By Morgan Collens
The Australian Government has introduced a phased approach to mandatory climate-related financial reporting, aiming to improve transparency and accountability in how companies address climate risks and opportunities. This initiative aligns with global standards such as the Task Force on Climate-related Financial Disclosures (TCFD) and seeks to provide stakeholders with consistent, reliable climate data.
Who is Affected?
The reporting requirements apply to entities that are already required to report under Chapter 2M of the Corporations Act, including large listed companies, significant unlisted entities, and certain subsidiaries of foreign businesses. Public sector entities will face similar requirements, though charities and some public authorities are exempt.
Key Timelines
Group 1 Entities: From 1 January 2025, entities meeting two of the following thresholds will begin reporting:
- 500+ employees,
- $1 billion+ in consolidated assets, or
- $500 million+ in annual revenue.
Group 2 Entities: Reporting starts from 1 July 2026, applying to entities with:
- 250+ employees,
- $500 million+ in assets, or
- $200 million+ in revenue
Group 3 Entities: Effective 1 July 2027, capturing smaller entities with:
- 100+ employees,
- $25 million+ in assets, or
- $50 million+ in revenue.
The staged approach allows larger entities to lead the adoption, creating a framework for smaller businesses to follow.
What’s Required?
1). Climate Statement
The climate statement forms the core of the Sustainability Report and includes disclosures as required by the Australian Sustainability Reporting Standards (ASRS). Key elements are:
- Climate Risks and Opportunities: Identification of material financial risks and opportunities related to climate change.
- GHG Emissions Data: Reporting on Scope 1, 2, and 3 emissions, with reduction targets where applicable. Notably, Scope 3 emissions reporting begins in the second reporting year and requires only data that is reasonably available.
- Governance, Strategy, and Risk Management: Information on how the business governs and manages climate risks and opportunities, including metrics and targets.
- Scenario Analysis: Entities must evaluate their resilience to at least two global temperature scenarios—one exceeding 2°C and one limited to 1.5°C.
2). Climate Statement Notes
- These notes provide additional detail and transparency, covering:
- Any regulatory or ASRS-required disclosures.
- Key assumptions, limitations, and methodologies used in preparing the climate statement.
- Supplementary information to ensure clarity and compliance.
3). Directors’ Declaration
- A transitional approach applies to directors’ declarations:
- Initial Period (2025-2027): Directors must confirm “reasonable steps” were taken to comply with the Act.
- From 2028 Onward: A higher standard applies, requiring directors to declare full compliance.
To support directors during this transitional period, entities may voluntarily seek assurance for climate disclosures, even before it becomes mandatory.
Preparation Tips
Start Early: Entities can voluntarily align with these standards before they are mandatory. Early adopters may gain investor confidence and refine their processes ahead of deadlines.
Conduct a Gap Analysis: Review current reporting practices to identify improvements needed to meet the new requirements.
Build Internal Expertise: Equip teams with the necessary tools and training to handle the complexities of climate reporting.
Engage Auditors: External assurance will play a critical role in validating the accuracy of climate-related disclosures.
Why This Matters
Climate reporting is becoming a vital aspect of corporate accountability, reflecting a shift towards sustainable business practices. These requirements will ensure that Australian businesses contribute to global efforts to mitigate climate risks while meeting the growing expectations of investors, consumers, and regulators.
Disclaimer: This publication contains comments of a general and introductory nature only and is provided as an information service. It is not intended to be relied upon as, nor is it a substitute for specific professional legal advice. You should always speak to us and obtain legal advice before taking any action relating to matters raised in this publication.
