to the international standard. Such as:
  • Removing prioritisation of NGER methodologies for measuring GHG emissions, with the Standards now prioritising the use of the GHG Protocol unless otherwise required by law. Removing the scope of scenarios to use. While noting that requirements to apply a 1.5°C scenario and a higher warming scenario have been included in the Corporations Act, which means entities must still apply a minimum of two scenarios. The AASB confirmed its decision, however, to remove requirements to consider industry-specific metrics (which IFRS S2 requires) until a later date.

Why do we need mandatory climate reporting?

The need for standardised, mandated reporting is being recognised globally, with countries around the world implementing climate-related disclosure requirements similar to Australia.

For the last decade, Australian companies have been reporting on their climate-related sustainability efforts using a range of global and voluntary standards. This lack of unified structure poses challenges for stakeholders in understanding and comparing a company’s approach, objectives and prospects towards climate and sustainability, particularly in the context of risk management, targets and transition plans.

Investors now want to understand clearly how companies incorporate sustainability considerations into their strategic decision-making, risk management, and financial statements. They want to know how a company’s sustainability-related risk and opportunities align with its strategy and business model and, ultimately, its prospects for creating long-term value.

From submissions to the consultation, it is clear many business leaders view the ASRS as a crucial step toward improving transparency and accountability in sustainability reporting. They see it as both a compliance requirement and an opportunity to enhance governance, drive innovation, and meet market expectations. Leaders also welcome the government’s commitment to positioning Australia as a global sustainability leader by promoting sustainable finance.

What are the benefits of reporting in line with the ASRS?

Key benefits of climate-related reporting in line with ASRS and AASB S2 and AASB S1 include:

• Aligns with Global Standards: The ASRS positions Australian businesses alongside global peers in major markets around the world, setting a global benchmark and standard for sustainability-related reporting.
• Consistency and Clarity: With a standardised framework built on accounting principles, ASRS improves consistency and robustness in your reporting, giving you a clearer path for understanding your strengths and weaknesses to identify improvements.
• Investor Transparency: Reporting in line with ASRS provides investors with crucial insights into your company’s climate-related risks, opportunities, and sustainability performance.
• Government Oversight: ASRS enhances government and regulatory visibility of climate risks and opportunities across the economy, supporting informed policy decisions.
• Drive Sustainable Performance: ASRS reporting enables your business to improve internal risk management processes, uncover cost-saving opportunities, foster innovation, enhance resilience and ultimately – and critically – drive sustainable performance by integrating sustainability into your overarching business strategy.
• Build Stakeholder Trust: Reporting to ASRS strengthens stakeholder trust, aligns with ESG investment trends, and reinforces how you are meaningfully acting on corporate social responsibility.
• Enhanced Data Management and Insights: If you are leveraging tailored digital software to manage and analyse your data to align with mandatory reporting, it will improve your reporting efficiency while enhancing the quality of your insights. A robust software platform reduces errors, delivers accurate real-time data, and supports informed decision-making, resulting in a stronger, more transparent, and rigorous sustainability strategy.

As we move into this mandatory setting, companies will gain the most by focusing not only on compliance but ultimately on the strategic benefits to gain deep business insights, improve resilience and performance and attract investment and other opportunities.

Amy Quinton, Principal Consultant, Anthesis

How to prepare for ASRS and AASB S2 compliance

Here are some key questions your organisation should be asking itself to begin preparing for compliance to ASRS and AASB S2.

• When and how will new requirements affect your organisation? Understand the timeline and scope of ASRS compliance to determine your reporting timeline – or that of your supply chain partners.
• Is training required to bring senior leadership teams up to speed? Assess whether your senior and leadership team need training on ASRS and AASB S2 to ensure informed decision-making and to fully understand the breadth and collaborative efforts of work to be done. This is a big change to business-as-usual (BAU), so you need the whole leadership team on board for success.
• Is your materiality assessment up to date? Have you identified the correct climate-related risks and opportunities? Review your materiality assessment to ensure you’re addressing your most relevant and material climate risks and opportunities.
• Are you prepared for scenario analysis? Start developing an understanding of scenario analyses to evaluate how different climate outcomes could impact your business. Seek expert help if you are unsure here.
• How are you planning to capture and disclose GHG emissions, including Scope 3? Ensure your systems for accurate GHG emissions data collection and transparent reporting are up to date. A good software solution will be a valuable tool to help you manage and enhance your reporting.
• How does your corporate strategy align with your sustainability agenda? Review your corporate strategy in line with new mandatory climate-related financial disclosures to ensure they are both integrated and directed towards including your sustainability goals into your overarching plan for long-term resilience and to drive sustainable performance.
• Start exploring digital software that will ease reporting requirements: Tools like Mero can help automate data collection and manage all ESG data and reporting, aligned specifically to ASRS. Digital platforms can simplify complex reporting processes, improve data accuracy, and save significant time and resources for your organisation while establishing rigour and transparency to support assurance.

How do the ASRS compare to other international sustainability reporting standards?

The Australian Accounting Standards Board (AASB) developed the ASRS to align the International Financial Reporting Standards (IFRS) Foundation’s Sustainability Disclosure Standards (also known as ISSB Standards).

These standards provide a consistent and comprehensive global baseline across IFRS S1: General Requirements for Disclosure of Sustainability-related Financial Information; and IFRS S2 Climate-related Disclosures. The standards also build on the work of the Taskforce for Climate-related Financial Disclosures (TCFD).

In Europe, the ESRS (European Sustainability Reporting Standards) are part of the CSRD (Corporate Sustainability Reporting Directive), which mandates sustainability reporting for large companies in the EU, focusing on environmental, social, and governance (ESG) issues.

In the U.S., the Securities and Exchange Commission (SEC) is responsible for regulating sustainability and climate-related disclosures. The SEC proposed climate disclosure rules in 2022, requiring publicly listed companies to disclose their GHG emissions, climate-related risks, and impacts on financial performance.

Many countries around the world are implementing mandatory climate and sustainability disclosures. Learn more about Singapore and the wider APAC region here, and the global state of play here.

5 Key steps to take now

With 1 January 2025 fast approaching, key steps you should take now include:

1. Undertake a gap analysis between current practices and incoming mandatory reporting requirements in line with ASRS and AASB S2.
2. Analyse gap analysis findings and prepare an actionable roadmap addressing gaps and what you need to focus on to achieve compliance.
3. Start capacity building and training for Board, executive and management levels.
4. Start identifying your key climate-related risks and opportunities across your business, focusing on both short- and long-term impacts to guide strategic decision-making and compliance with AASB S2.
5. If you aren’t sure where to start or if you are on the right track, get help now. This is complex, and few companies will be able to navigate this alone. There are many experts available to help guide you throug,h so don’t be afraid to reach out to set yourself up for – and maximise – your success.
   

How can Anthesis help you to prepare for reporting in line with ASRS and AASB S2?

Anthesis is among a select group of firms with extensive expertise in all aspects of climate disclosures, supported by advanced digital tools and software. Our experts understand the complexity required for compliance and have the skills to drive long-term resilience and sustainable performance for your business.

Anthesis experts can guide you through the full process of reporting to the Australian sustainability standards or assist with particular elements of reporting such as analysing your climate-related risks and opportunities, scenario analysis, Scope 3 reporting and climate transition planning. We can guide you on how to integrate outcomes into strategic plans and risk management processes, ensuring you’re prepared for compliance. Our digital solution Mero is designed to align with ASRS disclosures, providing a streamlined solution for data collection and management. It ensures transparency, data integrity and rigour, supporting your reporting processes and assurance requirements.

As technical experts and trusted advisors to some of the world’s most well-known companies for over a decade, we’re here to help you through this new era of reporting.

NGERs or the National Greenhouse and Energy Reporting scheme, is Australia’s national legislative framework for reporting and publishing company information about greenhouse gas (GHG) emissions, energy production and energy consumption. It is administered by the Clean Energy Regulator (CER). The CER registers corporations, processes reports via the Emissions and Energy Reporting System (EERS), and enforces compliance.

Who needs to report to NGERs is determined by specific emissions thresholds, classed as the Facility threshold and the Corporate Group threshold. Entities that exceed these thresholds must register and report annually.

For more information, see our article ‘What is NGERs, who needs to report and how to comply‘.

Beyond compliance, NGERs and the Safeguard Mechanism provide strategic frameworks for companies to manage regulatory risk, identify decarbonisation opportunities, and integrate emissions reduction into long-term plans.

Now is the time for large emitters to ensure their decarbonisation strategy is robust and future proof because the pace of change will only accelerate towards 2030 and beyond.

How we help clients

We are registered auditors under the National Greenhouse and Energy Reporting Act 2007 and provide assurance in compliance with the National Greenhouse and Energy Reporting framework that covers both NGERs and Safeguard Mechanism liable entities. For more than ten years, we were active members of the Clean Energy Regulator’s Audit Panel and have provided audit and assurance services for some of Australia’s largest and most complex emitters.

Anthesis has deep expertise in the Safeguard Mechanism and NGERs, advising many of Australia’s largest and most complex sites reporting under the legislation. Our Managing Director was a key member of the Australian Government team that designed and implemented the NGER legislation.

Together, our multidisciplinary team has been trusted to deliver dozens of NGERs/SGM/ACCU projects for some of Australia’s largest emitters and project developers. Our team has some of the best subject matter experts in this space ready to support and guide your team.

Our NGERs audit and advisory services include:

• End-to-end NGER data compliance and support, including collection, verification, assurance, and upload support
• Higher order method review, compliance assessment and optimisation
• NGER compliance gap analysis and reporting optimisation
• Engagement and support with the Clean Energy Regulator and DCCEEW for complex and high-impact matters
• Independent, limited and reasonable assurance audited services

Ask us about our NGER Health Check

Our Anthesis NGERs health check involves our experienced, detail-oriented carbon accountants reviewing your annual carbon and energy report with a fresh set of eyes. We will seek and report common issues and opportunities. Get in touch to learn more.

The Australian Government’s Safeguard Mechanism was introduced in 2016 and places limits on Australia’s largest emitting sites or ‘facilities’. Currently, around 215 facilities that emit over 100,000 tonnes of carbon dioxide equivalents (tCO2-e) are covered under Australia’s Safeguard Mechanism.

The Safeguard Mechanism is administered through the government’s Clean Energy Regulator (CER) via the National Greenhouse and Energy Reporting scheme (NGERs). NGERs provides a framework for Australia’s highest emitting organisations to measure, manage and report on their emissions.

The Safeguard Mechanism covers 28% of Australia’s emissions, usually in complex and hard-to-abate sectors. This makes it a critical piece of the government’s climate change policy and targets to achieve 43% emissions reduction by 2030 and net zero by 2050.

As of July 2023, the Safeguard Mechanism requires facilities to reduce emissions by 4.9% annually and has introduced tradeable safeguard mechanism credit units (SMCs). For reporting entities to maximise the benefits of these and avoid liability for exceedance, there is now a clear reason to cut emissions faster and harder. 

Large emitters in Australia are increasingly focusing on not just compliance with the Safeguard Mechanism, but also how to strategically navigate the framework to reduce risk and capitalise on opportunities, while navigating the decarbonisation pathway.

Now is the time for large emitters to ensure their decarbonisation strategy is robust and future proof because the pace of change will only accelerate towards 2030 and beyond.

How we help clients

Our team of Australian compliance auditors and strategic advisors is dedicated to helping medium to large businesses achieve their sustainability and decarbonisation goals and comply with the Safeguard Mechanism.

Anthesis has deep expertise in the Safeguard Mechanism and NGERs, advising many of Australia’s largest and most complex sites reporting under the legislation. Our Managing Director was a key member of the Australian Government team that designed and implemented the NGER legislation, and our technical specialists have delivered dozens of complex NGERs and Safeguard Mechanism projects.

We assist reporting entities in understanding their legislative obligations, reducing emissions and augmenting their strategic decision-making. We excel at navigating technically and legislatively complex problems, to ensure our clients are better informed and better prepared for the deep decarbonisation required to achieve Australia’s net zero future. 

Our Safeguard Mechanism Australia audit and advisory services:

• Modelling potential emissions reduction trajectories, prioritising decarbonisation initiatives and understanding future capex, opex and production impacts
• Leveraging grants and subsidies to accelerate decarbonisation and limit capital impact
• Safeguard Mechanism Australia reporting and compliance support
• Assisting with Safeguard policy consultation, expert advisory and submission

Claire Richards

Principal Consultant

Contents

• Introduction to ISSB
• Goals of ISSB
• What are the IFRS S1 and S2 Standards?
• IFRS S1
• IFRS S2
• Key Challenges

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An Introduction to ISSB

The International Sustainability Standards Board (ISSB) was established by the International Financial Reporting Standards (IFRS) Foundation in November 2021 at COP26 in Glasgow. Following strong market demand, the ISSB develops standards to ensure a global baseline of sustainability disclosures aligned with the needs of investors and financial markets. The ISSB acts as an independent standard-setting body within the IFRS Foundation.

As sustainability begins to play a more significant role in investment decision-making, there are increasing demands for companies to provide high-quality, globally comparable information on sustainability-related risks and opportunities. This is what the ISSB seeks to do.

IFRS Sustainability Disclosure Standards are developed by the ISSB and have been in effect since January 2024. IFRS Sustainability Standards are developed to enhance investor-company dialogue so that investors receive decision-useful, globally comparable sustainability-related disclosures that meet their information needs.

The current landscape of voluntary, sustainability-related standards is fragmented and difficult to navigate. The ISSB standards aim to simplify this complexity and avoid additional costs by reducing the chance of double-reporting through the creation of one comparable global baseline – building on guidance from the Sustainability Accounting Standards Board (SASB), Task Force on Climate-Related Financial Disclosures (TCFD), and Climate Disclosure Standards Board (CDSB).

The ISSB is internationally backed by the G7, G20, International Organization of Securities Commissions (IOSCO), Financial Stability Board (FSB), African Finance Ministers and Finance Ministers, and Central Bank Governors from more than 40 jurisdictions. The UK, Australia, Canada, and some jurisdictions in Asia, Africa and Latin America plan to adopt the ISSB standards. Also, Japan has recently announced that it will adopt the ISSB as the basis for its sustainability standards.

What are the goals of the ISSB?

The ISSB has four key objectives:

1. to develop standards for a global baseline of sustainability disclosures;
2. to meet the information needs of investors;
3. to enable companies to provide comprehensive sustainability information to global capital markets; and
4. to facilitate interoperability with disclosures that are jurisdiction-specific and/or aimed at broader stakeholder groups.

What are the ISSB’s IFRS S1 and S2 Standards?

In June 2023, the ISSB issued two standards: S1 (sustainability-related) and S2 (climate-related). However, we are expecting to see additional topical standards released by the ISSB such as IFRS S3.

Importantly, the IFRS Foundation has now assumed responsibility for the TCFD, whose recommendations are already used by thousands of organisations across the world for reporting on climate-related risks and opportunities. Companies applying IFRS S1 and S2 will meet the TCFD recommendations since they are fully incorporated into the ISSB’s Standards.

What are the key elements of IFRS S1?

IFRS S1 requires a company to disclose information about its governance, strategy, and risk management processes, as well as any metrics and targets, regarding its sustainability-related risks and opportunities. These four core content areas reflect how companies manage those risks and opportunities. The four areas are consistent with and build on, the recommendations of the TCFD – extending the structure beyond climate to consider sustainability-related risks and opportunities.

The key requirements of IFRS S1 are for a company to disclose material information about the sustainability-related risks and opportunities that could reasonably be expected to affect the entity’s cash flows, access to finance, or cost of capital over the short, medium, or long-term.

What are the key elements of IFRS S2?

IFRS S2 sets out the requirements for disclosing climate-related risks and opportunities.

Similar to S1 but with an explicit climate focus instead of a wider sustainability lens, S2 requires that an entity provide information about climate-related risks and opportunities – both physical and transition – that could reasonably be expected to affect its cash flows, access to finance, or cost of capital over the short, medium, or long-term.

This includes information on four pillars – governance, strategy, risk management, and performance (also known as metrics and targets), in alignment with IFRS S1 and the current guidance framework set out by the TCFD. Specifically, this entails:

• the governance processes, controls, and procedures used to monitor, manage, and oversee climate-related risks and opportunities;
• the strategy for managing climate-related risks and opportunities;
• the processes used to identify, assess, prioritise, and monitor these, including whether and how those processes are integrated into and inform the overall risk management process; and
• the entity’s performance in relation to its climate-related risks and opportunities, including progress towards any climate-related targets it has set and any targets it is required to meet by law or regulation.

What are the challenges?

The challenges associated with meeting the requirements of the ISSB will be similar to that of any sustainability or climate-related disclosure. This primarily starts with difficulties in collecting the necessary data and undertaking the relevant assessments, such as those to understand climate risk or materiality (e.g., single versus double materiality). As part of this, there might be challenges around quantifying exact time horizons to evaluate impact at a more granular level.

Businesses will likely encounter challenges around disclosing this information, requiring many to reframe current reporting processes to integrate both financial and sustainability reporting. For some, this might be a greater shift than for others. At the same time, though, each of these challenges presents an opportunity for thought leadership around what exactly best practice sustainability disclosure looks like, all the way from the initial data gathering through to publishing integrated reports.

How can Anthesis support you?

Anthesis believes that by investing in and implementing the right governance, risk management and strategic planning processes, companies can become more resilient to the risks associated with climate change and other sustainability risks. And through effective reporting, they will be in a strong position to make better decisions for their future business.

Anthesis helps organisations cut through the complexity of reporting frameworks and focuses on what matters to key stakeholders, with an end-to-end offering that sets the stage for ISSB-aligned disclosure, risk management and value creation.

While many organisations have carried out single materiality assessments to help shape their ESG strategies, most have not focused in on financial materiality of sustainability-related risks and opportunities. As a crucial step towards ISSB-aligned reporting, our materiality process helps organisations focus in on and prioritise sustainability-related risks and opportunities that could affect the organisation’s prospects.

We use a robust risk and opportunity screening process which draws on expert sustainability panels, and industry frameworks and utilises an Anthesis designed ESG risk screening tool, RiskHorizon™.

Ever since the inception of the TCFD, Anthesis has been at the forefront of developing methodologies to support organisations in understanding their resilience to climate change, both the risks and opportunities. Our ISSB alignment offering extends beyond climate, using our experience across all areas of sustainability, industry, geography, and along the value chain.

Jon Taylor

Executive Director

North America

Hope Bristow

Principal Consultant

North America

Contents

• The value of disclosing
• Improve your score
• CDP services

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CDP, formerly known as the Carbon Disclosure Project, is a not-for-profit that helps organisations, such as investors, companies, cities, states, and regions, disclose their environmental impact. Organisations are requested by investors and/or customers to respond to questionnaires across three topics: Climate Change, Water Security, and Forests.

The questionnaires evaluate governance, strategies, targets & performance, risk & opportunity management, quantitative metrics, and supply chain engagement. CDP provides responders with a letter score from D to A for Climate Change, Water Security, and each commodity within Forests. Organisations who achieve an A are recognised on CDP’s A List for their high performance. All final scores are publicly available on CDP’s website.

The Value of Disclosing to CDP

• Investors care about CDP: In 2023, 746 investor and large purchaser signatories, with over US$136 trillion in assets requested CDP information from 15,000+ companies worldwide.
• CDP is a leading source of environmental information: CDP data is regularly used by financial institutions, including Bloomberg Terminal, STOXX, FTSE/Russell, MSCI ESG, ISS ESG, Google Finance, and Amundi.
• Alignment with relevant and emerging ESG disclosure frameworks: CDP is aligned with the Task Force on Climate-related Financial Disclosures (TCFD), S&P Global Corporate Sustainability Assessment (S&P CSA), RE100, and for financial services institutions the Net Zero Asset Managers (NZAM) initiative and CEO Water Mandate.
• Provides insight to develop climate strategies: CDP provides a framework for identifying and closing gaps in corporate ESG performance – from climate governance to target setting.
• Opportunity for public recognition: CDP’s annual scoring provides the opportunity to be recognised on their coveted A List, which recognises corporate leadership in sustainability.

How Anthesis Can Support

Anthesis meets clients on their CDP journeys, bridging the gap between strategic and technical expertise so that we can work in partnership with our clients to drive ESG programs forward. We guide clients new to the reporting process, support existing reporters to maximise scores, and maximise CDP leaders’ efforts toward target setting, environmental stewardship, and innovation.

Our CDP services include:

• Support on Investor & Supply Chain reporting across CDP Climate Change, Water Security, and Forests
• Project management, including CDP response writing and data collection
• Climate & water risk analysis
• CDP gap analysis & mock scoring assessments – to predict CDP score results before submission, close any point gaps, and recommend actions for improvement
• Peer benchmarking, stakeholder engagement, and supplier engagement support

Additional Analytics support:

• GHG Scope 1, 2, and 3 inventories
• Water accounting
• Climate risk modeling
• Water risk assessment
• Target/goal setting
• Emissions reduction strategy
• Renewable energy procurement
• Carbon offsetting strategy
• Internal carbon pricing
• Low-carbon product analysis