Post: Climate disclosures could be coming to Australia

Climate disclosures could be coming to Australia

The Australian Treasury recently released a proposal setting out the climate-related information many companies may soon need to disclose.

Transparent and comparable climate-related data is crucial for both companies and stakeholders to identify, assess and manage climate-related risks. It also gives stakeholders, including financial institutions, insight into opportunities arising from the transition to a low-carbon economy.

Increased transparency of climate-related data can also:

• reduce the risk of greenwashing, supporting regulators and stakeholders in holding companies accountable for their claims around climate commitments
• support policy makers and regulators in better understanding broader systemic risks to the financial system associated with climate change
• enable consumers to make informed decisions about where they want to spend, invest, or even work
• foster an environment of collaboration around climate change and sustainability across value chains.

Under the proposal, companies will need to disclose climate-related information as part of their general financial reporting, starting as early as July 2024 for some companies.

What are the proposed requirements?

Rather than reporting from a compliance-based mindset, companies can use the disclosures as an opportunity to better understand their climate risks and opportunities and build long-term value.

Companies that already report using the Taskforce on Climate-related Financial Disclosures (TCFD) framework should be well placed to meet new requirements. However, the disclosures proposed by the Treasury will require more detailed and quantitative information.

The Treasury’s proposal signals Australia’s intent to follow many other jurisdictions in introducing mandatory climate-related disclosures closely aligned with the International Sustainability Standards Board (ISSB) climate-related standard (IFRS S2).

Under Treasury’s proposal, companies will have to disclose their current and anticipated climate-related risks over the short, medium and long term. This represents a significant change from previous financial reporting by requiring substantial forward-looking information.

Disclosure requirements include:

• greenhouse gas emissions from all sources – scope 1 (direct emissions generated by operations), scope 2 (indirect emissions from energy purchased and used) and scope 3 (indirect emissions along the wider value-chain)
• climate resilience of strategy and business models, informed by scenario analysis
• responses to anticipated material climate-related physical and transition risks and opportunities
• any climate-related targets, offset contributions and transition plans.

Companies will also be required to obtain assurance by a third-party.

Treasury is proposing a staged approach to implementation, starting with large businesses and financial institutions from the 2024-25 financial year and expanding to cover all other proposed groups by the 2027-28 financial year.

Group 1 companies could see implementation from 2024-25 onwards. These are entities required to report under Chapter 2M of the Corporations Act and that fulfil two of the three thresholds:

• Has over 500 employees; 
• The value of consolidated gross assets at the end of the financial year of the company and any entities it controls is $1B or more;
• The consolidated revenue for the financial year of the company and any entities it controls is $500M or more

AND Entities required to report under Chapter 2M of the Corporations Act that are a ‘controlling corporation’ under the NGER Act and meet the NGER publication threshold.

Group 2 (2026-27 onwards) are Entities required to report under Chapter 2M of the Corporations Act and that fulfil two of the three thresholds

• Has over 250 employees
• The value of consolidated gross assets at the end of the financial year of the company and any entities it controls is $500M or more
• The consolidated revenue for the financial year of the company and any entities it controls is $200M or more.

AND Entities required to report under Chapter 2M of the Corporations Act that are a ‘controlling corporation’ under the NGER Act and meet the NGER publication threshold.

What comes next?

Mandatory climate-related disclosures represent a key first component of a wider sustainable finance system that is capable of facilitating and accelerating economy-wide decarbonisation.

Companies should act now to integrate climate and other sustainability considerations into their overall strategy to better prepare for further developments. Companies that do this successfully will demonstrate a competitive advantage and value to investors and customers in a decarbonising economy.