Authored by Emma Newnham and Linda Le
On 27 March 2024, the Treasurer introduced and read the Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill 2024 (Bill) to the House of Representatives. The fourth schedule of the Bill sets out a new mandatory sustainability reporting regime. It was subsequently passed by the House of Representatives without amendments and, at the time of writing, is still to be considered by the Senate. For more information on the Bill, see: Climate-related financial disclosure and Update on mandatory sustainability reporting in Australia.
In introducing the Bill, the Government also signalled that it was taking a ‘climate first, but not only’ approach to mandatory disclosure requirements.[1] In this article, we consider what’s coming down the pipeline with nature and inequality and social-related financial disclosures and, specifically, provide an update on the work of the Taskforce on Nature-related Financial Disclosures (TNFD) and the Taskforce on Inequality and Social-related Financial Disclosures (TISFD).
Nature-related financial disclosures
Formally launched in June 2021, the TNFD is a market-led, science-based and government-backed initiative which aims to equip organisations with the tools needed to assess, report and act on their nature-related dependencies, impacts, risks and opportunities. After an extended design and consultation period, the TNFD published its final set of disclosure recommendations and guidance in September 2023. For more information on the TNFD framework, see: TNFD publishes final framework as TCFD disbands.
Since its publication, support for the TNFD framework has continued to gain momentum. In June 2024, the TNFD announced that a total of 416 companies across 50 jurisdictions had already committed to disclosing their material nature-related issues to investors and stakeholders based on the TNFD framework. Our recent analysis of entities in the S&P/ASX 50 Index found more than half (58%) are aligning with the TNFD framework, with a number having indicated they would adopt the TNFD framework for FY24.
Earlier this year, the International Sustainability Standards Board (ISSB) announced that it would commence work on nature-related issues drawing on the recommendations of the TNFD. Specifically, the ISSB announced that it would assess and define current nature (and human capital) disclosure limitations, identifying possible solutions and deciding if standard setting was required. This was welcomed by the ISSB as a critical next step in developing a global baseline for sustainability reporting following the release of its IFRS S1 and IFRS S2 sustainability reporting standards in 2023.[2]
More recently, the TNFD published its first set of additional sector guidance, providing guidance on applying the core global disclosure metrics and providing core and additional sector disclosure indicators and metrics for specific sectors. This additional sector guidance applies to a number of sectors, including: aquaculture, biotechnology and pharmaceuticals, chemicals, electric utilities and power generators, food and agriculture, forestry and paper, metals and mining, oil and gas and financial institutions. Further draft sector guidance is currently open for consultation until 27 September 2024.
Inequality and social-related financial disclosures
The Taskforce on Inequality-related Financial Disclosures (TIFD) recently merged with the Taskforce on Social-related Financial Disclosures (TSFD) to form the Taskforce on Inequality and Social-related Financial Disclosures (TISFD). This merger was in direct response to market demand for harmonised disclosure guidance.[3]
The newly-formed TISFD is a global initiative that will be launched in September 2024 to develop recommendations that enable businesses and investors to effectively identify, assess and report on their inequality and social-related risks, opportunities and impacts.[4] It has been consulting on its governance structure and technical scope as it prepares for launch.
Next steps
The imminent passing of the Bill to introduce mandatory climate reporting in Australia, coupled with the TNFD and emerging TISFD frameworks signifies a major shift towards comprehensive and transparent sustainability reporting. This in turn will present both challenges and opportunities for companies and may require you to adapt your reporting practices to proactively prepare for these new requirements, including:
Assessing current reporting practices to ensure you are prepared for mandatory climate reporting if it will apply to you, and adopting an approach that will facilitate TNFD, TISFD and potentially other sustainability reporting in future;
Considering nature risks and disclosures and the LEAP approach set out in the TNFD framework is a great place to start there;
Engaging with stakeholders, including investors, regulators and other key stakeholders to understand and meet their evolving expectations;
Investing in the tools and expertise necessary for accurate reporting and compliance with these frameworks; and
Staying informed and proactively monitoring for updates to the TNFD and TISFD.
For information and assistance on aligning with these new and emerging frameworks, and integrating them into your reporting practices, please contact us.
This publication is a joint publication from King & Wood Mallesons, and KWM Compliance Pty Ltd (ACN 672 547 027) trading as Owl Advisory by KWM. KWM Compliance Pty Ltd is a company wholly owned by the King & Wood Mallesons Australian partnership. KWM Compliance Pty Ltd provides non-legal compliance and governance risk advisory services for businesses. KWM Compliance Pty Ltd is not an incorporated legal practice and does not provide legal services. Laws concerning the provision of legal services do not apply to KWM Compliance Pty Ltd.
[1] Explanatory Memorandum, [4.12].
[2] ISSB delivers further harmonisation of the sustainability disclosure landscape as it embarks on new work plan (tnfd.global)
[3] Joint Statement on Convergence Between TIFD and TSFD — Task Force on Inequality-related Financial Disclosures (TIFD) (thetifd.org)
[4] TISFD
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