The new Australian climate disclosure regime – implications and considerations.

Under the new Australian climate disclosure reporting regime (mostly adapted from the ISSB standards¹), from FY2025 designated entities - large businesses and financial institutions - will be required to report on a broader set of metrics and targets including Scope 1, 2 and 3 GHG emissions², climate scenario analysis, and transition plans.

S&P Global's ISSB Foundation Pack is a comprehensive solution designed to support companies on their reporting journey. For small entities – outside National Greenhouse and Energy Reporting (NGER) Scheme or below the designated thresholds, a benchmarking report on materiality assessment or a sustainability starter pack are available.

S&P Global Market Intelligence hosted a panel discussion "Deciphering the Australian Climate Risk Disclosures" on October 29th, 2024. Register and watch the on-demand recording below.

The new reporting regime

On 9th September 2024, The Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill 2024 (Cth) passed Parliament and received Royal Assent on 17th September 2024. This implies that from 1st January 2025, large Australian businesses, NGERS reporters and asset owners are required to prepare, in line with financial reporting, annual sustainability reports containing mandatory climate-related financial disclosures.

The sustainability reports must include a directors’ declaration which is a declaration by the directors as to whether the report complies with the Corporations Act and, in this instance, with the Australian Sustainability Reporting Standards (ASRS Standards), which have been issued by the Australian Accounting Standards Board (AASB). For the first three years of the new reporting regime (i.e. from 1 January 2025 to 1 January 2028), company directors are provided with up to three years of temporary relief in the form of limited liability³ for disclosures relating to Scope 3 greenhouse gas emissions, scenario analysis, and transition plans.

Whilst Australian Securities and Investments Commission (ASIC) is urging all reporting entities, including those in the second and third reporting cohorts, to begin preparing for the new climate disclosure regime, it recognizes there will be a period of transition as organisations develop the capabilities required to comply. ASIC will be taking a proportional and pragmatic approach to supervision and enforcement⁴.

What is expected?

As stated by ASIC Commissioner O’Rourke⁵, appropriate governance and record keeping are desirable.

Climate statements must comply with Section 296D of the Corporations Act, which requires that the climate statements and notes for a financial year must together disclose⁶:

• the entity’s material climate-related financial risks and opportunities;
• the entity’s metrics and targets for the financial year relating to climate that are required to be disclosed by the sustainability standards, including in relation to scope 1, 2 and 3⁷ emissions of greenhouse gas; and
• any information about the entity’s governance, strategy, or risk management in relation to these risks, opportunities, metrics and targets.

An entity must also disclose information about its climate resilience, as assessed under at least two possible future states (called ‘scenario analysis’):

• increase in global average temperature of 1.5°C above pre-industrial levels; and
• increase in global average temperature well exceeding 2°C above pre-industrial levels (meaning an increase of 2.5°C or higher).

For entities that deem risks or opportunities may be non-material, a “comply or explain” climate statement is expected. These entities may be:

• not NGER reporters; and/or
• fall below the reporting thresholds (as per above table).

Do you have capabilities and systems to adequately capture, validate and verify the required data? Will you be assurance ready?

Decision-useful information and the biodiversity nexus - Are you prepared?

At its core, the intent of corporate disclosure is to provide decision-useful information to the users of reported data & information. As more people consider environmental sustainability when making financial decisions, the direction of travel is that climate disclosure will continue to grow in importance. Why does this matter? Because when we consider the current pace of technological disruption and market volatility, can a business strategy without consideration for sustainability matters and escalating climate risk be viable? In short, how can you know if a business will be resilient to sudden or chronic shocks over the next 5, 10 or 50 years?

Enhanced climate disclosure will, in our view, benefit reporting entities themselves, enabling them to better understand their climate-related position, resilience and forward outlook in what Viktor Shvets⁸, global strategist at Macquarie Bank, calls “a world on fire”.

What is the benefit of good data capture, validation and verification systems and processes? On the one hand, they simply add confidence to company Directors, both executive or non-executive, of reasonable efforts toward compliance and, on the other, they pre-empt the expected shift from limited assurance (Year 1) to (complete) reasonable assurance in Year 4.

Lastly, without risking a channel view, and also noting this is not within the scope of the recent AASB S1 and S2 requirements, we would like to highlight the importance of weaving climate risk & opportunities with the integration of biodiversity considerations.

This has been recently covered by a reference guidance “Biodiversity Finance” released by the Internation Finance Corporation⁹, where Target 19 focuses on the mobilization of financial resources towards biodiversity, which includes international, domestic, public, and private finance, as well as optimizing co-benefits and synergies of finance targeting the biodiversity and climate crises.