The 3 key risks directors need to manage amid climate reporting uncertainty
Mandatory climate reporting has been front of mind for Australia’s largest companies and financial institutions who entered their first reporting year on 1 January 2025. As we wave goodbye to Q1 in an intensifying global risk equation, climate strategy is feeling a big counterweight — geopolitical volatility. AI and cybersecurity is a third Goliath in the boardroom.
Where to from here on climate? As the world gets hotter, governments across the world are reacting. Trump 2.0 is stepping away from the Paris Agreement, clean energy, climate funding and environmental regulations. Australia’s government has delayed announcing its 2035 emissions target until post-election, and the opposition would move away from short-term emissions targets and climate reporting laws.
To ease compliance and economic pressures, the EU is proposing softer sustainability reporting requirements for companies, and mandatory reporting trailblazer New Zealand has been consulting the public on easing its reporting thresholds and director liability settings.
It’s hardly a surprise that some entities in the business world are tempering climate targets and green pronouncements to manage complex trade-offs — cost vs revenue, gloss vs truth, today vs tomorrow. The front-seat view from our green tech company — which tackles business and government e-waste and supply chain emissions (refurbish, repurpose and recycle critical IT hardware), and cybersecurity — is that reverse gearing is perilous.
Demonstrate leadership in climate-related actions and reporting, and you stand to outcompete others in the energy transition. 2025 will be a marker year for climate reporting, and boards should devote attention to three key areas in strategy and risk management.
Planning risks
In setting strategic direction, it’s easy to lose sight of your operating context, which, inexorably, is the green transition towards a circular economy. Tropical Cyclone Alfred gave Queensland, where I’m based, a bit of a reminder. The bigger picture is understood by the end of the supply chain. Consumers want things cleaned up for their kids and now decide who gets to play downstream and upstream. Pulling back on climate action for expediency materially risks losing support from consumers, customers, partners and the public.
As a director or executive officer of an organisation in Australia, it has historically been quite difficult to navigate the different environmental frameworks the government of the day might have been advocating for at the time, or delaying due to the four-year election cycles. However, we now have an irrevocable and bi-partisan framework to work within from an environmental reporting perspective, which came into effect via the Treasury and Chapter 2M of the Corporations Act. It involves three reporting groups of entities with different environmental reporting timeframes:
| Group 1 | Group 2 | Group 3 | |
| Criteria (need to meet at least 2 out of 3) |
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|
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| Reporting Timeframe | First annual reporting periods starting on or after 1 January 2025 | First annual reporting periods starting on or after 1 July 2026 | First annual reporting periods starting on or after 1 July 2027 |
A board’s immediate concern should be investor confidence. Investors want to see resilience and innovation, not prevarication or backtracking. Don’t count on election cycles to curb investor desires to see climate considerations embedded in strategic, risk and financial decisions. Green reporting exists to deliver stronger market disclosure and transparency. Now, AI-powered research tools are giving investors and asset managers dynamic, real-time insights into who isn’t managing sustainability risks, plans and progress. The idea that reputation goes down using the elevator but up by taking the stairs was never truer.
Responsibility risks
Directors need to be on top of their duties and liabilities around the required declarations and statements. Under present rules, some 6000 entities will be required to file climate-related disclosures by 2030. Federal election to the fore, directors should be closely tracking a climate reporting landscape that will be in flux this year as climate change remains a top concern for voters.
Good reporting into the boardroom will be vital as large entities now either prepare or progress climate reporting plans as disclosure requirements phase in. Two new assurance standards for climate reporting were approved in late January 2025, and Group 1 entities should already be tackling the data and other complexities of reporting their Scope 3 emissions (indirect sources including your value chain).
At the same time, however, check that your directors and officers (D&O) liability insurance can include protection against claims related to failings in climate reporting legislation.
Competency risks
Rapid change is exposing skill gaps on boards. ASIC Chair Joe Longo has reminded us that “The times they are a-changin’ — but directors’ duties aren’t.” In the era of AI governance, cybersecurity and mandatory climate reporting, he underlined the need for more science and technical expertise in the boardroom.
Across the Tasman, new research from the University of Auckland on the readiness of companies in Australia, New Zealand and the UK for mandatory climate-related disclosures showed notable weakness in strategy, metrics and setting science-based targets (governance and risk management were stronger). Additionally, companies with a gender diverse board and a sustainable committee showed greater compliance readiness.
Leadership on any level is about doing the right things, and advantage usually follows. According to BloombergNEF, global investment in the energy transition reached a record $2.1 trillion in 2024, up 11% from the previous year. Mainland China took the wheel, accounting for two-thirds.
In this year of heightened uncertainty, one thing is certain: countries and companies that take the low-carbon road are securing their place in the future.
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