The impact of Australia’s mandatory climate reporting on large superannuation funds

Australia is on the cusp of a significant transformation in corporate sustainability reporting. In September 2024, legislation was passed that will require mandatory climate-related financial disclosures for various sectors, including the superannuation industry. This new regime, aligned with global best practices like the Task Force on Climate-related Financial Disclosures (TCFD), introduces phased reporting requirements based on entity size and impact, with some of the largest entities in the superannuation space, particularly those with assets of $5 billion or more, being directly affected.

Who is impacted and when?

For large superannuation funds with $5 billion or more in assets, reporting obligations will begin for financial years commencing on or after 1 July 2026. These entities fall into what is referred to as “Group 2” in the phased implementation plan. The standards they will be expected to meet are set out in the Australian Sustainability Reporting Standards (ASRS), which closely follow internationally recognized frameworks, with detailed obligations around governance, strategy, risk management, and metrics, including financed emissions.

Key reporting requirements for superannuation funds

1. Financed Emissions

One of the most crucial elements for superannuation funds will be reporting on the financed emissions from their investment portfolios. Financed emissions represent the carbon footprint of the companies or assets within a fund's investment portfolio, and superannuation funds will be required to disclose these under the ASRS. This information is critical for assessing the climate risks tied to their investment strategies.

2. Broader Disclosure Requirements:

• Governance: Funds will need to explain how climate-related risks and opportunities are managed at the board and executive level.
• Strategy: This section will require disclosure of the fund’s resilience under various climate scenarios, including a world with a temperature increase limited to 1.5°C and one where the increase exceeds 2°C. Superannuation funds will need to show how they are preparing for both best-case and worst-case climate outcomes.
• Risk Management: Funds must outline their processes for identifying and managing climate risks, integrating these into their overall risk management strategies.
• Metrics and Targets: Aside from financed emissions, funds must report on their Scope 1, 2, and (eventually) Scope 3 emissions. Targets set for reducing emissions and progress toward those targets will also need to be disclosed.

3. Assurance Requirements:

A phased assurance approach is in place, starting with limited assurance requirements, building up to reasonable assurance by 2030. This will apply to all disclosures, ensuring data quality and credibility in reports.

The internal work required for reporting

To meet these requirements, superannuation funds will need to undertake significant internal efforts, including:

• Data Collection: Gathering accurate emissions data, particularly from unlisted assets, will be a key challenge. Many portfolio companies may not have the systems in place to report this data readily.
• Scenario Analysis: Conducting robust scenario analysis that aligns with the ASRS will require new expertise and models to assess climate risks.
• Governance Adjustments: Funds will need to ensure that climate risks are effectively integrated into their governance structures, potentially requiring new committees or board oversight mechanisms.
• Assurance Readiness: Preparing for the assurance requirements will necessitate close coordination with auditors and ESG experts to verify the quality and completeness of disclosures.

Pathzero’s role in supporting superannuation funds

As superannuation funds prepare for these reporting obligations, Pathzero is uniquely positioned to assist with the specific challenges they will face. Our platform is designed to facilitate the flow of critical data between asset owners, fund managers, and the companies within their portfolios.

For superannuation funds managing unlisted assets, obtaining accurate and timely emissions data can be particularly difficult. Pathzero can streamline this process by connecting funds with their investees through a collaborative network, ensuring that key data points—such as financed emissions and transition plans—are accessible, accurate, and dynamic.

Our platform also allows for real-time collaboration, where investors can ask questions, leading to more thorough disclosures across the portfolio. By leveraging Pathzero’s technology, superannuation funds can meet their reporting obligations efficiently, while improving their risk management and transparency across climate-related risks.

Conclusion

The Australian government's push for mandatory climate-related financial disclosures marks a crucial step towards greater transparency in managing climate risks. Large superannuation funds, particularly those with $5 billion or more in assets, will soon face stringent reporting requirements under the ASRS, with significant internal work required to meet these obligations.

Pathzero is well-positioned to support these funds, particularly in areas such as financed emissions reporting and unlisted asset data collection, enabling them to effectively manage the risks posed by climate change.