Analyst highlights major drivers shaping emissions transparency

Rabobank animal proteins senior analyst Angus Gidley-Baird believed these non-financial disclosures had ramped up in the past two years, as increased demands on operators and the supply chain, had become imminent.

"The pressures and ambitions which exist in the value chain are driving the reporting requirements which are going to flow back up the chain to the producer, who will need to meet these requirements or requests from these operators," Mr Gidley-Baird said.

"Even in the past few months, there have been major internal processes which are already impacting the requirements of the producer."

Non-financial disclosures means businesses need to disclose to stakeholders, the sustainability, social and governance aspects of their business.

According to Mr Gidley-Baird, the federal government was pushing the role of financial institutions in terms of reporting and collecting this information to demonstrate progress and impacts, from a nature and sustainability point of view.

He believed the government's global methane pledge, commitment to the Paris Agreement, and global biodiversity framework, had put the government in a position of strong commitment to various pathways of progressing towards a better outcome for the environment.

"Banks are being seen as a bit of a conduit for some of these changes. The regulatory arrangements which are in place surrounding this reporting and what it means for banks, as well as the exposure for banks and financial institutions have across that supply chain, puts them in a fairly important position," he said.

New research has shown, $260 billion of outstanding Australian bank loans, 22 per cent, of bank lending to sectors, carry a high risk or impact on the environment.

"This highlights the pressures which are being generated in the value chain and therefore, why value chain members are making particular decisions surrounding non-financial disclosure reporting," Mr Gidley-Baird said.

He also believed there was an information gap, between government regulatory tools, companies making commitments, and industry setting targets and starting to report.

But, on the other hand, investors, shareholders, not-for-profits and the general public, are also requiring demonstration of progress, and most importantly, a certification of assurance that the information is genuine.

Mr Gidley-Baird said to date, there had been some non-financial disclosure reporting but suggested it had so far been an "ad-hoc process".

"Some of the information flow might not have been meeting the needs of the respective parties in this conversation. So, how do the operators which are making commitments and setting targets, demonstrate to their shareholders and general public, progress is being made?

"How do they do it so there is confidence in the system and not end up with greenwashing claims."

From a producer perspective, Mr Gidley-Baird said it was important for producers to fully understand their interaction with the value chain.

"Many might see their direct interaction with the value chain as a processor, live exporter or stock agent, but it goes beyond that. It includes retailers, food operators, farm input supplies of fuel and fertilizer companies, and of course, financial institutions."

An indication that very few are excused from non-financial disclosure scrutiny, was a successful case against Shell.

Friends of the Earth won a case against the fossil fuel giant for causing climate change and as a result, Shell had to reduce its emissions by 45pc within 10 years, while the same NGO intends to challenge ING financial institution over its climate policies and finance of the fossil fuels industry.

"So, financial institutions just like producers, and industry, are being held to account," Mr Gidley-Baird said.

"This is why we are, where we are, with this conversation. It is also not something which began recently, the global reporting index started in 1997, after concerns about environmental reporting were raised."

Mr Gidley-Baird said in the past 12 months, global movements to demonstrate its progress had spearheaded a taskforce of climate-related disclosures, the EU finalising its corporate sustainability reporting directive which will require companies to report on certain metrics, and in Australia, the Treasury announced a proposal to implement mandatory climate-related disclosures.