GILES RAFFERTY, Corporate Communications and Media Advisor

“The biggest change to corporate reporting in a generation.”, is how the Australian Institute of Company Directors has described the Australian Governments ambitions to make climate-related disclosures mandatory for large businesses and financial institutions.

Civil penalties planned to ensure climate reporting compliance

The Government’s target is to have the first cohort of large Australian companies reporting to a set of Australian climate standards from 1 July 2024, with mid-sized companies following in two tranches in the subsequent two years.   A summary of the proposed timing of mandatory climate reporting for different companies can be found here.

The government is also looking to introduce a civil penalty for a failure to comply with climate reporting standards, however, it is also proposed there would be a three-year period of regulator-only enforcement to give companies time to adapt to the new standards before any civil penalty would be enforced.

Australian climate reporting requirements will, largely, mirror the International Sustainability Standards Board (ISSB) Standards, with some Australian specific modifications. The ISSB’s General Sustainability Standard (IFRS S1) and Climate Standard (IFRS S2) have been designed to be a global baseline for climate reporting. The Australian Accounting Standards Board (AASB) has the job of adapting the ISSB climate standards for the Australian market and in October 2023 put out to consultation, until 1 March 2024, its Draft Australian Climate Standards.

How planned Aussie climate reporting will be different

The key differences between the Draft Australian Climate Standards and the International standards are:

• • Materiality decisions – Australian companies that believe climate-related risks and opportunities are not material will need to explain how they arrive at that conclusion, something not required under the ISSB Standards.
  • Scope 3 mitigation – the Draft Australian Climate Standards include several ways the burden of Scope 3 emissions reporting can be reduced. Scope 3 emissions are indirect greenhouse gas that are generated in the wider economy linked to a company’s operations but not directly controlled by that company, e.g. the carbon footprint of an employee flying on a commercial airlines for work.
  • Climate resilience – Australian companies will be required to make climate resilience assessments against at least two climate scenarios, that include the goal of limiting a global temperature increase to 1.5 degrees above pre-industrial levels. The ISSB does not specify the number or type of climate scenarios to be used.
  • Industry metrics – The Draft Australian Climate Standards allow companies to use metrics associated with particular business models and activities as classified in the Australian and NZ Standard Industrial Classification(ANZSIC) and remove the requirement to refer to, industry-based metrics, including Sustainability Accounting Standards Board (SASB) metrics.
  • NGERS alignment – The way Australian companies measure and report on Greenhouse gas (GHG) emissions has been adapted to manage the regulatory burden and to align with existing National Greenhouse and Energy Reporting Scheme (NGERS) requirements.

Next steps

The target date to initiate mandatory climate reporting in Australian remains 1 July 2024, just four months after the 1 March 2024 closing date for submissions as part of the consultation on the AASB’s Draft Australian Climate Standards. This is a very tight timeline, so the onus is on company Directors, who have a key role to play in overseeing the transition to mandatory climate reporting, to ensure the reporting process are in place to meet this emerging obligation. A high level overview of key consideration for Directors can be found here, and FIRST Advisers has been developing its in-house ESG expertise over the past 3 years and will be expanding this practice area in 2024. Feel free to contact us on admin@firstadvisers.com.au.