On Friday, 12 January 2024, the Australian Government released draft legislation for significant reforms establishing Australia’s climate risk disclosure framework. The draft legislation amends the Australian Securities and Investment Commission Act 2001 and the Corporations Act 2001 to introduce mandated climate-related financial disclosures in a separate sustainability report, as part of some entities’ annual reports. Entities will also be required to obtain an assurance report over the sustainability report from their financial auditors.
Who will be required to begin climate-related reporting?
Entities subject to mandatory climate-related financial disclosure would be phased in three groups, over a four-year period as in the table below.
Source: Mandatory climate-related financial disclosures - Policy position statement
Who will be excluded from mandatory climate-related reporting?
Small and medium businesses below the relevant size thresholds will be exempt.
Entities that are exempt from lodging financial reports under Chapter 2M of the Corporations Act, including where exemptions have been made through the Australian Securities and Investment Commission (ASIC) class orders or where the entity is registered with the Australian Charities and Not-for-profits Commission (ACNC).
What will be disclosed?
The Government endorses full adoption of the International Sustainability Standards Board’s (ISSB’s) IFRS S2 Climate-related Disclosures standard in Australia, with modifications limited to those necessary to ensure standards are fit for Australia. This should incorporate Australia’s greenhouse gas emissions estimation methodologies and international climate change commitments. The Government also supports the adoption of the ISSB’s IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information, but only where required to give effect to climate disclosure standards.
Where will sustainability disclosures be required?
Climate-related financial disclosures will sit within a sustainability report, which will form the fourth report required as part of annual financial reporting obligations and be contained in an entity’s annual report.
An entity’s annual report is proposed to consist of the following:
- Annual financial report
- Annual sustainability report
- Directors’ report, and
- Auditor’s report.
The annual financial report consists of the following:
The annual sustainability report is proposed to consist of the following:
- The climate statements for the year
- Any notes to the climate statements, and
- The directors’ declaration about the statements and notes.
Timing of annual report lodgement, which will now also include a sustainability report, including for those required to lodge with ASIC will stay consistent with current requirements under section 319 of the Corporations Act.
Climate disclosures will be subject to similar assurance requirements to those currently in the Corporations Act for financial reports. They will require entities to obtain an assurance report from their financial auditors, who will also use technical climate and sustainability experts where required. These requirements will be set out in Australian assurance standards for climate disclosures.
Entities will be provided relief for a fixed three-year period for disclosures relating to Scope 3 emissions and certain climate-related forward-looking statements. For reports issued between 1 July 2025 and 30 June 2028, only the regulator will be able to bring action relating to breaches of relevant provisions made in disclosures of scope 3 emissions and climate-related forward-looking statements, and the remedies available to the regulator will be limited to injunctions and declarations. Beyond this period, the existing liability arrangements will apply.
Consultation for the draft legislation is now open and submissions will close on 9 February 2024.
For more information on the public consultation process, visit the Treasury website. Submissions can be made to ClimateReportingConsultation@treasury.gov.au.
Do you need assistance?
BDO’s national sustainability team can help you understand what this might mean for your organisation, contact BDO HERE.
Sustainability webinar series
This webinar series aims to break the complex world of sustainability into digestible pieces to help you get on top of the fundamentals and start driving change in your organisation. Join BDO on 31 January to delve into the draft legislation and explore the latest developments in sustainability and what to expect in 2024.