In preparing for the inevitable mandatory sustainability reporting to investors, financiers, and customers that have already become a requirement for many European entities, some Australian mining and energy companies are getting a head start by working on their Environmental, Social, and Governance (ESG) positioning, including releasing Sustainability Reports to shareholders.
Sustainability-related statements, whether incorporated into a disclosure document such as a prospectus, notice of meeting, annual report, or as an announcement, must be based on reasonable grounds if they are forward-looking.
The Australian Securities and Investments Commission (ASIC) has today released its Corporate Finance Update - Issue 6 which reports its intervention on ‘net zero’ greenhouse gas emission reporting. ASIC is clear that ‘net zero’ statements can be forward-looking statements and may be misleading unless underpinned by reasonable grounds.
ASIC’s intervention resulted in the:
- Removal of ‘net zero’ statements that inferred near-term implications
- Addition of disclosure that explained the company’s vision to operate in a ‘net zero’ manner, the work proposed to achieve the vision, and the uncertainties and risks associated with achieving the vision, and
- The company not pursuing a ‘net zero’ statement with specific timelines.
Forward-looking statements are predictive statements about a future matter. Under the Corporations Act, a forward-looking statement is required to be based on reasonable grounds at the date the statement is made. The reasonable grounds, that is the assumptions supporting a statement such as a ‘net-zero’ statement, must also be disclosed.
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.
Mining and energy companies are familiar with the requirements for reasonable grounds because of the reporting obligations under the JORC 2012 and VALMIN 2015 codes. ASIC Information Sheet 214 has also been helpful guidance for these companies in understanding the requirements.
It’s 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 on ESG and sustainability strategy and compliance.
BDO Sustainability Resources