Navigating AASB S2: Best Practices for Australian Asset Managers

The Australian Sustainability Reporting Standards (AASB), particularly AASB S2, represent a significant shift in how asset managers address climate-related risks and opportunities. 

Under the new reporting standards, entities must provide information on:

• Governance and risk management related to climate issues.
• Climate resilience assessments, including scenario analysis.
• Climate Transition Plans (CTPs).
• Specific metrics and targets, encompassing Scope 1, Scope 2, and Scope 3 greenhouse gas emissions.

Meeting these requirements is not just about compliance; it’s about demonstrating responsible investment practices and building long-term value. This blog post outlines key best practices for Australian asset managers to effectively navigate AASB S2 and leverage technology like ESG data management platforms to streamline the process.

1. Unlocking the Power of Enhanced Data Availability and Reliability:

AASB S2 mandates comprehensive climate-related disclosures, which is expected to lead to a wealth of standardised data. This influx of information presents a powerful opportunity. Best practice involves:

• Proactive Data Collection: Don’t wait for disclosures. Actively seek climate-related data from investee companies, industry reports, and specialized data providers.
• Data Quality is Key: Focus on verifiable and reliable data sources. Scrutinize the methodologies used by companies to calculate their emissions and other metrics.
• ESG Data Management Platforms:  Leverage platforms like CalibreRMS to centralise and manage this data efficiently, and present it alongside fundamentals data. These platforms offer a structured environment for storing, validating, and accessing crucial climate-related information as you would any other key investment data.

2. Seamless Integration of Climate Risks into Fundamental Analysis:

Climate change is not just an ethical concern; it’s a material financial risk. Integrating climate considerations into fundamental analysis is crucial:

• Materiality Assessments: Identify the climate-related risks and opportunities that are most relevant to each investment. Consider both physical risks (e.g., extreme weather events) and transition risks (e.g., policy changes).
• Scenario Analysis: Employ scenario analysis to assess the potential impact of different climate pathways on company valuations. Consider various scenarios, from a rapid transition to a delayed transition.
• Valuation Adjustments: Incorporate climate-related risks and opportunities into financial models. Adjust discount rates, cash flow projections, and terminal values to reflect potential climate impacts.
• Integrated Research Tools: Platforms like CalibreRMS, with integrated investment research tools including research notes, qualitative assessments and financial modelling allow you to seamlessly incorporate climate data and insights into your existing research workflows.

3. Deep Dive into Portfolio Exposure with Comprehensive Emissions Analysis:

Understanding your portfolio’s carbon footprint is essential for effective climate risk management:

• Scope 1, 2, and 3 Emissions: Calculate and analyze emissions across all three scopes. Scope 3 emissions, while often challenging to measure, provide a crucial understanding of value chain risks.
• Portfolio Carbon Footprint: Assess the overall carbon intensity of your portfolio and identify key contributors to emissions.
• Sectoral Analysis: Analyse climate-related risks and opportunities at the sector level to identify potential hotspots and inform investment strategies.
• Portfolio Analytics: Utilise portfolio analytics tools, often integrated within ESG data management platforms like CalibreRMS, to visualize and understand climate-related risks across your entire portfolio.

4. Elevating Engagement with Investee Companies:

Active ownership is a powerful tool for driving positive change:

• Targeted Engagement: Prioritise engagement with companies that have significant climate-related risks or opportunities.
• Clear Expectations: Communicate your expectations regarding climate disclosures, emissions reduction targets, and sustainable business practices.
• Collaborative Approach: Engage in constructive dialogue with companies to understand their challenges and offer support.
• Track and Report on Progress: Use an Active Ownership Management Platform to help monitor the progress of investee companies on climate-related issues and hold them accountable for their commitments, as well as reporting on your engagement activities across your portfolio.

5. Streamlining Reporting and Demonstrating Transparency:

AASB S2 requires transparent and comprehensive reporting. Streamline this process by:

• Standardised Reporting Frameworks: Align your reporting with established frameworks, such as the Task Force on Climate-related Financial Disclosures (TCFD) recommendations.
• Data Automation: Leverage technology to automate data collection, analysis, and reporting.
• ESG Data Management Platforms: An ESG data management platform can streamline the reporting process by providing a centralised repository for climate-related data and generating reports that meet regulatory requirements.

The Role of Technology:

ESG data management platforms like CalibreRMS, with their integrated investment research tools, are invaluable in navigating the complexities of AASB S2. They provide a centralised hub for data management, research, analysis, engagement tracking, and reporting, enabling asset managers to efficiently integrate climate considerations into all aspects of their investment process. By embracing these best practices and leveraging the power of technology, Australian asset managers can not only meet regulatory requirements but also enhance their investment performance and contribute to a more sustainable future.