New Australian laws
On 27 March 2024, the Federal government introduced the Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill 2024 (Cth) (the Bill) to the House of Representatives. Schedule 4 of the Bill proposes a new mandatory climate risk disclosure framework for large Australian entities. The Bill follows the recent consultation on the Treasury Laws Amendment Bill 2024: Climate-related Financial Disclosure (Exposure Draft) which the Federal government released in January. See Gilbert + Tobin’s Sustainability Insights March 2024 issue for further details on the regime proposed under the Exposure Draft.
Who will be required to report, and when?
Consistent with the Exposure Draft, entities that are required to prepare annual financial reports under Chapter 2M of the Corporations Act, and meet certain thresholds, will also be required to prepare sustainability reports. The largest entities (Group 1) will be required to submit sustainability reports for their financial years commencing from 1 January 2025, while other in-scope entities (Groups 2 and 3) will be phased into reporting obligations over three ‘transitional periods’.
** NGER reporting entities are corporations registered under the National Greenhouse and Energy Reporting Act 2007 (Cth) (NGER Act) at the end of the financial year, or corporations required to make an application to be registered under subs 12(1) of the NGER Act for the financial year.
Key takeaways
- Delayed start of reporting requirements: The mandatory disclosure rules will now begin to be implemented starting on 1 January 2025.
- Transitional phase for directors’ statements: For the first three years of the new system, directors who need to submit a declaration along with a sustainability report will only have to provide an ‘opinion’ on whether the entity took reasonable steps to ensure the substantive aspects of the sustainability report comply with the Bill.
- Modified liability framework: Statements within sustainability reports and auditors’ reports will be shielded from misleading and deceptive conduct claims for the first three years, unless the claim is brought by ASIC. This temporary protection will also cover forward-looking statements within the first 12 months of the new system.
- Greenhouse gas emissions: The definitions for Scope 1, 2, and 3 greenhouse gas emissions have been revised to align with those in the Australian Accounting Standards Board’s (AASB) Australian Sustainability Reporting Standards.
- Climate disclosure standards: These will be governed by the Auditing and Assurance Standards Board’s (AUASB) upcoming assurance requirements, which are currently open for consultation.
How might the new reporting requirements affect Australian SMEs?
With the new reporting requirements, SMEs in Australia may find their clients needing to report on emissions across their entire supply chain, including Scope 3 emissions. This means your business will need to provide data to your clients for their reporting purposes.
In the future, clients may make decisions—such as whether to continue working with certain suppliers—based on how well you help them reduce their emissions and how easily they can obtain the necessary data from you.
How are other jurisdictions implementing climate-related disclosure?
UK
In April 2022, the United Kingdom (UK) introduced the Companies (Strategic Report) (Climate-related Financial Disclosure) Regulations 2022, implementing mandatory sustainability reporting for large companies. The UK Government is currently preparing UK Sustainability Disclosure Standards (UK SDS), intended to align corporate disclosures on sustainability-related risks and opportunities for companies with the ISSB standards. The UK SDS are anticipated to take effect from 1 January 2025.
European Union
In January 2023, the European Union’s Corporate Sustainability Reporting Directive (CSRD) entered into force. The CSRD introduced detailed sustainability reporting requirements for large European Union (EU) companies, non-EU companies above certain turnover thresholds and non-EU companies with securities listed on an EU-regulated market. Companies subject to the CSRD will be required to report according to the European Sustainability Reporting Standards (ESRS). Guidance on reporting in accordance with the ESRS has recently been released to assist reporting entities.
Want to learn more?
Watch this recent webinar by Tafe and Climate Clever or read this article from Gilbert & Tobin.
