The latest on Australia's Climate-Related Financial Disclosure legislation

Hot off the press - the Australian Treasury has released the Climate-related financial disclosure: exposure draft legislation.

See the table below for when organisations will need to start disclosing emissions under the proposed regulations.

Latest update on 28th March 2024

The new mandatory disclosure requirements are planned to be phased in from 1 January 2025 (instead of 1 July 2024 as originally proposed) for Group 1. No changes to threshold. To learn more, visit Australia’s latest suite of climate legislation

Why are we bringing these new requirements in again?

The policy position statement says:

A rigorous, internationally aligned and credible climate disclosure regime will support Australia’s reputation as an attractive destination for international capital and help draw the investment required for the transition to net zero. It will bring Australia in line with other jurisdictions, including the EU, UK, New Zealand and Japan.

Translation: Organisations are required to disclose their emissions and any risks related to climate change. That naturally puts a greater emphasis on the reduction of emissions and the effective management of those risks. Climate change presents a threat to financial systems, if these risks are disclosed (in the [ac]crual world of the annual report), it allows regulators, capital markets, and corporations to better manage them.

See 1.6 - 1.18 for more context.

Key Takeaways:

• What are we actually disclosing?

Information relating to governance, strategy, risk management and metrics and targets (including Scope 1, Scope 2 greenhouse gas emissions) will be required from the first year of reporting.

• Scope 3 - undue cost and effort

Scope 3 will be required the second year (this will be established in the legislation). Interestingly, the policy statement notes “Scope 3 disclosures would represent information that is available at the reporting date without undue cost or effort.”

It doesn’t take much effort to simply ask suppliers and portfolio companies to provide their emissions data within the next 12 months and to provide support, education and software to help them get started. And what lowers the cost? Accountants making this part of usual rather than an enormously expensive consulting exercise for every company. That’s exactly what Sumday unlocks. Schedule a demo on reach out to learn more.

• Where is the report going?

Climate-related financial disclosures (this includes the GHG accounting) 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.

• Assurance

Climate disclosures will be subject to similar assurance requirements to those currently in the Corporations Act for financial reports, and will require entities to obtain an assurance report from their financial auditors who will use technical climate and sustainability experts where required. These requirements will be set out in Australian assurance standards for climate disclosures. Assurance of Scope 1 and 2 emissions disclosures start from years commencing 1 July 2024 onwards.

See 1.72 - 1.105 for more.

Sumday is used by auditors to stay on top of these developments and understand the GHG Protocol requirements.

• Liability - will we get sued over our less than perfect accounting and disclosures?

Climate disclosures will be subject to the existing liability framework under the Corporations Act and Australian Securities and Investments Commission Act 2001 (Cth) including director’s duties, misleading and deceptive conduct provisions, and general disclosure obligations.

But….you can only be sued by the regulator for reports issued between 1 July 2025 and 30 June 2028 and remedies are limited to injunctions and declarations.

See 1.115 - 1.122 for more.

🔥 Tip: Get your accountant involved with your GHG accounting. Why? It’s accounting, you’ll need assurance, it’s going in the annual report… let them save you (and the world).

Need help? Check out firms in the Sumday Directory ready to assist you with this.

Need a recap on previous consultations? Check out our blog The Australian government’s response to the ISSB - How might it impact Australian Enterprise businesses?