Australian lawmakers passed a bill Monday that will compel companies to report their greenhouse gas emissions in annual reports from 2025.
The Australian House voted 90-53 to amend Australian Securities and Investments Commission and Corporations laws to phase-in mandatory climate-related financial reporting for all businesses.
“This is one of the most significant changes to the corporate reporting system in a generation,” Chartered Accountants Australia and New Zealand Sustainability and Business Reform Leader Karen McWilliams said.
The development
On August 22, 2024, the Australian Senate passed the Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill 2024 (“Bill”).
The context
The Bill, once it passes the final stage of lawmaking, will introduce a national mandatory climate-related financial reporting regime in Australia. Entities that meet stipulated thresholds will be required to make annual disclosures regarding various climate metrics and related matters.
Key points
The new climate disclosure legislation introduced in January 2024 by Australian Treasurer Jim Chalmers establishes mandatory climate-related reporting requirements, aligned with the standards of the IFRS Foundation’s International Sustainability Standards Board (ISSB).
The Australian Accounting Standards Board (AASB) is finalizing internationally-aligned climate disclosure standards, while the Australian Auditing and Assurance Board (AUASB) is developing assurance standards, expected by late 2024.
The legislation mandates that climate-related reporting begin in January 2025, delayed from the initially proposed July 2024 date. Reporting will apply to large public and proprietary companies that meet specific size thresholds, including:
- Companies with over 500 employees, $500 million+ in revenue, or $1 billion+ in assets, as well as asset owners managing $5 billion+ in assets, will start reporting in January 2025.
- Medium-sized companies (250+ employees, $200 million+ revenue, $500 million+ assets) will begin reporting in July 2026.
- Smaller companies (100+ employees, $50 million+ revenue, $25 million+ assets) will begin reporting in 2027.
Additionally, the legislation adopts a phased approach to Scope 3 emissions reporting, granting companies an extra year to disclose indirect value chain emissions. Companies will also benefit from a three-year litigation protection period for Scope 3 disclosures. This phased and tiered approach is designed to allow companies adequate time to prepare for compliance while addressing various levels of organizational capacity.
The Senate’s amendments
The Senate’s amendments to the climate-related disclosure Bill focus on the scenario analysis requirement, while maintaining the Bill’s key structure and essential elements. Scenario analysis is crucial for assessing potential outcomes under uncertainty, particularly regarding climate resilience and business strategies.
The draft standards from the Australian Accounting Standards Board (AASB), released in October 2023, outline that reporting entities must conduct scenario analyses and disclose information on how and when they were performed, including key inputs and assumptions. The level of sophistication required depends on the size and capacity of the reporting entity.
The Senate’s amendments specify that reporting entities should, at a minimum, conduct two scenario analyses:
- A “high warming scenario” where global average temperatures rise 2.5°C or more above pre-industrial levels.
- A “low global warming scenario” with a 1.5°C increase above pre-industrial levels.
The high warming scenario addresses more severe climate risks, while the low warming scenario focuses on the transition risks associated with moving towards a lower-carbon economy. These amendments ensure that companies assess the impact of both potential outcomes on their business strategies and climate resilience.
Looking ahead
Once the House of Representatives pass the Bill, and it receives Royal Assent, the law will come into effect from January 1, 2025, for entities operating in Australia.
Many entities will be required to comply with the reporting requirements, with a phased implementation for other entities in 2026 and 2027. Reporting entities are required to submit an audited “sustainability report” with their annual financial report to the Australian Securities and Investments Commission (“ASIC”). Sustainability reports are required to make a number of climate-related disclosures.
Next steps
Entities should start preparing for compliance by assessing their reporting needs under the new regime and reviewing their capability to disclose climate-related risks according to the Bill and the AASB draft sustainability reporting standards. This includes evaluating internal and external verification processes, as well as audit resources.
While the analysis might be similar to other international regimes, Australian sustainability reports must comply with local laws, including unique requirements such as the retention of sustainability records.
ASIC will issue guidance after the Bill becomes law and has warned of potential enforcement actions against misleading or deceptive reporting.
Private plaintiffs are expected to focus on climate-related complaints once reporting begins. The Bill includes grace periods and a modified liability regime for certain disclosures during the transition period, as detailed in earlier commentary.
