Mandatory climate reporting kicks off this year, ushering in a significant shift for corporate Australia
Australia has rolled out new mandatory climate reporting rules, compelling business owners to assess their company's emissions and detail their strategies for addressing future risks.
Enacted in 2024, this legislation marks a pivotal shift in reporting obligations and director responsibilities, according to insights from the Australian Institute of Company Directors (AICD).
Australia is set to mandate that companies disclose their greenhouse gas emissions, detailing how various future climate scenarios might affect their operations. This information will be included in sustainability reports submitted alongside financial disclosures. Initially, this requirement will focus on the nation’s largest companies. However, by 2027, it is expected that thousands of corporate entities and not-for-profit organisations will also fall under this legislation. Mark Rigotti, managing director and CEO of AICD, stated that this represents a significant shift in how companies will handle their mandatory disclosures moving forward.
The government has announced a new framework aimed at enhancing Australia’s status as a prime location for investment while aiding regulators in managing the systemic financial risks associated with climate change.
The introduction of the new regulations to Parliament last year means that Australia’s climate reporting requirements will be aligned with international standards for climate-related financial disclosures.
These amendments, which include the new regulations, successfully passed Parliament on 9 September and received royal assent on 17 September.
What is changing?
Until now, sustainability reporting has been done on a voluntary basis and under a range of differing standards, according to Julia Bilyanska, partner in charge of climate change and sustainability at KPMG.
Now, they'll be formalised under standards set by the International Sustainability Standards Board (ISSB), and require auditing like the rest of the organisation's financial statements.
Once the sole domain of sustainability departments, companies are restructuring to adapt to the new regime.
"When it's [happening in] a voluntary space, it's been a case of best endeavours.
[Now], good practice has it changing from just sustainability staff being involved to much more multidisciplinary teams forming.
Even to the point where there are multidisciplinary management executive committees that are being set up that then report through to sustainability committees.
So that shift, both at management and board level, is certainly occurring."
Which corporations are included?
The reporting entities will include Companies that meet 2/3 of:
Group 1 (Jan 2025)
Consolidated revenue: at least $500 million
EOFY consolidated gross assets: exceeding $1 billion
EOFY employees: a minimum of 500
Group 2 (Jul 2026)
Consolidated revenue: $200 million or more
EOFY consolidated gross assets: $500 million or more
EOFY employees: 250 or more
Group 3 (Jul 2027)
Consolidated revenue: $50 million or greater
End of fiscal year consolidated gross assets: $25 million or greater
End of fiscal year employees: 100 or more.
What lies ahead for Australia?
Australia's legislation positions the country as a pioneer in implementing internationally aligned mandatory standards concerning the potential effects of climate change on the financial prospects of corporations.
The European Union is at the forefront, having established the Corporate Sustainability Reporting Directive, which mandates corporations to disclose a wide array of sustainability-related issues. However, as the ISSB standards have only recently been formalised, countries such as Canada, New Zealand, Japan, and Brazil are also beginning to integrate aspects of these standards into their corporate reporting obligations.
A review of the regime is scheduled for 2028.
This assessment will evaluate the effectiveness of the coverage setting, the suitability of the liability framework, and identify any additional obstacles that may hinder the company's capacity to provide quality disclosures, as stated by the government.
This legislation has been highly anticipated, specifically Schedule 4 of the Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill 2024 (Cth), aimed at creating a mandatory climate reporting framework in Australia aligned with the ISSB, was presented to the House of Representatives on 27 March 2024.
The new regulations require the largest emitters in the country to include climate-related disclosures in their annual reports. This measure aims to foster investment in the transition towards a net-zero economy.
Sources:
To find out more, please read here: