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It will be important to differentiate between statements that could mislead and deceive the market if they become stale and, for a listed company, those that could have standalone materiality. All significant forward-looking statements will need to be monitored – but in practice, only a few will fall within the ‘standalone materiality’ category.
Companies are clearly facing increased stakeholder scrutiny in relation to climate transition. While listed companies are well-versed in assessing the materiality of issues with near-term financial or reputational impacts, the potential market response to variations from climate-related targets can be trickier to gauge where the financial impacts are unlikely to be seen for many years. It will be important to stay attuned to market sentiment and investor expectations around how the company is managing its transition, as this will help guide the potential qualitative impact of a pivot in approach and/or targets.
The reasonable basis for forward-looking strategies and targets will undergo significant analysis at the time of publication. However, it will be important to periodically re-test the reasonable basis analysis, and consider the events or other types of changes that should trigger a re-assessment so that you can promptly respond when they arise. For headline targets, ambitions and strategy statements, best practice will be to put in place periodic reassessments of the reasonable basis for these statements that are more frequent than the annual reporting regime would otherwise prompt.
Climate-related information is often unsettled and uncertain. This may mean that the information can be exempt from disclosure for listed companies under Listing Rule 3.1A – for example: Is the information insufficiently definite? Does it relate to an incomplete proposal? Is it still confidential information? Of course, if you become aware of a change in circumstances, you cannot bury your head in the sand and ignore the indicators that might suggest that the targets are becoming unachievable or inappropriate. However, you should have the benefit of time to carefully work through the analysis so long as you are carefully monitoring the early warning signs and maintaining confidentiality through the review process.
In the context of regulatory and activist attention on ‘greenwashing’ / overstated environmental benefits, we encourage companies to be quick to update the market of any backwards steps or missteps in their transition journey. It is broadly understood (even by ASIC) that the transition will not necessarily be a linear trajectory, and market updates can reduce the risk of any earnings surprises or market disclosures made ‘too late’. Messaging these issues in periodic disclosures may be a helpful way of bringing the market on the journey.
The contents of this publication are for reference purposes only and may not be current as at the date of accessing this publication. They do not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking any action based on this publication.
© Herbert Smith Freehills 2023