Mandatory Sustainability Disclosures on the Horizon for Australia

In a groundbreaking move, the Australian Accounting Standards Board (AASB) has announced its commitment to align closely with the International Sustainability Standards Board’s (ISSB) global baseline. This alignment, confirmed by AASB Chair Keith Kendall to Responsible Investor, marks a significant shift towards mandatory sustainability disclosures in Australia.

At a recent board meeting, the AASB tackled climate-related financial disclosures, discussing feedback on its three proposed standards. These draft standards, released in October following consultations by the Treasury, were based on the ISSB’s general sustainability (IFRS S1) and climate (IFRS S2) disclosure standards. Initially, the draft framework suggested limiting the scope of ASRS 1 to climate-related disclosures, replacing “sustainability” with “climate”.

However, recent discussions have highlighted the likelihood that the new regulations will align as closely as possible to IFRS S1 and IFRS S2. Kendall revealed that the AASB aims to finalise these standards by the end of August, following a mid-July meeting.

The ISSB has expressed strong support for this alignment. A spokesperson for the IFRS Foundation stated, "We are delighted to hear that the AASB is seeking to align as closely as possible to IFRS S1 and IFRS S2, consistent with the strong signal they received from many respondents about the importance of the provision of information consistent with the ISSB’s global baseline."

Starting January 2025, Australian companies will be required to make climate-related disclosures, with mandatory reasonable assurance, including Scope 3 emissions, expected from the fourth year of reporting. The AASB, having concluded a consultation on assurance requirements in May, plans to issue a draft of local amendments this summer, with final decisions anticipated by December.

This decision comes in response to intense criticism from the Australian finance sector and global investors for initially failing to fully adopt the ISSB’s standards. The government’s draft standards faced significant pushback from investors, sustainable finance bodies, and non-profits, all of whom called for full alignment with the ISSB framework.

Notably, Australian investors like Hesta and IFM Investors advocated for complete ISSB alignment and the inclusion of additional sustainability metrics.

Global investors, including Norway's Norges Bank Investment Bank, have also weighed in. Norges Bank, a strong proponent of the ISSB global baseline, warned against diverging from these standards, emphasizing that such deviations could undermine global comparability. This stance reflects broader concerns about maintaining consistency and rigor in sustainability reporting across different markets.

As Australia moves towards finalising these standards, the shift signifies a crucial step in embedding sustainability into financial reporting. This alignment with international norms ensures that Australian businesses remain competitive and accountable in the global market, setting a robust framework for transparency and sustainability in the years to come.

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