Article:

Net Zero Statements must be based on reasonable grounds

17 December 2021

Jane Gouvernet, Associate Director, Corporate Finance |
Catherine Bell, Principal, Sustainability |

In September 2021, following comments from the Australian Securities & Investments Commission (ASIC), the BDO Sustainability Services Team warned our mining and energy clients that ‘Net Zero’ statements must be based on reasonable grounds to ensure the statements are not misleading.

Companies need to be able to support forward-looking sustainability related statements and will also need to ensure that this evidence is maintained and up to date to support fundraising documents, periodic financial covenants reporting, for customer supply chain standards, and to comply with continuous disclosure requirements if necessary.

Today ASIC released its Corporate Finance Update - Issue 7 which reports on a further intervention on ‘net zero’ statements.

The ASIC intervention required further clarification from an exploration stage energy company on its ‘net zero’ mandate including that:

  • The ‘net zero’ mandate was only applicable to the production phase of its project
  • Development of a detailed plan on how the company was to achieve the mandate had not commenced
  • There was no plan to progress any specific works in the near term, including allocating fundraising funds for the purpose

ASIC is clear that ‘net zero’ statements can be forward-looking statements and it is important that investors be provided with sufficient context about a company’s goals including explanations on the company’s progress towards achieving its ‘net zero’ goals.

This second intervention clearly indicates this is an area of specific regulatory concern and review and ASIC is encouraging Australian listed companies to use the Task Force on Climate-related Financial Disclosures as the primary framework.

Activating your Sustainability Journey

Part of the challenge for many businesses is understanding where to start. At BDO, we recommend that organisations understand their Environmental, Social, and Governance (ESG) baseline, which aims to identify non-financial material risks across an organisation. This process includes understanding the carbon footprint of the business, which is essential to understanding how a business can reach Net Zero.

In brief, the process would be:

  • Activate your sustainability program by establishing your ESG baseline – in line with a globally recognised framework. This will include your carbon / GHG footprint.
    • Output: ESG Disclosure Report
  • Develop a decarbonisation / climate risk strategy that would define the strategic and tactical pathway to Net Zero.
    • Output: TCFD Disclosure Report
  • Continuous improvement is what stakeholders will want to see. Ensuring the veracity of any report disclosure, companies must demonstrate that sustainability is being incrementally embedded across the organisation via targets/KPIs, and reported and disclosed annually, alongside financial reporting.
    • Output: Sustainability program roadmap / Decarbonisation roadmap

It is important to recognise that a Sustainability Report is not a marketing document. Rather, it is a technical document that reports against a chosen sustainability reporting standard to inform investors, suppliers, and interested parties on a company’s current position and future plans on its sustainability strategy and compliance. ESG data is dynamic and must be managed, monitored and reportable.

Conclusion

If you would like to get in touch to discuss any of the information contained here or have any further questions on sustainability, please contact us.

BDO Sustainability Resources

  1. The Business Case for Dealing with Climate Change
  2. BDO’s Energy Transition Diagnostic Tool (7 min survey) – receive a Personalised Benchmark Report
  3. BDO’s Guide to Activating Your Sustainability Journey
  4. BDO’s Sustainability Readiness Tool (10 min survey) – receive a Personalised Maturity Report