"Our auditors aren't ready yet and neither is our board." This candid admission from a COO at an advertising company captures one of the most overlooked challenges in ASRS preparation: the governance gap between what directors know and what they need to oversee under Australia's new mandatory climate reporting standards.
While sustainability teams across the country are diving deep into carbon accounting and risk assessment, many boards remain in the early stages of understanding their climate governance responsibilities. This creates a critical vulnerability: ASRS requires robust board oversight of climate related risks, opportunities, and disclosures, but many directors lack the knowledge and frameworks to provide effective governance.
The consequences of this gap extend far beyond compliance. Boards that aren't prepared for their climate governance role face increased liability exposure, potential audit findings, and missed opportunities to guide their organisations through the transition to a low carbon economy.
Based on insights from over 20 companies preparing for ASRS, this guide addresses the governance readiness challenge head on. We'll explore what ASRS actually requires from boards, how to build director climate competency, and practical steps to establish governance frameworks that satisfy both auditors and stakeholders.
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The research reveals a consistent pattern: while sustainability and finance teams are making progress on technical ASRS requirements, governance preparation is lagging significantly behind.
Companies report that most directors have minimal experience with climate related financial disclosures or sustainability reporting frameworks. Common knowledge gaps include:
Understanding of Climate Risk Categories - Many directors struggle to distinguish between physical and transition risks, understand scenario analysis, or grasp how climate impacts translate into financial implications for their specific business.
TCFD Framework Familiarity - Since ASRS builds on the Task Force on Climate related Financial Disclosures (TCFD) framework, directors need working knowledge of its four pillars: governance, strategy, risk management, and metrics and targets. Most boards are starting from zero on this framework.
Regulatory and Legal Implications - Directors often don't understand their legal obligations under ASRS, the potential liability exposure from inadequate climate governance, or how climate disclosures integrate with their existing fiduciary duties.
Even external auditors are still developing their approach to climate related assurance, creating uncertainty for boards about what standards they'll be held to.
"Companies report that even external auditors are 'not ready yet' for assuring climate data," according to the research. This creates a double challenge: boards need to establish governance frameworks without clear guidance about what auditors will expect.
Assurance Evolution - The transition from limited to reasonable assurance over time means governance requirements will evolve. Boards need frameworks robust enough to meet future expectations, not just initial compliance requirements.
Documentation Standards - Uncertainty about what documentation auditors will require makes it difficult for boards to know how to structure their oversight processes and what records to maintain.
The research reveals that many companies lack the formal governance processes that ASRS requires:
Absence of Formal Climate Policies - Many organisations have informal sustainability commitments but lack board approved climate policies that define strategy, risk tolerance, and oversight responsibilities.
Inadequate Risk Management Integration - Climate risks often aren't integrated into enterprise risk management frameworks or regularly reported to board level risk committees.
Missing Oversight Mechanisms - Few companies have established regular board reporting on climate performance, clear accountability structures for climate strategy implementation, or defined escalation procedures for climate related issues.
Understanding exactly what ASRS requires from boards helps focus governance development efforts on compliance critical elements.
Governance Processes and Controls - ASRS requires disclosure of:
Board Oversight Responsibilities - Specific areas where boards must demonstrate oversight include:
Risk Management Integration - Boards must show how climate risks are:
Board Level Documentation - ASRS compliance requires evidence of board engagement through:
Policy and Framework Documentation - Boards must approve formal documentation including:
Performance and Accountability Evidence - Auditors will look for evidence that boards actively oversee climate performance through:
Effective climate governance requires directors to understand both the technical aspects of climate risk and the governance frameworks for managing them.
Physical and Transition Risk Understanding - Directors need working knowledge of:
Climate Scenarios and Financial Impacts - Board members should understand:
Emissions and Carbon Accounting - Basic understanding of:
TCFD Framework Application - Directors should be conversant with:
Integration with Existing Governance - Understanding how climate governance connects with:
Legal and Fiduciary Considerations - Directors need awareness of:
Sector Specific Climate Risks - Directors should understand risks and opportunities specific to their industry:
Business Model Implications - Directors should assess how climate change might affect:
Building director climate competency requires structured, ongoing education that combines technical knowledge with practical governance application.
Climate Governance Fundamentals (Session 1: 2-3 hours)
Industry and Business Specific Risks (Session 2: 2-3 hours)
Governance Frameworks and Implementation (Session 3: 2-3 hours)
Scenario Analysis and Financial Impacts (Session 4: 2-3 hours)
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Quarterly Updates
Annual Deep Dives
External Engagement
Internal Facilitation
External Expert Facilitation
Hybrid Approaches - Combine internal and external expertise:
Beyond director education, companies need formal governance frameworks that demonstrate board oversight and satisfy audit requirements.
Board Committee Structures - Most companies adopt one of three approaches:
Dedicated Sustainability Committee
Integration with Existing Committees
Full Board Oversight with Working Groups
Climate Policy Statement - Board approved policy should address:
Risk Management Framework - Climate specific risk management framework should cover:
Performance Management Framework - Systems for tracking and overseeing climate performance:
Board Meeting Documentation - Ensure climate governance is reflected in:
Annual Governance Review - Establish annual processes for:
Audit Trail Maintenance - Create systematic documentation of:
Understanding what external auditors will focus on helps boards prepare appropriate governance frameworks and documentation. The below is a guide to what an Auditor may examine.
Board Oversight Evidence - Auditors will examine:
Management Accountability - Areas of auditor focus:
Integration with Enterprise Risk Management - Auditors will assess:
Policy and Framework Documentation - Required documentation includes:
Decision and Approval Records - Auditors will review:
Control and Assurance Evidence - Areas requiring documentation:
Here's a practical 12 month roadmap for establishing climate governance readiness:
3 Month Checkpoint:
6 Month Checkpoint:
9 Month Checkpoint:
12 Month Checkpoint:
The governance gap in ASRS preparation represents both a risk and an opportunity for Australian boards. Directors who invest in building climate competency and establishing robust governance frameworks will not only meet compliance requirements but position their organisations for competitive advantage in the transition to a low carbon economy.
Sustained Commitment - Climate governance isn't a one time training exercise - it requires ongoing director education, regular framework updates, and continuous improvement as standards and expectations evolve.
Integration, Not Addition - The most successful approaches integrate climate governance into existing board processes rather than treating it as a separate compliance exercise.
Evidence Based Oversight - Effective climate governance requires directors to base decisions on credible data, scenarios, and analysis rather than general sustainability sentiment.
Stakeholder Accountability - Boards that treat climate governance as stakeholder accountability, not just regulatory compliance, develop more robust and sustainable frameworks.
Assess Current State: Conduct honest assessment of board climate knowledge and governance framework maturity
Plan Education Program: Design structured director education covering technical knowledge and governance application
Design Governance Framework: Establish oversight structures, policies, and accountability systems
Implement Documentation: Create evidence trails and record keeping systems for audit readiness
Engage Auditors Early: Seek auditor input on governance framework design and documentation requirements
The boards that successfully navigate ASRS governance requirements will be those that view climate oversight not as an additional burden, but as fundamental to their fiduciary duty in an era of climate change. The investment in director education and governance framework development will pay dividends not just in compliance, but in strategic insight, risk management, and long term value creation.
Your board's climate governance journey starts with acknowledging the current knowledge gap and committing to closing it systematically. The companies already on this path demonstrate that with structured education, thoughtful framework development, and sustained commitment, boards can transform from climate governance novices to effective overseers of their organisation's transition to a sustainable future.
What climate governance skills do board directors need for ASRS compliance?
Directors need understanding of physical and transition climate risks, familiarity with the TCFD framework, knowledge of climate scenario analysis, basic carbon accounting concepts, and awareness of their legal obligations under ASRS. They also need governance skills to integrate climate considerations into existing oversight processes.
How should we structure board education on ASRS and climate governance?
Implement a structured program with 4 foundational sessions (2-3 hours each) covering climate fundamentals, industry specific risks, governance frameworks, and scenario analysis. Follow with quarterly updates and annual deep dives. Use a mix of internal expertise and external facilitators for credibility and customisation.
What governance documentation do we need for ASRS compliance?
Required documentation includes board approved climate policies and strategies, risk management frameworks, governance structure definitions, committee meeting minutes showing climate discussions, board resolutions approving climate initiatives, performance measurement systems, and annual governance review processes.
Should we create a dedicated sustainability committee or integrate climate oversight into existing committees?
This depends on company size and complexity. Large companies with significant climate exposure often benefit from dedicated sustainability committees. Smaller companies may integrate climate oversight into existing risk, audit, or strategy committees. The key is ensuring adequate time, expertise, and accountability regardless of structure.
How do we prepare for auditor scrutiny of our climate governance?
Establish systematic documentation of board oversight activities, ensure climate discussions are reflected in meeting minutes, maintain records of policy approvals and decisions, create evidence of performance monitoring and review, and engage auditors early for framework guidance. Focus on demonstrating informed decision making and effective oversight.
What are the legal implications if our board isn't ready for ASRS governance requirements?
Directors face potential liability exposure from inadequate climate governance, including regulatory penalties under the Corporations Act, shareholder litigation risk, and professional indemnity concerns. ASRS compliance is a legal obligation, making director competency and effective governance frameworks essential for risk management.
How often should the board review climate strategy and performance?
Most companies establish quarterly climate reporting to boards with annual strategic reviews. The frequency should align with the materiality of climate risks to the business and the pace of external change in climate policy, technology, and market conditions affecting the organisation.
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