Webinar | Strengthening governance for climate risk and sustainability — Transcript

Full transcript

1. 0:03Good morning everybody, and welcome to our April  2026 webinar, sustainability webinar that is,
2. 0:11and today we're looking at strengthening  governance for climate risk and sustainability.
3. 0:18I would like to introduce you to my fellow  presenter Mark Smith. Mark is a brand new
4. 0:25director in our IFRS and corporate reporting  team here in Melbourne. Mark is an experienced
5. 0:31director across IFRS accounting standards as well  as IFRS sustainability disclosure standards. Um
6. 0:40so I'm I'm very happy to have Mark here um  and to help me do this presentation. So good
7. 0:46morning Mark and welcome. Good morning Aletta  and thank you very much for that introduction.
8. 0:50I'm really excited to be here today. Thank  you and look forward to it. Thank you. Now,
9. 0:57BDO acknowledges the traditional custodians  of country throughout Australia and their
10. 1:03connections to land, sea, and community,  and we pay our respect to their elders,
11. 1:08past and present and extend that respect to all  Aboriginal and Torres Strait Islander peoples.
12. 1:16I would like to give you a bit of an overview of  our 2026 monthly sustainability webinars. Now,
13. 1:23the dark green block is the webinar we're  looking at today, strengthening governance for
14. 1:29climate risk and sustainability. Next month,  in the light green block, special shout out,
15. 1:36we will be looking at lessons learned from year 1.  In particular, by tomorrow on the 30th of April,
16. 1:46our 31 December 2025 clients that are group one  will have to launch their mandatory sustainability
17. 1:54reports with ASIC and many of them have already  done so. Therefore, next month on the 27th of May,
18. 2:01um we will look at a bit of an overview of  what's happened, what lessons can we learn
19. 2:07from what's been published and um our team will  also share, our BDO team will also share lessons
20. 2:16we've learned in getting clients ready and how  we can do it better ourselves, our clients,
21. 2:22um etc. So call out to those uh two webinars today  governance and next month looking at lessons from
22. 2:31year one and then from June onwards we continue  our journey through AASB S2 we look at climate
23. 2:39risk assessment uh we look at scenario analysis in  August we look at financial modeling in September
24. 2:47we're looking at metrics and targets in October  we look at decarbonization strategies in November
25. 2:54and finally in December building a mandatory  sustainability report. I just want to make it very
26. 3:00clear the focus of each of these webinars is to  educate to transfer knowledge to all our attendees
27. 3:08um so you feel confident um to prepare your first  AASB S2 report. Obviously if you need help please
28. 3:17um reach out. We are happy to help you and our  focus is also to prepare assurance ready mandatory
29. 3:24sustainability reports. Um I would also like  to advertise our next carbon accounting master
30. 3:33class. It's a virtual one-day session that Mark  will be presenting with me going forward. It's a
31. 3:41long day for just one person virtually. So the  next one is on Wednesday the 13th of May and
32. 3:48again our focus in this master class is to look  at boundary setting policy basis of preparation
33. 3:55measuring scope one and two measuring scope three  and and also how do you reconcile your underlying
34. 4:03carbon data to your general ledger. Um and we  will also have Avani join us now to all of you
35. 4:10um who attend this um sustainability webinar. Um  we've been working with Avani uh for quite a while
36. 4:18um on all our client engagements and we've  also given them feedback and suggestions on
37. 4:24what we think they could build into Avani to  make it more user friendly, more efficient,
38. 4:30more effective. Um and Avani um has just  released an update to their technology
39. 4:37um which we've already tested which we are trying  um and implementing on many of our clients. So
40. 4:43the whole reconciliation of the GL is now really  seamless. Um so I would encourage you to another
41. 4:50look at the Avani platform. Um and then the master  class please register Wednesday the 13th of May.
42. 5:01latest developments. Now, as you know,  in sustainability, there's always latest
43. 5:06developments. And one that I'm incredibly excited  about is that today we are launching a checklist
44. 5:14that we've prepared for boards and directors.  And the checklist is about what boards need to
45. 5:21ask about mandatory sustainability reporting.  So this is one of the lessons we've learned as
46. 5:28we've been presenting to audit committees and  boards about mandatory sustainability reporting
47. 5:34um and giving them an update and they had to give  their final approval. Many of these board members
48. 5:40these directors have asked so what should I be  asking um what would be the focus? What is your
49. 5:47recommendation? What should we look at? There's  so much information here. So, we've prepared this
50. 5:53checklist um and we've um to help board members  um and I've also um also presenting on women to
51. 6:01women on boards tomorrow where we'll share it um  with them and you'll shortly see it on LinkedIn.
52. 6:08It's already on our website. So, if you uh want  to download this checklist, please do so. So,
53. 6:15really we're saying for boards and directors, it's  a structured set of questions. Um and as you know
54. 6:22I like counting. So there are 60 questions and I  I like round numbers. So there are 60 questions
55. 6:28to guide oversight, enable constructive challenge  and support informed sign off of this mandatory
56. 6:36sustainability report. So we want directors to  get comfort on the questions they should ask
57. 6:43um in in in order to sign off. Um something  sorry just a second. What I also wanted to
58. 6:51flag and as you can see on the screen um we've  structured it in a very similar way to our AASB
59. 6:57S2 disclosure checklist. Um so there are  questions there are overall questions to
60. 7:03get you started. Then there are questions around  pillar one governance. Uh pillar two strategy,
61. 7:09pillar three risk management. the the fourth  pillar around metrics and targets and finally a
62. 7:17little bit of a summary next steps. Um so I think  a very useful uh tool for boards. Another new
63. 7:27development is a development or an announcement  by the international sustainability standards
64. 7:34board on the 22nd of April. Um so the ISSB um has  discussed during their April board meeting um what
65. 7:44to do around nature related disclosures and in  the end they decided to not publish an exposure
66. 7:54draft or an um of a potential IFRS S3 um which  was the original plan. instead they've decided to
67. 8:04publish and prepare prepare and publish an IFRS  practice statement. Now we are used to practice
68. 8:10statements. We've got a practice statement on  how to determine materiality for example. Now
69. 8:17the practice statement would complement IFRS S1  which is the general requirements for disclosure
70. 8:24of sustainability related financial information  and IFRS S2 climate related disclosures without
71. 8:32changing any of the disclosures in IFRS S1 or  S2. Um so it's important when a company needs
72. 8:40to provide information about nature related risk  and opportunities in accordance with IFRS S1 this
73. 8:48particular practice statement would explain how  to do this. Um and the reason they've made this
74. 8:56decision is that this form of standard setting  minimizes disruption and they think that is really
75. 9:03important at the moment. So the big push by the  international sustainability standards board is a
76. 9:10focus on IFRS S2 climate related disclosures and  they would not want an IFRS S3 to distract from
77. 9:18that. Um so if an entity looks at which topics are  material for their business and they do that under
78. 9:27IFRS S1 and they identify that nature related  disclosures is material for their stakeholders.
79. 9:35IFRS S1 doesn't tell you how to disclose nature.  It just says assess which topics are important to
80. 9:43your stakeholders. um entities will then defer  to this practice statement to get guidance on
81. 9:50what they should be disclosures disclosing around  nature. Um so a a really important development.
82. 9:59Um interestingly the chair of the ISSB said  providing material nature related disclosures
83. 10:08is not optional. um if IFRS S1 already requires  that um a practice statement will guide companies
84. 10:17on how to provide such disclosures. I just want  to take a step back from this for a second.
85. 10:24um if S1 if adopted by a particular jurisdiction  for example Australia um if it's already adopted
86. 10:39if it's mandatory yes then nature related  disclosures um would not be optional however
87. 10:45we've got an interesting situation in Australia  where AASB S1 which is based on IFRS S1 one is
88. 10:54currently voluntary. Um therefore this practice  statement um is linked to a voluntary standard.
89. 11:04Um so it would be interesting to see what the  regulator um what Treasury um would do with this
90. 11:11practice statement. Um what would the do with  one? Will they make it mandatory and therefore
91. 11:19make this practice statement mandatory or not?  So, it's a bit of a wait and see on what's going
92. 11:25to happen in Australia. My my guess is that in  Australia, we'll be conservative as well. Let's
93. 11:34implement AASB S2 across group one, two, and three  before we start to introduce further standards and
94. 11:43practice statements, but it is definitely in the  pipeline. So a bit of an update on nature related
95. 11:51disclosures and the other thing that I wanted to  add to that is as you know 2 has been based on
96. 12:00the TCFD task force for climate related financial  disclosures. Now in the same way this new practice
97. 12:08statement will be based on the task force on  nature related financial disclosures the TNFD
98. 12:15and they've got the same four pillars a governance  strategy risk um and impact management so a slide
99. 12:23chain not just risk management but risk and  impact management and finally metrics and
100. 12:29targets. So this is already available for entities  to consider on a voluntary basis if nature related
101. 12:37financial disclosures um is important to  their stakeholders and to their business.
102. 12:45Then today we are talking about governance. Now  governance um in AASB S2 distinguish between
103. 12:54those charged with governance boards directors and  then governance at a management or executive level
104. 13:01and therefore I thought it would be a good idea  to just recap director's duties about mandatory
105. 13:09sustainability reporting. Um so the first thing  to note um and I've included an and linked to an
106. 13:18article it's first thing to note is that whatever  duties directors have in respect of financial
107. 13:25reporting um those duties are now extended to also  cover the accompanying mandatory sustainability
108. 13:34report. Therefore um if you look at director's  duties around care and diligence to um you know
109. 13:42it will capture climate risks as well. Um the  same requirements around misleading and deceptive
110. 13:49conduct um and also the same requirements  around general um uh disclosure obligations,
111. 13:57maintenance of documents and information  provided to others. Um also contraventions
112. 14:04of the provisions can attract maximum civil  penalty for an individual of $1.5 million.
113. 14:15Um so that's the first thing to note. The second  thing to note is a director's declaration.
114. 14:22So directors currently do a director's declaration  over the financial statements and they will
115. 14:28now also be a um required to do a director's  declaration on the mandatory sustainability report
116. 14:35um for the first three years. So that would  be from 1 January 25 to 1 January 28. Um it's
117. 14:43a modified um director's declaration where they  just have to state whether the entity has taken
118. 14:50reasonable step steps to ensure that the contents  of the sustainability report are in accordance
119. 14:57with corporations act. And then after that initial  three-year period, they'll have to state that the
120. 15:03sustainability report are in accordance with the  corporations act including that the sustainability
121. 15:09report complies with the sustainability standards  which at this stage is only 2 which is mandatory.
122. 15:19very important is that directors have personal  liability for the contents of the financial
123. 15:26statements and the sustainability report. However,  for a period of 3 years, three sections um would
124. 15:36be protected from that personal liability. So,  we've got modified liability um set settings,
125. 15:44three protected statements for a period of 3  years. So scope three scenario analysis and
126. 15:52transition plan. Now that has triggered in my head  that there's a bit of a director's expectation gap
127. 16:02and I thought I'll illustrate it um in respect of  group one directors for 30 June 2026 reporting.
128. 16:11This would equally apply to group two  directors at 30 June 27 and group three
129. 16:17directors at 30 June 28. So it would apply  in the first year that an entity is complying
130. 16:25um or applying AASB S2 . So if we look at this  as an example on the left hand side I've got all
131. 16:32the sections within AASB S2 at a high level  the headings. Um and then in the next column
132. 16:41um in this first year group one entities have to  report everything within 2 with that one exception
133. 16:49scope 3 emissions. But then also for 30 June 26  from a limited um auditors uh financial report
134. 16:59auditors have to provide limited assurance um over  three sections. So there is um limited assurance
135. 17:07over governance um three subpar paragraphs around  risk and opportunities and really it is just
136. 17:15listing the physical risk the transition risks and  describing them um and then also measurement of
137. 17:22scope one and two emissions. However, in the next  col column, the directors have personal liability
138. 17:31for everything in that AASB S2 report with the  exception of the three protected statements. Now,
139. 17:38if you compare those three columns, what do  we report? Um, what would we have limited
140. 17:45assurance on and what would the directors have  personal liability for? You can see there's a
141. 17:52director's expectation gap in that there are three  particular areas and they are big areas that have
142. 18:00to be included in the mandatory sustainability  report. It's not subject to any assurance and
143. 18:08the directors have personal liability. And  really to me that is where directors have to
144. 18:14be extra careful that they make sure they ask  appropriate questions and where management and
145. 18:20executive have to be extra careful that they make  sure they have appropriate disclosures because the
146. 18:26directors will have personal liability and the  auditors will not provide any assurance on it.
147. 18:33So that's just the the concept of a a director's  expectation gap and that is part of why we've
148. 18:40created um this checklist for boards so they  can see very clearly in particular pillar two
149. 18:50um and pillar three and risk management and  part of pillar four where the auditors won't
150. 18:56be providing assurance what questions they  should be asking. If we move on and we look
151. 19:03at the objective and scope of AASB S2. So whenever  we do a webinar I think it's incredibly important
152. 19:10to come back to the foundations of AASB S2. Um and  the objective of AASB S2 is to require an entity
153. 19:18to disclose information about its climate related  risks and opportunities that is useful to primary
154. 19:26users and primary users are current investors and  future investors, current financiers and future
155. 19:35financiers. So not just current shareholders,  current um financeers, if they don't care
156. 19:42about climate risk, potential future investors and  future financiers might care about climate related
157. 19:50risk and opportunities. Um and we make these  disclosures in order to for them to make decisions
158. 19:56around providing resources to the entity in the  form of investment or or financing the business.
159. 20:04Very important. This slide is critically important  especially that concept of prospects. So2 requires
160. 20:12an entity to disclose information about climate  related risk and opportunities that could
161. 20:19reasonably be expected to affect the entity's  um cash flows, its access to finance or cost of
162. 20:27capital over the short, medium or long term. And  those cash flows, those access to finance, cost
163. 20:36of capital are grouped together as prospects. So  throughout the standard, the assessment is do you
164. 20:44think this risk and opportunity could reasonably  be expected to affect the entity's prospects
165. 20:51over the short, medium or long term? And whenever  you see the word prospects, it means cash flows,
166. 20:57access to finance or cost of capital. um AASB S2  applies to um climate related risks. So physical
167. 21:06risk and transition risk and also climate related  opportunities and again that very important part
168. 21:12climate related risk and opportunities that could  not reasonably be expected to affect the entity's
169. 21:19prospects are outside the scope of AASB S2.  Now, it's really important that prospects and
170. 21:27an assessment of prospects um and where the risk  and opportunities will impact prospects over the
171. 21:35short, medium, long term is incredibly important  when you prepare your mandatory sustainability
172. 21:41report. And I just want to pause here for  a second. Many entities come up with a very
173. 21:47long list of potential climate related risks and  opportunities. let's say a risk of 50 or 20 a lot
174. 21:57um it doesn't mean that all 20 or all 50 on  that list will end up um within the mandatory
175. 22:04sustainability report to comply with AASB  S2 because if you look at that bottom or the
176. 22:11second bullet point there climate related risk  and opportunities that management and directors
177. 22:18have assessed that could not reasonably  be expected to affect affect the entity's
178. 22:23prospects are outside the scope of AASB S2 and  outside the mandatory sustainability report.
179. 22:30And that's why at BDO we believe after you've  done a climate risk and opportunity assessment,
180. 22:36you have to do a prospects assessment to narrow  it down to those risk and opportunities that would
181. 22:43actually appear in your sustainability report.  And then later on when we draft the actual report,
182. 22:50we consider material information about the risks  and opportunities that could reasonably expected
183. 22:58to affect your prospects. So there's a prospects  assessment after you've done your climate risk
184. 23:04and opportunity assessment and then there's a  materiality assessment when you prepare your
185. 23:10sustainability report. Um, I love this TCFD  overview of what is happening within AASB S2
186. 23:21on how we look at risk and opportunities, how they  impact our strategic planning, our risk management
187. 23:27and finally flow through to the financial impact  in the financial statements and under AASB S2 we
188. 23:35have to disclose current impact in the current  financial statements, anticipated financial impact
189. 23:42in future financial statements as well as consider  the whatifs. How would the financial impact look
190. 23:51differently uh under a high and a low warming  scenario as required by the corporations act? Um
191. 23:57this diagram extends on the previous one slightly  where it says if you look at the risk there's a
192. 24:03bit of a description or examples of the various  risks examples of the various opportunities
193. 24:10and how that impacts strategic planning risk  management financial impact and flowing through
194. 24:16to revenue expenses assets liability capital  and financing and that's what we have to model.
195. 24:25So if we step back with that as a background  and we look at governance um the importance
196. 24:32of governance um you know the TCFD have run a  number of workshops on governance um and I've
197. 24:41got the link in there and they've said disclosing  governance practices provides important context
198. 24:47for investors and other users of disclosures. Um  and investors and other users of these disclosures
199. 24:55really want to understand the role that the  board plays in overseeing climate related
200. 25:01issues as well as management's role in assessing  and managing those issues and and such information
201. 25:09supports evaluation of whether climate related  issues receive appropriate board and management
202. 25:16attention. And to me that last bullet point is  critical. Current investors, future investors,
203. 25:26current financiers, future financeers want to  evaluate and want to assess through the governance
204. 25:34disclosures whether climate related issues receive  appropriate board and management attention and and
205. 25:45um I think that's really important and that's  their starting point. Also um in the 2020 status
206. 25:52report um the task force conducted surveys to see  which disclosures do users find most useful and
207. 26:01the following governance disclosures were rated as  most useful. Um so how the board considers climate
208. 26:09related issues when they oversee major capital  expenditures, acquisitions um and and divestments.
209. 26:18how the board considers climate related issues  when they review and guide strategy and also what
210. 26:25is the description of management's role. So these  were key disclosures that users provided feedback
211. 26:31on. So if we have a look at where it all started  and we go back to the TCFD recommendations,
212. 26:40the TCFD recommendations said we've got these four  pillars, but everything is within governance. So
213. 26:48governance, the big circle, that's what we need  first. We need governance over everything to do
214. 26:54with climate and then we have strategy and then  we have risk management and finally we might have
215. 27:00metrics and targets. So governance um as is as a  starting point as illustrated by this figure also
216. 27:09they had the same four pillars and if you look at  governance um their two guiding principles were or
217. 27:16recommended disclosures describe board's oversight  of climate related risk and opportunities and
218. 27:23then secondly describe management's role in  assessing managing those climate related risk and
219. 27:29opportunities. So a clear distinction about what  the board is responsible for and what management
220. 27:36is responsible for and I think that is carried  forward to AASB S2 and something one would love
221. 27:42to see in a2 compliant mandatory sustainability  report. They've also given additional guidance in
222. 27:52the TCFD on aspects to disclose. So around the  board, these are the kind of things that we're
223. 27:58looking for processes and frequency by which  the board and or audit committees are informed
224. 28:06about these issues. You'll see that in AASB S2.  Um whether the board or the board committees
225. 28:13consider climate related issues when they review,  they guide strategy, major plans etc. um and how
226. 28:21the board monitors and oversees progress against  goals and targets um which we now call metrics
227. 28:28and targets. Um also additional information  if you look at management um have we assigned
228. 28:35responsibility to certain uh people or committees?  Um how does the organizational structure look
229. 28:43like? um processes by which management is informed  about climate related issues um and how management
230. 28:52monitors these climate related issues. So you  can see these requirements of the TCFD really
231. 28:58carried forward into 2. Another interesting thing  if you look at the TCFD workshop materials um for
232. 29:08the governance recommendation and I've put a red  block around it for the governance recommendation
233. 29:14nearly 50% of the companies indicated disclosing  governance practices around climate related
234. 29:21issues was challenging because their governance  practices apply to all issues not just climate.
235. 29:31Now this is an interesting one because we're  seeing this in Australia as well. Um there are
236. 29:37governance processes in place which talks about  board's governance over over financial reporting.
237. 29:44Um and the the the trick here and and obviously  the G the board is responsible for everything
238. 29:50that happens in the business but it's important  to go back to those documents and the charter
239. 29:58of the board and make sure that we particularly  articulate um there's governance over all issues
240. 30:05including financial reporting, sustainability  reporting, call out climate. Um so it has to be
241. 30:12called out very specifically. Um what they've said  to the TCFD way back when is companies did not
242. 30:19want to disclose their governance around climate  related issues separately from their disclosure of
243. 30:25their general governance practices which applied  to all types of issues. And then what was very
244. 30:32interesting um is at the bottom to address this  concern the task force clarified that it did not
245. 30:39intend for companies with comprehensive governance  processes that address climate related issues to
246. 30:47create separate processes or duplicate existing  disclosures. um if a company's disclosures clearly
247. 30:55describe its governance processes and it is clear  that those processes also cover climate related
248. 31:03issues then that's fine. So it's really important  to make sure for simplicity and clarity purposes
249. 31:12that we don't have governance processes dealing  with mandatory sustainability reporting sitting
250. 31:18outside your existing governance processes for  all other matters. But maybe go back to those
251. 31:23documents and clarify specifically that governance  covers financial reporting and mandatory
252. 31:30sustainability reporting in brackets climate at  the moment. Um so under AASB S2 again there's a
253. 31:37governance pillar looking at those charged with  governance and looking at management. Um we know
254. 31:44there's 150 disclosures in AASB S2 and there's a  link to our checklist. Only nine of them relate
255. 31:51to governance and those disclosures subject to  assurance in year one. Mark I'll hand over to you
256. 31:59to talk through those nine disclosures. Thank  you very much. Thank you Aletta and and again
257. 32:05just building on from what you've said already I  would like to start actually first by looking at
258. 32:09what the actual objective is the governance  disclosure requirements under pillar one of
259. 32:14AASB S2 because I find as preparers sometimes we  we get very locked into the details straight away
260. 32:20um and start looking at those nine disclosures  without actually maybe taking a step back and
261. 32:24looking at what the overall objective is of the  disclosure requirements. If we go to that slide,
262. 32:30we'll actually see um and if you don't  mind moving this to the next slide there,
263. 32:35we can actually see specifically what the  objective is of the governance disclosure
264. 32:39requirements under S2 and that is to obviously to  enable users of general purpose financial reports
265. 32:46to understand the governance processes, controls  and procedures that an entity uses to monitor,
266. 32:54manage and oversee climate related risks and  opportunities. And I just want to I want to
267. 32:59touch on a few things here in relation to this  objective. And I think Olivia, you already
268. 33:02touched on a few when talking about the TCFD and  some of the recommendations that came out from
269. 33:06there. But a really key emphasis is on what those  processes are, what the controls are, and what
270. 33:13the procedures are. How is this actually being  implemented in practice is vitally important. And
271. 33:18again, when we're thinking about decision useful  information, it's one thing just to say that we we
272. 33:23have a governance framework or we have governance  structures in place, but actually disclosing and
273. 33:28going that one step forward to actually disclose  what are those processes and how are they being
274. 33:33implemented as well as controls and procedures.  Um, I I would say as preparers, if you have not
275. 33:39yet started this, if you have not really even  considered the AASB S2 disclosure requirements,
276. 33:44if you're either in the group two or group three  category, this is actually a really good time
277. 33:48to take a look at your existing processes, your  existing controls and procedures and ask yourself
278. 33:53the question as to whether or not they embody and  encompass climate related risks and opportunities.
279. 33:59Now what we've seen so far from from quite  a number of preparers is is the fact that
280. 34:03in in most cases these frameworks these structures  already exist but it's about now trying to include
281. 34:09and embody and encompass climate and climate  change. So quite often we actually see that
282. 34:13this has already been done and there's usually  a category that focus specifically on ESG. Uh
283. 34:19however to go one step further now to also think  about climate change specifically climate related
284. 34:24risks and opportunities. So I thought it was a  really good time and opportunity just to take a
285. 34:27look back at this objective because quite often  we are referring back to this objective to make
286. 34:31sure that the disclosures that are being included  are decision useful for the primary users. So if
287. 34:37we move forward then as as we've discussed  already the actual disclosure requirements
288. 34:41are broken up into two sections and and mainly  focused on the roles and responsibilities of
289. 34:46those charge with governance as well as the roles  and responsibilities of management. Okay. Okay,
290. 34:52if you look at the nine disclosures, a big focus  and attention is really on those charged with
291. 34:56governance first and then that flows on to to  what is management's responsibility. So again,
292. 35:01if this is something that you are just starting  for the first time, I think it's really important
293. 35:04that you can clearly define upfront who is  considered those charged with governance, who's
294. 35:10going to have the responsibility for overseeing  climate related risk and opportunities and do you
295. 35:14have clearly defined roles for management. So  if we look at the first disclosure requirement
296. 35:18then under S2 just to make something very clear  as well you often see in the first disclosure
297. 35:23paragraph under S2 under this pillar it actually  uses the word shall disclose information. So this
298. 35:28is not actually a choice you actually have to  disclose information in relation to to to your
299. 35:33governance structures and frameworks. So again  the first real disclosure requirement there is
300. 35:37has the entity actually defined that governance  body or that individual that is responsible
301. 35:43for the oversight of climate related risk and  opportunities. And that's why I've just mentioned
302. 35:47the starting point really is to think about who  is that body. It could be a subcommittee of the
303. 35:53board as well. In most cases it's the board but  it could also be a subcommittee of the board. It
304. 35:57could be also an individual on the board that is  dedicated responsibility. But have you actually
305. 36:02identified that and therefore you will need to  disclose that as well. If we move to the next
306. 36:08disclosure requirement again the question there is  an has the entity actually disclosed information
307. 36:16about how those responsibilities for climate  related risks and opportunities are reflected
308. 36:21in the terms of reference your mandates your role  descriptions and any other related policies that
309. 36:27are applicable to that body i.e. being the board  or subcommittee that is responsible for oversight
310. 36:32of climate related risks and opportunities. Now  again the key emphasis here that I want to put
311. 36:36in is the word how right so we want if you look  at the first disclose requirement that I just
312. 36:42covered in the previous slide that is talking  about what body is actually tasked with the
313. 36:46responsibility now the next disclosure requirement  is is basically tell the primary users how those
314. 36:53responsibilities are being reflected so it's one  thing to say that there is a specific body that
315. 36:57has been tasked with with with the responsibility  for oversight but if that is not actually included
316. 37:02and reflected in documents such as the terms of  reference whether it be for the board or whether
317. 37:06it be for the subcommittee or any mandates or  role descriptions it's really going to you know
318. 37:12raise a few questions from primary users as to  whether whether or not this is actually being
319. 37:17implemented in practice. So it's vitally important  that if you haven't started that process yet that
320. 37:22you start thinking about where we can incorporate  and encompass climate related risk and opportunity
321. 37:26oversight in our terms of reference mandates role  descriptions. So if we look at the next disclosure
322. 37:33requirement working through the nine disclosure  requirements um the next one actually again deals
323. 37:39with has the entity disclosed information about  how the body or individual determines whether they
324. 37:46have the appropriate skills and competencies  and I think this is vitally important again
325. 37:50because the key word there is how how are we  determining whether the board or that body
326. 37:56that has been determined as I've mentioned above  having oversight how have how has it been detered
327. 38:01detine whether they have the appropriate skills  and competencies. Are they available? Are those
328. 38:05skills and competencies available? And if not,  will they be developed in the future? What is
329. 38:10the plan going forward to develop those skills to  develop those competencies? Because it's vitally
330. 38:15important again from a primary users perspective.  It's one thing to know who the body is um who the
331. 38:21individual is that is tked, but we want to know  and understand how is the skills being developed.
332. 38:25This is obviously something that is relatively  new as well. So it's vitally important that the
333. 38:29message is sent to those primary users that  yes perhaps the skills are not being de have
334. 38:33not been developed to date but there is a plan  and a process in place to develop those skills
335. 38:38and to show and to demonstrate that organizations  are actually taking climate risk and governance
336. 38:44quite seriously. So if we keep moving as well  um the other disclosure requirement is has the
337. 38:50entity disclosed information again about how and  how often that body or individual is informed
338. 38:58about climate related risks and opportunities  and this is going again if when we look at the
339. 39:03objective what are the processes what are the  internal controls and what are the procedures
340. 39:06that have been put in place to ensure that that  body that has been del been tasked with that
341. 39:11responsibility to oversee risks and opportunities  how they've been informed about it. So what is
342. 39:16the process internally? Can you describe the  process internally that is taking place that
343. 39:21where management is reporting into that board or  there's an individual that's reporting into the
344. 39:26board? That is something that needs to be clearly  described how and how often that is taking place.
345. 39:34If we go to the next one again, has the  entity disclosed information about how the
346. 39:40body or individual takes into account climate  related risk and opportunities when overseeing
347. 39:44the entity strategy when overseen or taking on  major transactions or major investment decisions.
348. 39:50The real thing here again is what is happening  internally from a process-driven perspective,
349. 39:56controls and procedures to to show and demonstrate  how this body is actually taking into account
350. 40:02climate related risk and opportunities when  they are making key decisions that impact the
351. 40:08organization. So again, if entities are currently  um setting a strategy for the future, whether it
352. 40:13be a five-year plan, how can it be demonstrated  through the processes and controls that should
353. 40:18be in place? How can it be demonstrated that that  body is taking into account climate related risk
354. 40:24and opportunities as part of that strategy as part  of their as as part of their decision making. So
355. 40:29it's vitally important again here and I and I  probably sound like a stuck record that I keep
356. 40:34I keep referring to this word but it's basically  the word how. Demonstrate how and disclose how
357. 40:39this is taking place internally. So in a lot of  conversations that we have with clients they say
358. 40:44this is happening we're doing it but the next step  is to be able to demonstrate and then to disclose
359. 40:48how that is taking place. If I look then just  at the the last disclosure in relation to those
360. 40:54charged with governance. Basically saying has  the entity disclosed information about how that
361. 41:00body or individual oversees the setting of targets  related to climate related risk and opportunities
362. 41:06progress towards those targets and whether those  related performance metrics are also included
363. 41:12in remuneration policies. Now this is quite an  important disclosure requirement and I'll tell
364. 41:17you why because we we we currently focusing today  mainly on the governance pillar but you will see
365. 41:23under the metrics and targets pillar there's  the key word targets there as well that have
366. 41:26disclosure requirements in relation to targets.  Now the key thing here is that if entities
367. 41:31are setting targets internally, it is vitally  important again under this disclosure requirement
368. 41:36that they are able to disclose and demonstrate  how the board or the subcommittee of the board is
369. 41:42actually overseeing the settings of those targets  and then also monitoring progress towards those
370. 41:48targets. So this is the governance overlay in  relation to the setting of targets. And then if
371. 41:53you look at the metrics and targets actual pillar  which we'll cover later that is where we actually
372. 41:57disclosing the progress the metrics that have been  used. So there's kind of a linkage between these
373. 42:01two and I currently find that people need to be  very cognizant of the fact that if you're going to
374. 42:05disclose anything in relation to targets being set  and how the board oversees the setting of targets
375. 42:10in the disclo in the governance section that we  remember when it gets to the metrics and targets
376. 42:15section under the targets category that there's  also quite a number of disclosure requirements
377. 42:19in relation to targets. So again vitally important  that you can demonstrate what is happening from an
378. 42:25internal perspective. Now again as I've mentioned  before there's the those charged with governance
379. 42:32um disclosure requirements and and and and really  disclosing the responsibilities for those charged
380. 42:36with governance and now we look at the management.  We take a management look and a management
381. 42:39perspective and has the entity disclosed  information about what management's roles
382. 42:44and responsibilities are with regards to those  governance processes, controls and procedures.
383. 42:49So what is happening at a management level with  regard to the implementation of those processes,
384. 42:54controls and procedures once again used to  monitor, manage and oversee climate related risks
385. 43:00and opportunities. So that's why I think it's  very important upfront before you begin that you
386. 43:04have clearly defined roles for who's those charged  with governance for the for the responsibility for
387. 43:09oversight and then who's dedicated that management  responsibility. Now again looking at management
388. 43:15has the entity disclosed information about whether  the role is delegated to a specific management
389. 43:21level position or management level committee and  how oversight is exercised over that position or
390. 43:28committee. So we needs to be quite clear the  disclosure needs to be quite clear specific
391. 43:32as to what is the level what is that specific  management level that this responsibility has
392. 43:36been delegated to to monitor and to manage and  to oversee the implementation of climate related
393. 43:41risk and opportunities. And then how is the board  actually exercising oversight of that position and
394. 43:46that level is vitally important. And then if  we just go to the last disclose requirement,
395. 43:53has the entity disclosed information about whether  management uses controls and procedures to support
396. 43:59the oversight of climate related risks and  opportunities? And if so, how are those controls
397. 44:04and procedures integrated with other internal  functions? So again not looking at climate as
398. 44:10this isolated uh business risk but how has the  the monitoring the the procedures and policies and
399. 44:17um uh um processes in place to monitor manage  and obviously see how that how has that also
400. 44:22been integrated with other internal functions  that are also responsible for that monitoring
401. 44:26that management and that oversight. So again  I think key takeaways from the disclosure even
402. 44:31though there's only nine disclosures and often we  have to really inform um clients that yes there's
403. 44:36only nine disclosures but when you actually go  into the detail of what is required under each
404. 44:40of those nine disclosures actually we're wanting  really really specific information and making
405. 44:45sure that that information is really decision  useful for the primary users of the general
406. 44:50purpose financial report. So over to you Aletta.  Thank you, Mark. And I just have to uh apologize
407. 44:57to you and our attendees. I just realized um  for disclosure 7, 8, and 9, I had the wrong
408. 45:04heading on the slide because disclosure 7, 8, and  9 relates to management. Um and disclosures one to
409. 45:12six relate to those charged with governance. Um  and I'll fix that before we send out the slides
410. 45:18after the session. Apologies for that. Um thank  you, Mark. Um and then um as you know we have
411. 45:24our disclosure checklist where you can have a  a a summary of to what extent you're tracking
412. 45:31against all the requirements. Um so how many of  the nine have you complied with. We also have our
413. 45:37BDO Australia illustrative sustainability report  which we've prepared together with BDO global.
414. 45:44um it was prepared for the year ended 31 December  2025 for our um mock company and we also prepared
415. 45:53a financial report for that same company and I  thought it might be good to just look at some of
416. 45:58the disclosures that we've put in our illustrative  sustainability report. A video was also included
417. 46:05some comments to explain our disclosures. But  if we focus on the disclosures here um in 4.1 we
418. 46:13start with a board of directors and in our example  we said the board of directors is responsible for
419. 46:20governance and overseeing the group strategic  direction. Um the primary responsibility of
420. 46:26the board includes setting overall strategic  direction, long-term goals, monitoring risk,
421. 46:32ensuring compliance with laws and regulations um  etc. um the board is responsible for appointing
422. 46:40the chief executive officer and monitoring their  performance. That's the last sentence there. And
423. 46:47then we also had the board is comprised of the  following 10 non-executive directors. Um so we
424. 46:55have a description of them and you can see their  skills, their competencies, you can see whether
425. 47:01they're a sub committee uh which subcommittee  they're a member of. Um and then we also said
426. 47:08um in order to ensure the board composition is  appropriate, the board has a competency matrix
427. 47:14matrix that it uses to fill all positions on both  the board and the board subcommittees. So how do
428. 47:20we make sure that the skills and competencies?  We also in our example said specifically that
429. 47:27remuneration and nomination committee also seeks  to fill any border subcommittee vacancies based
430. 47:33on needs identified in that competency matrix  but you can see their skills their experience
431. 47:41um um um as disclosed. Um we also I like  a diagram as you know I do like a diagram
432. 47:49to say in that second paragraph to effectively  manage the board sustainability priorities the
433. 47:57board has established two subcommittees a risk  committee and a strategy committee and these
434. 48:03committees are responsible for driving the group  sustainability strategy and you can see we've
435. 48:09got the board there are four subcommittees um  they have input uh the risk committee strategy
436. 48:16committee have input into sustainability strategy  um and then they are also responsible to evaluate
437. 48:24uh for evaluation and delivery by management.  Um so that's how our example company has it.
438. 48:30It doesn't have to be like this but this is our  example. We have further information about that
439. 48:36risk committee, further information about  the strategy committee, information around
440. 48:42remuneration. So there's a requirement to disclose  um whether KPIs are linked or remuneration
441. 48:50um are linked to sustainability, climate related  matters. So we have a disclosure around that.
442. 48:55And then specifically we've got a heading around  management's role in sustainability governance.
443. 49:02um um who are the people the CEO overseas  group sustainability strategy etc. So,
444. 49:10just to give you an idea what it could  look like to make it easier for you,
445. 49:15we've also included in our illustrative accounts.  Um, we've included paragraph references. Um,
446. 49:23and then as I said earlier, we now also have our  board checklist. Um, and here are some of the
447. 49:29questions. You can see here on the right hand side  there's a place for management to type in in the
448. 49:35PDF what management said or how they responded  to the questions. Um and then directors have
449. 49:43evidence of the questioning the discussions. So  for example, has management completed a AASB S2
450. 49:51disclosure checklist to ensure we're complying  with AASB S2? These are like overall questions.
451. 49:57Are our disclosures defensible and audit ready?  The second question are assumptions, judgments,
452. 50:04estimates and methodologies clearly documented  in a basis of prep, boundary setting, policy
453. 50:10etc. How has management ensure that the current  and anticipated financial effects have been
454. 50:17appropriately reflected in the financial report?  What steps have management taken to ensure that
455. 50:24there are no inconsistencies between the financial  report and the sustainability report? They go hand
456. 50:29in hand. And the sixth question which is an  overall question based on the current year's
457. 50:35experience. What are the recommendations to  improve quality, effectiveness and efficiency
458. 50:42of reporting? So some overall questions and then  we move to the governance specific questions.
459. 50:48For example, in the first one, have the  entity's governance processes been updated
460. 50:54to embed climate related risks and opportunities?  And then I've got in italics, if the entity is
461. 51:01part of a global group, how are local and global  governance processes updated and integrated? And
462. 51:09that's a question that we've come across quite  a lot where the entity would say um we rely on
463. 51:16governance by our parent entity um overseas um  around sustainability and climate related risk
464. 51:25and opportunities. However, the corporations  act has a requirement that the directors of the
465. 51:31Australian entity um would be responsible and  manage climate related risk and opportunities.
466. 51:38And so if you've got global governance processes  and Australian governance processes, how do they
467. 51:45work together? How do they interrelate? Um we  cannot only have global governance processes.
468. 51:51The corporations act requires local governance  processes to enable the Australian directors to
469. 51:58sign off. Um other questions, how frequent will  frequent will the board receive uh updates? Who
470. 52:05at a management level is responsible? Um how do  we know that management has appropriate skills
471. 52:12and expertise? What controls have management  put in place? Remember this is what the board
472. 52:17is asking management. How do you management ensure  information provided to us is reliable, decision,
473. 52:25useful, comparable? How does the board discharge  their duties regarding mandatory sustainability
474. 52:31reporting? So kind of asking ourselves as a board  member, how do I discharge these duties? How do
475. 52:38we assess our skills and competencies? Um, and  how do we ensure that all of these climate risk
476. 52:45and opportunities are actually integrated into  other strategic decisions. Um and then at the
477. 52:52end of this whole checklist after you've worked  through all four pillars there are some place to
478. 52:58document key observations and matters for followup  areas requiring further clarification or assurance
479. 53:06um and then also implications for future reporting  periods a as a a bit of a reflection after all
480. 53:13the questions. Um Mark and I also thought  it would be good to look at some common
481. 53:19errors. Um and the first uh one um Mark I think  I'll I'll hand over to you. Thanks Ala. And I
482. 53:27think I feel I've covered this somewhat already  in when I was talking specifically and calling
483. 53:33out the words processes, controls, procedures and  calling out the words how. So, so I I guess what
484. 53:39we've obviously identified so far is that a lot  of disclosures seem to be quite vague, seem to
485. 53:45be quite generic. And again looking at what the  objective is of AASB S2 and looking at what the
486. 53:51objective is of the specific governance disclosure  requirements under S2, we've got to go that one
487. 53:56step further to actually explain and provide  that level of detail on how the the whether it
488. 54:01is the the board or whether it's a subcommittee  is actually exercising that that oversight and
489. 54:07how it is doing that in practice. So for example,  we see many you know sort of generic vague blanket
490. 54:13statements saying many disclosures state that  the board just oversees climate related risks
491. 54:17and opportunities or there'll be a a very vague  statement that's saying that they are delegating
492. 54:21responsibility to monitor and manage climate  related risks and opportunities to a specific
493. 54:26management level but they do not explain and go  into the level of sufficient detail about how that
494. 54:31oversight or how that management is actually been  implemented in practice. So again I just want to
495. 54:37emphasize this by stating that you really got to  look at the detail in the disclosure requirements
496. 54:41even though there are only nine as I've mentioned  if you look at the detail the words how how often
497. 54:46are very very important right and again having  the level of sufficient evidence to be able
498. 54:52to support those disclosures is also vitally  important okay so I guess a a key thing to say
499. 54:58is you want to just be disclosing things that are  factual you want to be disclosing things that you
500. 55:02have evidence and support for as already alluded  to there is obviously assurance requirements for
501. 55:07the first year over the governor's disclosure  requirements. But it's really just taking that
502. 55:10one step one step um in in in the disclosure  requirements to actually go that extra step
503. 55:16to be able to make it very clear as to how things  are being exercised in practice. So tell the story
504. 55:22about what is happening internally. It's probably  one of the key things I want you to pick up want
505. 55:26you to mention a little. Thank you very much.  Um then I've also touched on this and that is
506. 55:33the responsibilities of directors of an Australian  entity. Um and I wanted to put in some references.
507. 55:41Um so the directors of the Australian entity  have responsibilities under the corporations
508. 55:46act. Specifically if you look at section 181 of  the corporations act and section 296A cap capital
509. 55:56A number seven. Um I often get asked so where's in  the corporations act? It's very clear in those two
510. 56:01sections. It's also picked up in ASIC regulatory  guide 280 paragraph 55 and ASIC information sheet
511. 56:11183 looking at directors and financial reporting  and obviously ASIC regulatory guide 280 is looking
512. 56:19at um sustainability reporting. So directors  have a responsibility for the Australian entity
513. 56:26and therefore these disclosures apply to the  directors and those directors have to make sure
514. 56:33that they comfortable about all the disclosures.  they can have interaction with global, they can
515. 56:39in addition disclose global governance processes.  Um but ultimately the Australian directors have
516. 56:47to disclose their governance processes for the  Australian entity. So a few key takeaways today.
517. 56:55Um first of all, are the responsibilities of the  board and management clearly defined? Does your
518. 57:03company already have governance processes and  bodies in place that explicitly address climate
519. 57:10related issues? Um, do we have the data available  to meet these disclosure requirements? So,
520. 57:17do we have a a board skills matrix? Um, do we  know whether board have attended climate related
521. 57:24training? um how you know do we have in our  standard agenda of the board and maybe the audit
522. 57:32and risk committee um updates from management  around climate related matters. So it's not just
523. 57:39the disclosure, it's evidence that that disclosure  is true and and correct and the auditors will want
524. 57:46to look for that supporting documents. Um and then  do you have a AASB S2 disclosure checklist? Have
525. 57:54you looked at that to make sure um you've got  governance under control for 30 June 2026 year
526. 58:01end group one entities you need the government  governance requirements locked down approved
527. 58:09before 30 June 2026 at the very latest in order  to make the disclosures and to be assurance ready
528. 58:21we help we've got our monthly webinars.  We've got the carbon accounting master
529. 58:27class. We've got the alumni events  uh for the carbon accounting master
530. 58:31classes. We've got our monthly newsletter.  Um we have our disclosure checklist, our
531. 58:38illustrative sustainability report. We've got  some videos on quitch. We now also have a board's
532. 58:45checklist that you can use. And obviously if  you need additional support please reach out
533. 58:51uh to us around carbon accounting sustainability  reporting strategy all or assurance and these are
534. 58:59the four partners looking after sustainability  reporting across Australia. So please feel free
535. 59:06to reach out to any of us if you need assistance.  Thank you very much for attending our webinar.
536. 59:12Um and we hope to see you again next month.  Remember, we're talking about lessons learned
537. 59:17from those four ent of those entities that have  already reported in the first four months of
538. 59:24this year. Thank you very much, Mark. Thank  you so much. Thank you, Mark. Goodbye. Bye.