The proposal requiring financial services businesses and managed funds to include climate metrics in their financial reporting is leading to complications, particularly around consistency in reporting standards, says Zenith Investment Partners head of responsible investment and sustainability, Dugald Higgins.
The new law, proposed by Treasury, would require a range of companies and managed funds to incorporate sustainability and climate data into their annual financial statements. Higgins said he supports standardising such disclosures for both companies and funds.
“Standardising disclosures across firms and funds is critical to offering complete information to investors, specifically regarding carbon emissions,” he said.
However, Higgins noted issues with the way the reporting requirements are being proposed.
“The new reporting standard is based on a framework designed for companies, not funds, so it creates problems in developing a level playing field for reporting.
“This is now further complicated by a divergence in proposals between the Australian Accounting Standards Board [AASB] and Treasury, creating a great deal of uncertainty for issuers of funds.
“One proposal would result in the majority of the market being captured under a system prone to instability and lacking transparency for fund reporting. The other scenario improves on these areas, but only captures a small minority of the market. How is the industry supposed to interpret that?
“Standardising disclosures will only help the market if it’s fit-for-purpose. The current ambiguity from Treasury and the AASB seems to actively create information asymmetry, not reduce it. We are not suggesting that every fund can, or should, report, but clarity is urgently needed.
“With the managed funds industry worth $3 trillion, itis disruptive and confusing if the rules are continually rewritten, as we have found with some other jurisdictions such as the US, UK and Europe,” Higgins says.