Compliance Frameworks in Australian Agriculture

If you feel like there are a lot of environmental-based acronyms floating around, you’re not alone. With climate change impacts being felt globally, organisations and entire markets are pivoting towards higher standards of transparency and compliance adherence to protect their assets from climate risk. 

A recent survey by Farmers for Climate Action found that 40% of Australian farmers don’t know about regulation changes that impact their business. Despite this, many know that by not keeping up with global industry standards, they may be excluded from both local and export markets. In this article, we aim to unpack the key frameworks relevant to the Australian agricultural sector. We’ll highlight what you need to be aware of, when you need to start acting, and why.

It’s a big space, so let’s dive in. 

First up – why all the fuss?

There are several influences pushing for increased corporate focus on the environment. This concern has largely been triggered by the current and future impact of climate change and biodiversity loss. As a snapshot:

• Research by Deloitte has flagged that the long-term effects of climate change are estimated to cost the global economy $178trillion USD over the next 50 years – unless effective action is taken.
• The World Economic Forum’s ‘Global risk report’ lists the top 3 risks as being climate-related.

Okay, so why is this important to Australian agriculture?

These factors have triggered investor demand for organisations to provide information on the environmental, social and governance factors (ESG, our first acronym) affecting their investments – and what they are doing to mitigate any risks. ESG provides a framework under which businesses can ensure they are addressing these 3 key pillars. Investors and other stakeholders are using these frameworks to assess the long-term viability of a business. They are looking at whether it has the capacity to withstand and grow in the face of risk and change. Ultimately – if it is a sensible investment for the long-term. 

• Australian agriculture faces significant risks from the impacts of climate change. It is also a large source of emissions. 
• This is pushing lenders, aggregators, distributors and consumers to assess the exposure of the supply chains they participate in, and demand producers disclose ESG risks across their operation.
• Meeting ESG provides a motivation to better understand your operation, improve practices and build on-farm resilience. 
• The sphere of influence is Iarge. Supply chains are long and involve actors of varying sizes – with varying degrees of ability to exert pressure – from small family farms to international lending institutions. Being at the coalface places significant stewardship responsibility on the shoulders of Australian land managers. 

What’s with all the acronyms?

Several frameworks have been developed to demonstrate that ESG criteria are being addressed (and not simply ‘greenwashing’ through ineffective action). However, the speed at which the ESG space has evolved has created a saturation of tools, which in turn has complicated the space. This has inspired a transition towards standardisation of these frameworks to make them applicable to a range of countries and sectors. 

We’ll focus on the more well-known and relevant ones.

SDGs

SDGs stands for Sustainable Development Goals. They are a set of goals that were developed by the United Nations to ‘end poverty, protect the planet and ensure that by 2030 all people enjoy peace and prosperity.’

As one of the nations that approved the SDGs, Australia has a responsibility to report on the steps it has taken to achieve these goals. Whilst not mandatory for Australian businesses, many choose to use the SDGs as a metric to demonstrate their ‘sustainable’ practices.

The full list of goals – which spans environmental, social, economic and governance outcomes – is available here.

SBTi

SBTi stands for the science-based targets initiative. This was designed through collaboration between the United Nations, CDP (an international non-profit that seeks to help business and governments reduce emissions), the World Wildlife Fund and the World Resources Institute. 

The voluntary initiative utilises leading climate science evidence to provide organisations with a pathway to reduce their emissions. To meet the criteria of ‘science-based’, reduction targets must be consistent with what the latest climate science indicates is sufficient to meet the targets of the Paris Agreement.

Read more about the SBTI here.

TCFD

The TCFD stands for Taskforce for Climate-Related Financial Disclosures. It is another voluntary framework created as a way for companies to disclose the risks they face from climate change. It covers four ‘pillars’ of importance. They are governance, strategy, risk management and metrics/targets. In applying these, it seeks to elevate climate-risk reporting to a level of importance and rigour like the other mandatory reporting businesses must undertake – with a consistent approach that can be applied internationally.

Whilst this is a voluntary framework, several governments including the United Kingdom, Hong Kong and New Zealand have sought to apply the TCFD as mandatory requirements.

Read more about TCFD here.

TNFD

By now you might be able to guess the T, F and D… TNFD standards for Taskforce for Nature Related Financial Disclosures. It is another major global framework, that builds on the TCFD by providing greater focus on… you guessed it, nature. It aims to protect natural assets and provide potential investment for enhancing these. 

This is another voluntary framework that has seen increasing endorsement from many countries. Its final draft release was published in March 2023, with full recommendations expected in September.

Read more about the TNFD here.

What does this mean for Australian farmers?

Many organisations may be participating in voluntary ESG reporting already. It could be to appease shareholders, or to better understand the risks facing their business. Depending on factors such as the size and type of your operation, you may have already been asked to start providing information on ESG metrics.

While there is currently no mandatory ESG reporting requirements in Australia, this is certainly on the horizon. Australian financial regulators such as the Australian Prudential Regulation Authority (APRA) have long been recommending that companies disclose their climate-related risks. In 2017, draft guidance was released by APRA that sought to assist companies to manage climate risk. This guidance was aligned with the TCFD and was seen by many as an indicator of the seriousness with which climate disclosures is being taken by regulators in Australia. Over 50% of ASX-listed companies are currently reporting against the TCFD. 

These are the key frameworks you should know about. 

Climate-related financial disclosure

The Australian Government understands there is an overwhelming global push for consistent and credible ESG reporting. For Australia to remain competitive economically, it needs to keep on level footing with other countries. In December 2022, Treasury released a consultation paper to seek comment on a proposed design for mandatory climate-related financial disclosure (CFD) reporting. This closed in February of 2023, with the Government now working away at the next round of design. It is therefore highly likely that we will see climate disclosure become mandatory for those operating in the Australian financial sector in the near future.

Australian Agricultural Sustainability Framework 

The Australian Agricultural Sustainability Framework (AASF) is another voluntary framework, but with clear, agricultural-specific guidance. This acts as a bridge between global ESG frameworks (such as SDGs, TCFD and TNFD) and farm sector sustainability programs to provide a consistent and industry-wide framework (rather than per production type). Whilst voluntary, adhering to this framework should put the agricultural sector in good stead for future mandatory reporting.

What information will I need to provide for mandatory reporting?

It’s a good question – but it’s not one we can answer right now. Various farm industry bodies provided comment on the Australian Government’s CFD consultation paper. Acknowledging that there are already ample standards that producers must meet (such as food quality and animal welfare standards, they generally suggested that the demands of mandatory reporting should not exert undue pressure on farmers.

For now, it appears that mandatory reporting will first be targeted at ‘big’ companies. It may be some time before this requirement trickles down to farm-level ESG reporting. 

What can I be doing now?

We suggest talking to your lender – see how they are addressing ESG, and what they may request of you in the future. Financial institutions are likely to be some of the first to have ESG reporting mandated, and they may already be participating voluntarily.

Some lenders are also releasing ‘agri green loans’ to assist producers to strive to better their ESG metrics. Others have started providing superior funding for businesses that can already demonstrate adherence to TCFD or are looking at natural capital – and are therefore taking steps to future-proof their operation. It may be worth asking what your lender can offer you.

Hold on – where does carbon fit into all of this?

As we touched on above, some banks are offering funding to those undertaking or looking to undertake activities that improve their environmental outcomes. By integrating carbon farming into your operation, you can build climate resilience, enhance productivity, and improve your natural assets. Reduction of emissions and decarbonisation is also a key metric in many ESG frameworks. 

Participating in carbon farming programs is therefore a sensible way to start ticking some ESG boxes.  

What should I be keeping an eye on?

For an Australian agricultural context, the Australian Governments CFD program will be one to watch out for – as will any development in the AAFS. This is a massive and ever-shifting space, and we’ve only just scratched the surface. At the Carbon Farming Foundation we’ll ensure we keep you across any important future developments as they land. 

Further reading

Ernst & Young – How can Australia’s agriculture sector create opportunity through carbon and biodiversity markets? 

Australian Farm Institute – Development of the Australian Agricultural Sustainability Framework 2021-22 

KPMG/ NFF – The time is now (The Australian Agricultural Sustainability Framework (AASF) and its role in supply chains) 

PWC – Measuring for Success 

APRA – APRA finalises prudential guidance on managing the financial risks of climate change 

Deloitte / AICD/ MinterEllison – Gearing up for mandatory climate reporting 

KPMG – 2030, Today (Unlocking and accelerating the ESG opportunity in Australian Agribusiness) 

Australian Government, The Treasury – Climate-related financial disclosure 

KPMG – Climate-related financial disclosure Consultation Paper