AASB S2 Pillar 1: Governance

Our sustainability webinar series breaks down the complex world of sustainability, making it a little easier for you to understand the basics and begin driving change within your organisation.

In this webinar, Aletta Boshoff focuses on Pillar 1: Governance disclosures in AASB S2 Climate-related Disclosures, the first of four pillars in the Australian Sustainability Reporting Standard for climate-related disclosures. This standard ensures entities disclose how climate change might impact them, focusing on both risks (physical and transition) and opportunities. Our sustainability webinar series will logically guide you through each pillar, starting with Governance.

Importance of Governance

Transparency in governance practices is important as it provides investors and stakeholders with valuable insights, helping them make informed financial decisions. It allows them to see how an entity's board and management address climate-related issues, ensuring these matters get the right level of attention.

By offering clear and useful information, companies help investors understand their approach to climate-related challenges and opportunities.

Key points include:

Board’s role: How the board oversees climate-related matters, especially during major decisions like capital expenditures, acquisitions, and strategy reviews.
Management’s role: How management assesses and manages climate-related risks and opportunities.

Governance guidance relevant to all sectors

If you’re unsure where to start, the table provided below by the Task Force on Climate-related Financial Disclosures (TCFD) is an excellent example of the practices you should begin implementing and identifying today. By adopting these practices, organisations can enhance their governance around climate-related risks and opportunities, ensuring these issues receive appropriate attention and are integrated into strategic decision-making processes.

Importantly, the TCFD emphasises that companies with comprehensive governance processes addressing climate-related issues do not need to create separate processes or duplicate existing disclosures. If an entity’s disclosures clearly describe its governance processes and it is evident that these processes cover climate-related issues, no further disclosure may be needed.

Governance

Disclose the organization’s governance around climate-related risks and opportunities.

Recommended Disclosure a)

Describe the board’s oversight of climate-related risks and opportunities.

Guidance for All Sectors

In describing the board’s oversight of climate-related issues, organizations should consider including a discussion of the following:

Processes and frequency by which the board and/or board committees (e.g., audit, risk, or other committees) are informed about climate-related issues,
Whether the board and/or board committees consider climate-related issues when reviewing and guiding strategy, major plans of action, risk management policies, annual budgets, and business plans as well as setting the organization’s performance objectives, monitoring implementation and performance, and overseeing major capital expenditures, acquisitions, and divestitures, and
How the board monitors and oversees progress against goals and targets for addressing climate-related issues.

Recommended Disclosure b)

Describe management’s role in assessing and managing climate-related risks and opportunities.

Guidance for All Sectors

In describing management’s role related to the assessment and management of climate-related issues, organizations should consider including the following information:

Whether the organization has assigned climate-related responsibilities to management-level positions or committees; and, if so, whether such management positions or committees report to the board or a committee of the board and whether those responsibilities include assessing and/or managing climate-related issues,
A description of the associated organizational structure(s),
Processes by which management is informed about climate-related issues, and
How management (through specific positions and/or management committees) monitors climate-related issues.

Source: Final Report Recommendations of the Task Force on Climate-related Financial Disclosures (TCFD)

Pillar 1: Governance

The goal of climate-related financial disclosures on governance is to help everyone understand how an entity monitors and manages climate-related risks and opportunities. This includes:

Governance processes: How the entity is structured to address these issues
Controls: The checks and balances in place
Procedures: The steps they follow.

In essence, it’s about showing how the entity oversees everything related to climate risks and opportunities. The objective of governance disclosures, as articulated in the standard, is to enable users to understand your governance processes, controls, and procedures.

This pillar is divided into the responsibilities of those charged with governance and management. Governance is the foundational pillar for compliance with AASB S2's requirements, which mandate nine essential governance disclosures. See the detailed disclosure requirements in the table below.

Those charged with governance

1:	An entity shall disclose information about the governance body(s) or individual(s) responsible for oversight of climate-related risks and opportunities. The entity shall identify that body(s) or individual(s). The governance body(s) or individual(s) can include a: Board Committee Equivalent body charged with governance.
2:	The entity shall disclose information about how responsibilities for climate-related risks and opportunities are reflected in: The terms of reference Mandates Role descriptions Other related policies applicable to that body(s) or individual(s).
3:	The entity shall disclose information about how the body(s) or individual(s) determines whether appropriate skills and competencies: Are available, or Will be developed to oversee strategies designed to respond to climate-related risks and opportunities.
4	The entity shall disclose information about: How, and How often the body(s) or individual(s) is informed about climate-related risks and opportunities.
5:	The entity shall disclose information about how the body(s) or individual(s) takes into account climate-related risks and opportunities: When overseeing the entity’s strategy Its decisions on major transactions Its risk management processes and related policies including whether the body(s) or individual(s) has considered trade-offs associated with those risks and opportunities.
6:	The entity shall disclose information about how the body(s) or individual(s): Oversees the setting of targets related to climate-related risks and opportunities, and Monitors progress towards those targets (paragraphs 33–36) including whether and how related performance metrics are included in remuneration policies (paragraph 29(g)).

Management

An entity shall disclose information about management’s role in:

The governance processes
Controls
Procedures

used to:

Monitor
Manage and
Oversee climate-related risks and opportunities.

An entity shall disclose:

Whether the role is delegated to a specific management-level position or management-level committee, and
How oversight is exercised over that position or committee.

An entity shall disclose:

Whether management uses controls and procedures to support the oversight of climate-related risks and opportunities, and
If so, how these controls and procedures are integrated with other internal functions.

Avoiding duplication in disclosures

Entities should avoid unnecessary duplication in their disclosures. If sustainability-related risks and opportunities are managed on an integrated basis, integrated governance disclosures should be provided instead of separate ones for each risk and opportunity. This principle is especially important if an entity voluntarily applies AASB S1 General Requirements for Disclosure of Sustainability-related Financial Information to disclose information about other sustainability-related risks and opportunities in addition to climate-related ones in general purpose financial reports.

Take action: Practical questions to ask yourself today

Are the responsibilities of your board and management clearly defined?
Does your entity already have governance processes and bodies in place that explicitly address climate-related issues?
Do you have the data available to meet the disclosure requirements relating to governance?
Do you have an AASB S2 disclosure checklist regarding governance?

How BDO can help

Whether you’re just starting out or well on your way, our national team of experts is here to support your sustainability efforts. We can help with everything from evaluating your current state to calculating your carbon footprint and developing your decarbonisation strategy. Contact us today.