Mandatory climate risk disclosure means greater transparency for stakeholders

Over the next few years, many Australian companies will be required to disclose their climate risks and opportunities under new Australian Sustainability Reporting Standards (ASRS) developed by the Australian Accounting Standards Board (AASB). The proposed reforms are the most significant change to corporate reporting in years, supporting Australia’s transition to net-zero emissions by 2050 and providing investors, businesses and regulators with improved information and transparency about the risks and opportunities posed by climate change.

The Treasury released the Exposure Draft legislation in January 2024 and introduced the Bill to Parliament on 27 March 2024. Closely aligned with global framework, the International Sustainability Standards Board (ISSB) Standards, the Standards will be implemented in a three-phase approach, outlined in the timeframe below.

What are the key elements of the draft Standards?

Key disclosure elements Summary of proposed disclosure requirements
Reporting implementation Proportional, three-phased implementation will apply (see timeframe below), beginning on 1 January 2025 for large entities and financial institutions who report to a calendar year and 1 July 2025 for end-financial year reporters. 
Reporting location An annual Sustainability Report and a Directors’ Statement must be published within a company’s Annual Report. 
Climate and sustainability disclosures   Close, but not identical, alignment with ISSB climate risk Standards (IFRS S2). These are based on the Task Force on Climate-Related Financial Disclosures (TCFD) which many companies currently report against on a voluntary basis. The draft Standards are limited to climate risks only and do not apply to broader sustainability disclosures, which will be addressed later.
Assurance Staged process with limited assurance for climate-related disclosures, moving to reasonable assurance from 1 July 2030.
Materiality Detailed information about physical and transitional climate-related material risks are required under the new standards. 
Governance

Requires information about governance processes and controls in place for management oversight of climate-related risks and opportunities. Entities would also need to disclose whether climate-related factors are considered in executive remuneration.
Climate Strategy Information about how the entity identifies and addresses short, medium & long-term climate risks (scenario analysis); how it plans to achieve targets; how activities will be resourced; mitigation and adaptation efforts. Entities would need to disclose at least two climate assessments, one of which should be consistent with the most ambitious global temperature goal as set out by the Climate Change Act 2022.
Emissions Scope 1, 2 & 3 from the first year of reporting, with transition relief for Scope 3. Reporting covers GHG emissions and does not apply to non-GHG such as ozone-depleting emissions. GHG must be converted into their CO2 equivalent value.
Scope 3 Scope 3 is required however some transition relief is afforded in the first year of reporting. Entities may use prior reporting data from any one year period that ended up to 12 months prior to the current reporting period. 
Targets

Disclosure of climate-related targets and the metrics used to monitor progress, planned use of carbon offsets to meet GHG emissions targets and how targets compare with the latest international agreements on climate change.
Enforcement Climate-related reporting requirements are likely to be implemented as civil penalty provisions under the Corporations Act. In addition, an initial three-year ‘limited immunity’ regime with respect to Scope 3 emissions, scenario analysis, transition plans and climate-related forward-looking statements would apply. 
 

How can your company prepare?

Climate strategy and reporting is more than a box-ticking compliance exercise. There are real opportunities and efficiencies to be gained. We recommend that companies to take a whole-of-organisation approach to meet the requirements of the new framework. As a first step, ensure that your Board and senior management team are familiar with the new standards and the reporting timing based on the thresholds. Review your governance structures to ensure oversight and communication between the Board and the Executive and that climate risk competency is represented at the highest level. Performing a materiality assessment is a useful exercise to identify other material sustainability priorities.

The Futureproof team is here to help. Contact us if you have any questions, or would like more information about the practical steps that you can take to prepare for mandatory climate risk reporting.