Abstract
Mandatory climate-related financial disclosure has arrived in Australia, yet whether the information reaching capital markets is genuinely decision-useful remains an open question. Framed by decision-usefulness and legitimacy theory, this dissertation examines the quality of climate risk disclosure in ASX-listed annual reports and how institutional investors and analysts use that information. A convergent mixed methods design combined a structured content analysis of 40 ASX FY2023 annual reports, scored against the eleven recommended disclosures of the Task Force on Climate-related Financial Disclosures, with 12 interviews with investors and analysts. Disclosure quality was uneven, averaging 56.7 on a 100-point index, with financial firms and high-emitting sectors disclosing more than consumer and health-care firms, and governance disclosed far more fully than forward-looking strategy and metrics. Interviewees valued climate information in principle but distrusted boilerplate narrative and opaque scenario analysis, and read a gap between disclosure and capital allocation as a greenwashing signal. Comparability and assurance, not disclosure volume, determined decision-usefulness.
Introduction
Australia has moved decisively from voluntary to mandatory climate-related financial disclosure. The Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Act 2024 (Cth) inserted climate reporting obligations into the Corporations Act 2001, requiring large entities to prepare disclosures aligned with the Australian Accounting Standards Board’s new standard, AASB S2 Climate-related Disclosures, on a phased basis from 1 January 2025 (AASB 2024). For prudentially regulated banks, insurers and superannuation funds, the Australian Prudential Regulation Authority had already set expectations through Prudential Practice Guide CPG 229 (APRA 2021). Climate risk has therefore shifted from a matter of corporate goodwill to one of statutory reporting for entities listed on the Australian Securities Exchange (ASX).
The volume of climate disclosure has grown quickly, but its quality and usefulness to investors are contested. Benchmarking of the ASX200 has repeatedly found that companies describe their governance of climate risk more fully than they quantify its financial effects, with scenario analysis and Scope 3 emissions the weakest areas (ACSI 2023). At the same time, the corporate regulator has pursued a series of greenwashing actions, signalling that disclosure which overstates climate credentials carries legal as well as reputational risk (ASIC 2023). The relevant benchmark for evaluating any of this information is decision-usefulness: the objective, drawn from the Conceptual Framework for Financial Reporting, that information be relevant and faithfully represented so that it assists resource-allocation decisions. Disclosure that is voluminous but generic may satisfy neither criterion.
This dissertation examines the decision-usefulness of climate risk disclosure in the Australian listed market during the transition to mandatory reporting. It assesses how well ASX-listed companies disclose against an established framework and how the investors who are the intended audience actually use that information. Three research questions guided the study:
- How does the quality of climate risk disclosure vary across ASX-listed companies and sectors when assessed against the recommendations of the Task Force on Climate-related Financial Disclosures?
- How do institutional investors and analysts interpret and use climate risk disclosure in their decisions?
- Which features of disclosure strengthen or weaken its decision-usefulness, including the risk of greenwashing?
Literature Review
Decision-usefulness and theories of disclosure
The study is anchored in the decision-usefulness objective of financial reporting, under which information earns its place only if it is relevant to users’ decisions and faithfully represents the underlying economic phenomena. Voluntary disclosure theory explains why firms might supply such information in the absence of a mandate: disclosure reduces information asymmetry between managers and capital providers and can lower the cost of capital, although managers weigh these benefits against proprietary and litigation costs (Healy & Palepu 2001). This economic account is incomplete for environmental information, however, because disclosure is also a legitimacy device. Legitimacy theory holds that organisations disclose to demonstrate conformity with societal expectations, so environmental disclosure can be symbolic, managing impressions rather than conveying substance (Cho & Patten 2007; Deegan 2019). Sustainability accounting scholarship similarly cautions that reporting can be decoupled from organisational practice, so that the existence of disclosure says little about the reality it purports to describe (Bebbington & Larrinaga 2014). These competing accounts frame the central tension of the study: disclosure may inform or merely reassure.
Disclosure frameworks: TCFD, ISSB and AASB S2
The dominant architecture for climate disclosure is the framework of the Task Force on Climate-related Financial Disclosures, which organises recommendations under four pillars, governance, strategy, risk management, and metrics and targets, comprising eleven recommended disclosures in total (TCFD 2017). The framework has since been absorbed into a mandatory lineage. The International Sustainability Standards Board built on the TCFD in issuing IFRS S2 Climate-related Disclosures (ISSB 2023), and the AASB adapted that standard for Australia as AASB S2 (AASB 2024). The practical effect is that the four pillars now supply the reporting template that ASX-listed entities must follow, which makes them a natural instrument for assessing disclosure quality. The prudential guidance issued for Australian financial institutions is aligned with the same structure (APRA 2021).
Evidence on disclosure quality and the greenwashing gap
Empirical work in Australia and internationally converges on an uneven picture. Firms report readily on board oversight and management responsibility, the governance pillar, yet disclose sparingly on the forward-looking content that investors most need: quantified scenario analysis, transition plans and Scope 3 emissions (ACSI 2023). Momentum toward net zero at the national level has outpaced the quality of firm-level financial disclosure (Climateworks Centre 2023). Legitimacy-based studies explain part of this asymmetry, since narrative governance disclosure is inexpensive to produce and difficult to falsify, whereas quantified strategy disclosure exposes the firm to scrutiny (Cho & Patten 2007). The consequence is a persistent gap between what is disclosed and what is decision-useful, a gap that greenwashing enforcement has begun to police (ASIC 2023). Two limitations recur in the literature. Disclosure-quality scoring and investor perceptions are rarely examined together, and little evidence addresses the Australian mandatory-transition setting directly. This study addresses both.
Methodology
Research design
A convergent mixed methods design was adopted (Creswell & Plano Clark 2018). Two strands were conducted in parallel: a structured content analysis measuring disclosure quality, and interviews capturing how investors use disclosure. The strands were given equal priority and merged at the interpretation stage through a joint display, allowing the measured quality of disclosure to be read against its perceived usefulness. Figure 1 sets out the design.
Content analysis strand
The sample comprised the FY2023 annual reports and accompanying sustainability reports of 40 ASX-listed companies, drawn purposively and stratified into four sectors of ten companies each: materials and energy; financials; utilities and industrials; and consumer and health care. This stratification captured both high-emitting sectors, where climate risk is most material, and prudentially regulated financial firms subject to CPG 229 (APRA 2021). Each report was scored against the eleven recommended disclosures of the TCFD framework. Every item was rated on a four-point scale, where 0 denoted no disclosure, 1 generic or boilerplate statements, 2 specific qualitative disclosure, and 3 quantified, decision-useful disclosure including scenario analysis or assured metrics. Item scores were summed to a maximum of 33 and rescaled to a 0 to 100 disclosure-quality index. Two researchers coded independently; inter-coder reliability was acceptable (Krippendorff’s alpha = 0.81), and disagreements were resolved by discussion (Krippendorff 2019).
Interview strand
Twelve semi-structured interviews were conducted with institutional investors and analysts, including superannuation fund portfolio managers, environmental, social and governance (ESG) analysts and sell-side equity analysts, all of whom incorporate climate information into valuation or stewardship decisions. Interviews of 45 to 60 minutes were held by videoconference and explored how participants located, trusted and used climate disclosure. Transcripts were analysed using reflexive thematic analysis, moving from initial coding to the development and review of themes (Braun & Clarke 2021).
Ethical considerations
The study was approved by the administering university’s Human Research Ethics Committee and conducted in accordance with the National Statement on Ethical Conduct in Human Research. Participation was voluntary and based on written informed consent, interviewees were assigned pseudonyms, and identifying organisational detail was withheld because the Australian institutional investment community is small enough for participants to be recognised.
Findings
Disclosure quality across sectors
Table 1 reports mean disclosure-quality scores by TCFD pillar and sector. Overall quality was modest, with a sample mean index of 56.7 of a possible 100, indicating that the average report in the sample disclosed a little over half of the decision-useful content the framework contemplates. Quality varied markedly by sector. Financial firms scored highest, consistent with the prudential expectations already placed on them (APRA 2021), while consumer and health-care firms scored lowest. The disclosure-quality index for the financial sector was calculated as follows:
Index = (5.1 + 6.2 + 6.5 + 5.6) / 33 × 100 = 23.4 / 33 × 100 = 70.9
By the same method the materials and energy sector scored 65.8, utilities and industrials 51.5, and consumer and health care 38.5, a spread of 32.4 index points between the strongest and weakest sectors. Financial firms therefore disclosed roughly 84 per cent more decision-useful content than consumer and health-care firms (70.9 / 38.5 = 1.84).
Table 1: Mean climate disclosure-quality scores by TCFD pillar and sector (N = 40)
| Sector | n | Governance (0-6), M (SD) | Strategy (0-9), M (SD) | Risk management (0-9), M (SD) | Metrics and targets (0-9), M (SD) | Disclosure index (0-100) |
|---|---|---|---|---|---|---|
| Materials and energy | 10 | 4.6 (1.1) | 5.8 (1.9) | 5.4 (1.8) | 5.9 (1.7) | 65.8 |
| Financials | 10 | 5.1 (0.9) | 6.2 (1.7) | 6.5 (1.6) | 5.6 (1.9) | 70.9 |
| Utilities and industrials | 10 | 3.9 (1.3) | 4.5 (2.0) | 4.2 (1.9) | 4.4 (2.1) | 51.5 |
| Consumer and health care | 10 | 3.2 (1.4) | 3.4 (2.1) | 3.1 (2.0) | 3.0 (2.2) | 38.5 |
| Total sample | 40 | 4.2 (1.3) | 5.0 (2.1) | 4.8 (2.0) | 4.7 (2.2) | 56.7 |
Note. Each of the eleven TCFD recommended disclosures was scored 0 to 3 and summed to a pillar total; pillar maxima are 6 for governance (two items) and 9 for each remaining pillar (three items). The disclosure index rescales the summed score to a 0 to 100 scale. Inter-coder reliability was acceptable (Krippendorff’s alpha = 0.81).
A second pattern cut across all sectors. Averaged over the sample, the governance pillar attracted 70.0 per cent of the available marks (4.2 of 6), whereas the three forward-looking pillars clustered far lower: strategy at 55.6 per cent (5.0 of 9), risk management at 53.3 per cent (4.8 of 9) and metrics and targets at 52.2 per cent (4.7 of 9). Companies described who governs climate risk more fully than what that risk means for their strategy, cash flows or emissions, precisely inverting the priority that decision-usefulness would imply.
How investors use disclosure
Reflexive thematic analysis of the interviews produced six themes, summarised in Table 2. Participants valued climate disclosure in principle but were sceptical of its execution. The most widely shared concern, raised by eleven of twelve interviewees, was that boilerplate narrative defeated comparability: near-identical TCFD statements across companies made it difficult to distinguish leaders from laggards. Scenario analysis attracted particular distrust, with participants describing undisclosed assumptions and implausibly benign outcomes. Several read the distance between a company’s climate narrative and its capital expenditure as the clearest signal of greenwashing; as one portfolio manager put it, “the transition story is in the sustainability report, but the capital is still going the other way” (Participant 7). Demand concentrated on Scope 3 emissions, credible transition plans, independent assurance and disclosure connected to the financial statements rather than quarantined in a separate document. Most participants expected the mandatory regime to raise the baseline, while doubting that a standard alone could compel candour.
Table 2: Themes from reflexive thematic analysis of investor and analyst interviews (n = 12)
| Theme | Description | Participants reporting (n) |
|---|---|---|
| Boilerplate narrative limits comparability | Near-identical TCFD statements across firms make leaders hard to distinguish from laggards | 11 |
| Distrust of scenario analysis | Undisclosed assumptions and implausibly benign outcomes reduce credibility | 10 |
| Demand for Scope 3 and credible transition plans | Forward-looking emissions and costed transition pathways sought over narrative intent | 9 |
| Greenwashing read from the disclosure to capital gap | Distance between climate claims and capital expenditure treated as a warning sign | 9 |
| Preference for assured, financially connected data | Independent assurance and integration with the financial statements valued over standalone reports | 8 |
| Anticipated lift from mandatory AASB S2 | Expectation that a common standard will raise the baseline, tempered by scepticism about candour | 7 |
Discussion
The content analysis answers the first research question: disclosure quality is uneven and, on average, modest. The sectoral ranking is readily explained. Financial firms lead because prudential guidance has required them to treat climate as a financial risk for several years (APRA 2021), whereas the low scores of consumer and health-care firms reflect weaker materiality pressure. More revealing than the sectoral spread is the pillar imbalance. The dominance of governance disclosure over strategy, risk and metrics is consistent with legitimacy theory: narrative accounts of oversight are inexpensive and difficult to disprove, so they proliferate, while quantified forward-looking disclosure, which would expose the firm to scrutiny, lags (Cho & Patten 2007; Deegan 2019). Disclosure is accumulating where it is cheap rather than where it is useful.
The interviews answer the second and third questions and align closely with the measured data. Investors discounted precisely the boilerplate that the scoring rewarded least, and prized the quantified, assured and financially connected disclosure that was scarcest. Their reasoning maps onto the two components of decision-usefulness. Comparability failures and opaque scenario assumptions are relevance problems, since information that cannot be compared or interrogated cannot discriminate between investments. The demand for assurance and for connection to the financial statements is a faithful-representation concern, a call for disclosure that can be verified. The greenwashing signal that participants drew from the gap between narrative and capital expenditure is exactly the decoupling that legitimacy and sustainability accounting scholarship predict (Bebbington & Larrinaga 2014), and the same conduct that the corporate regulator has begun to sanction (ASIC 2023).
These findings temper expectations of the mandatory regime. AASB S2 will raise the floor by compelling disclosure against a common template and, in time, assurance, which should improve comparability and faithful representation (AASB 2024). Yet a standard that can be satisfied with narrative risks entrenching a new, more uniform boilerplate unless preparers and assurers hold the line on quantified, forward-looking content. The transition to net zero that national policy anticipates will not be legible to capital markets if firm-level disclosure continues to describe governance while withholding financial consequence (Climateworks Centre 2023).
Four limitations qualify the findings. The content analysis covers a single reporting year and a purposive sample of 40 companies, so the results characterise the transition moment rather than a trend. Scoring involves judgement, although independent double-coding and acceptable reliability mitigate this. The twelve interviewees, though experienced, were self-selected and skew toward climate-aware investors. Finally, the study measures disclosed quality and perceived usefulness, not the effect of disclosure on actual pricing or capital allocation, which remains an important question for future research.
Implications and Conclusion
Three sets of implications follow:
- Preparers: the marginal reporting effort should move from governance narrative, which is already saturated, to quantified strategy, scenario analysis and Scope 3 metrics, and disclosure should be integrated with the financial statements and independently assured rather than confined to a standalone report.
- Investors and regulators: the persistence of a disclosure to substance gap supports continued scrutiny of the alignment between climate claims and capital allocation, and argues for assurance requirements to be phased in without delay alongside AASB S2 (AASB 2024; ASIC 2023).
- Research: longitudinal designs and market-based tests, ideally using Australian pricing and ASX disclosure data, would establish whether improved disclosure quality translates into measurable decision-usefulness.
In sum, the value of climate risk disclosure to Australian investors depends on its quality, not its quantity. In this study the average ASX-listed report disclosed only a little over half of the decision-useful content the TCFD framework contemplates, concentrated disclosure in governance while under-reporting financial consequence, and left the investors it is meant to serve reaching past narrative for assured, comparable numbers. Mandatory reporting under AASB S2 provides the architecture to close that gap, but architecture is not candour. Whether climate disclosure becomes genuinely decision-useful will turn on comparability, assurance and the alignment of disclosure with the capital that firms actually deploy.
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