Australia’s much anticipated climate risk framework has now been finalised, with the release of two sustainability reporting standards by the Australian Accounting Standards Board (AASB) this week. AASB S1 is a voluntary Standard focused on sustainability-related risks, while AASB S2 covers mandatory climate-related disclosures for entities who meet specific asset, revenue and employee thresholds.
The requirements represent a significant shift in corporate reporting as companies must now publish a Sustainability Report and Directors’ Statement within their Annual Report, detailing their material, decision-useful climate risks and opportunities.
A brief history
Amendments were proposed to the Corporations Act to support Australia’s transition to net zero emissions and ensure the management of systemic risks in the financial system as a result of climate change. Following passage of the Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill 2024 (Cth) through Parliament in September 2024, the new standards provide disclosure guidance for large and medium-sized companies to report their material climate-related risks. The standards follow years of consultation and are aligned with the global International Sustainability Standards Board (ISSB) 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.
Key elements
Entities will be expected to disclose climate-related information about governance, strategy, risk management, and metrics and targets, including information about scenario analysis, transition plans and Scope 1, Scope 2 and Scope 3 greenhouse gas emissions. Third party assurance is also required, beginning with limited assurance and moving to reasonable assurance from 1 July 2030. The Auditing and Assurance Standards Board (AUASB) is developing an assurance standard which is expected to be issued in December 2024.
Who should report and when?
A three-phased implementation timeframe will apply to listed and unlisted entities, asset owners and NGER reporters who meet specific thresholds based on employees, gross assets and consolidated revenue. Group 1 entities will be the first to report, commencing 1 January 2025. See the implementation timeframe below.
S1 & S2: What’s the difference?
>> S1 is a voluntary Standard. Entities may choose to apply this Standard, which would require an entity to disclose information about all sustainability-related risks and opportunities that could reasonably be expected to affect the entity’s cash flows, its access to finance or cost of capital over the short, medium or long term.
>> S2 is a mandatory Standard. It covers climate-related disclosures and applies to entities who fall under certain thresholds. This Standard, when applicable, requires an entity to disclose information about climate-related risks and opportunities that could reasonably be expected to affect the entity’s cash flows, its access to finance or cost of capital over the short, medium or long term
Liability settings
The liability regime is consistent with liability applied to an entity’s financial and directors’ reports. Reporting entities are subject to a modified liability regime, providing immunity from civil claims regarding disclosures made in sustainability reports, and auditors’ reports for financial years commencing during the period from 1 January 2025 to 31 December 2027. This applies to disclosures about Scope 3 GHG emissions, scenario analysis and transition plans.
Additionally, the same modified liability protection applies to forward-looking statements commencing during the period from 1 January 2025 to 31 December 2025. Note, this only applies to Group 1 reporters and will not benefit entities from Group 2 or 3.
How can your organisation 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 take a whole-of-organisation approach to meet the requirements of the new framework.
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.