Financial Sector (Climate-related Disclosures and Other Matters) Amendment Bill

Members, we now come to Part 2. This is the debate—

💬 Andrew Bayly: Madam—

CHAIRPERSON (Hon Jacqui Dean): —on clauses 21 to 35 and Schedule 2 amendments to the Financial Reporting Act 2013. The question is that Part 2 stand part.

Sorry, I was so enthusiastic. I just want to ask a little bit about new section 19B in Part 2, which relates to the climate standards. And of course, as I said at the outset, I haven’t been on the Economic Development, Science and Innovation Committee, so I haven’t had all the liberty of hearing all the arguments. But new section 19B sets out that “The purpose of climate standards is to provide for, or promote, climate-related disclosures, … [to] (a) encourage [any] entities to routinely consider the short-, medium-, and long-term risks and opportunities that climate change presents for the activities of the entity … (b) enable entities to show how they are considering those risks and opportunities; and (c) enable investors and other stakeholders to assess the merits of how entities are considering those risks and opportunities.”

Hey, those are quite significant issues, particularly where you start to put it in a way that investors will be in a position where they can rely on those statements and, obviously, other stakeholders, which are customers, etc. And I don’t think anyone is suggesting for a moment that companies should be shirking their obligations around climate change. What it seems is that these are wonderful, broad principles, but I was just wondering whether the Minister might be able to enlighten us, because “broad” sounds great in a piece of legislation that takes up a few lines, but what does it actually mean and how will it be implemented? And that gives rise—if they’re extensive and you’re requiring a whole lot of financial modelling, as well as environmental modelling, on not only cost factors but on risk factors, taking into account what might happen, you start to get into a whole range of different aspects.

What this doesn’t do is put a limit on it or provide any clarity. What it does is a never-ending course. And you can imagine over time, what might start out with relatively brief statements actually turns into being a meal, and under Government-proposed legislation that is often the case. So there doesn’t seem to be any limit to it, and one of the reasons I’m highlighting this and seeking the Minister’s response to it is that the wider and the deeper this goes and who is exercising the discretion of how far you go when you write that report will also give rise to the issue of indemnities, particularly where investors are involved, and who is going to pay for that, given that we don’t have clarity around who the insurance practitioners are, as the Minister responded to in Part 1. And so it just looks like we’re creating what seems good on a piece of paper. Wonderful for the Hon James Shaw to announce overseas what he’s done, but without any clarity around actually what it is seeking to achieve and how far it goes.

For those who are at home, new section 19B lays out—because not everyone will have the benefit of this fine, fine legislation in front of them—you know, we’re looking at “the short-, medium-, and long-term risks and opportunities that climate change presents for the activities of the entity or [the] entity’s group; … (b) [enabling] entities to show how they are considering those risks and opportunities; and (c) [enabling] investors and other stakeholders to assess the merits of how entities are considering those risks and opportunities.”

Now, I mean, it goes back to the point which I covered in my introductory remarks, but also in terms of the transitional—I mean, all of this, the recommendations of the XRB, will be based upon the Task Force on Climate-related Financial Disclosures work from 2017. So, you know, that’s all out there. That’s been out there for a long time. It’s pretty well understood and that will form the basis of that thinking. So I don’t think there’s a lot more to say on that. Those standards may be reformed over time. There may be further meetings, but it’s actually not new or surprising. It’s kind of out there for businesses to see and look at. And indeed, many businesses already are.

Well, thank you for that. So I think what the Minister in the chair is trying to suggest is that there is enough clarity with the standards now that if you apply those three concepts, and particularly the one where you’ve got investors investing in a company on the basis of what is included in those reports—are you suggesting that there is a clear limit? Because what happens is, in many cases, you can set objectives like these, which are great sounding, but it is the extent of the requirements. So does it set out, for instance, the need to do economic modelling around it? Does it have to have taken into account assessment of risk factors, and, therefore, who do you rely on to provide those? Are you looking at impact of climate change on infrastructure or housing or shoreline or rising water tables or more frequent, intense storms? To what extent is there clarity in the standards? Because, otherwise, this will end up being a situation that in 10 years’ time we’ll all be sitting here and the reports cost hundreds of thousands for these large entities to do—and, no doubt, the Government will extend the mandate beyond that—and they will just grow without any clarity, because as people do more and more, they’ll get deeper and deeper and they’ll cost more and more and they’ll take longer to do.

I probably should have also repeated my other point that while the External Reporting Board standards will be principle-based, guidance will also be issued. That’s the point of having the consultation: so that clear guidance can be issued to companies.

So I suppose my last point is: the rush to get this legislation out—no doubt, I suspect it is because the Hon James Shaw is rushing off to a climate change conference overseas—I’m just a little bit surprised that there hasn’t been more thinking and preparation for the introduction of this bill. We’ve got some serious issues. One is that we don’t even know what the requirements are of who will be an assurance practitioner. Secondly, there is probably a lack of clarity around the standards and how they will be applied. And we’ve just voted down the Hon Todd McClay’s Supplementary Order Paper to extend and provide more time to enable those firms to get appointed, understand their liabilities and put it in place. So, I suppose, is that correct? We are going into a bill that is going to rip through this House today and, very shortly, in the next couple of days, without enough clarity around some of those key aspects?

I propose not to debate the points that refer to Part 1 of the bill that the member continues to raise, because we have already voted on Part 1 and he has raised those points several times before. I believe they have been well rebutted. But for the sake of the record, let me say I acknowledge that he is raising those comments again, and I refer him to my previous answers on the assurance providers. We’ve just had the debate about the principles and discussed that there’ll be guidance issued. I’m happy to respond to any new material the member might want to raise.

I move, That the question be now put.

Motion agreed to.

Part 2 agreed to.

Part 3 Amendments to other Acts