Navigating the Climate Disclosure Revolution: A Roadmap for Australian Entities

In a groundbreaking move, new Sustainability Disclosure Laws are ushering in a new era for Australian businesses, mandating climate disclosures aligned with sustainability standards set by the Australian Accounting Standards Board (AASB). These obligations apply to entities lodging financial reports under Chapter 2M of the Corporations Act, meeting specific size thresholds, or having emissions reporting duties under the NGER scheme. The phased implementation over four years aims to seamlessly integrate climate considerations into financial reporting.

And this is perhaps the groundbreaking move. In the past companies presented sustainability reports as ancilliary and incidental to their financial reporting. Now, sustainability disclosures are becoming financial reporting measures, with the same mandatory obligations and penalities.

Climate disclosures under the amendments will undergo similar assurance requirements as financial reports, necessitating entities to obtain an assurance report from their financial auditor. The AUASB is set to define the extent and level of assurance in Australian standards tailored for climate disclosures, reinforcing the credibility of the information disclosed.

This regulatory evolution ensures that entities reveal their climate-related plans, financial risks, and opportunities through a new 'sustainability report,' enhancing the existing financial reporting framework. The transparency offered by these disclosures not only meets international standards but also aligns businesses, investors, regulators, and the public with a common understanding of climate-related financial risks and opportunities.

Recognising climate change as a material risk to the global financial system, the amendments strategically address both physical and transition risks. Improved climate-related financial disclosures support regulators in assessing and managing systemic risks, ensuring that entities communicate relevant information in their annual financial reports.

The ISSB's global baseline for sustainability and climate-related financial disclosure reporting standards plays a pivotal role. These standards, outlined in IFRS S2 Climate-related Disclosures, provide a consistent framework for entities globally. In a bid for harmony, the AASB sustainability standards aim to align as closely as possible with the ISSB standards, with modifications to cater to the Australian context, such as incorporating national greenhouse gas emissions methodologies and international climate change commitments.

While the new laws impact the larger corporates and entities, SMEs may be vicariously impacted. Larger players impacted by the new regulation will need to address sustainability and particulrly scope 3 emissions in their value chain. There is already a trend for larger corporates to seek out more sustainable suppliers as this impacts on the sustainability of their value chain. As such, SME suppliers to the larger players (inc councils, government departments and associations) will need to consider their sustainability impacts, and as such may be vicariously impacted by the new laws.

The time has come for us all to get on board with sustainability, or run risk of being left behind in a low-carbon economy taking shape around us, not to mention addressing the greatest cause of our generation in a world approaching unsustainability.

As the ISSB released its final standards in June 2023, entities are now navigating the landscape of improved consistency and comparability, heralding a transformative era where climate disclosures are not just a regulatory requirement but a strategic imperative for sustainable business practices.

Contact us to see how we can assist your business to address sustainability, become more compliant and improve your competitive advantage.

See key documents from Treasury - link

Source - Treasury: