INTRODUCTION
In March 2024, the Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill 2024 (Cth) (the Bill) was introduced to Federal Parliament. If passed by Parliament, the Bill will amend the Corporations Act 2001 (Cth) (Corporations Act) to impose mandatory climate-related financial disclosure obligations on certain Australian companies.
The proposed disclosure regime is designed to increase the transparency of the financial system for investors and companies, particularly given that both management of climate-related risks, and incorporation of ESG considerations into decision making, are increasingly at the forefront of business dealings.
KEY TAKEAWAYS
- Commencement: Phased disclosure requirements proposed to apply for financial years beginning on or after 1 January 2025.
- Application: Entities that lodge financial reports under Chapter 2M of the Corporations Act and meet certain minimum size thresholds, have emissions reporting obligations under the National Greenhouse and Energy Reporting (NGER) scheme, or manage $5 billion or more of assets.
- Content: Disclosures relating to climate risks will need to be prepared in a manner consistent with the Australian Sustainability Reporting Standards. The sustainability report will need to be contained in the entity’s annual report.
Who is required to report & timing
Entities that are ordinarily required to prepare annual reports under Chapter 2M of the Corporations Act will additionally be required to prepare sustainability reports, provided they meet the thresholds.
The new regime is proposed to commence for financial years starting on or after 1 January 2025, with phased implementation as outlined in the table below.
Report content
The sustainability report will need to include:
- a climate statement for the reporting year, detailing:
- material climate-related financial risks and opportunities that the entity faces;
- any metrics and targets including those which relate to scope 1, 2 and 3 emissions; and
- governance or risk management processes, controls and procedures of the entity related to these matters;
- notes to the climate statement;
- any statements required by legislative instrument; and
- a directors’ declaration regarding the compliance of the statements with the relevant sustainability standards.
The climate statements, the notes to the climate statements and any statements required by legislative instrument will need to be prepared in a manner consistent with the Australian Sustainability Reporting Standards currently being prepared by the Australian Accounting Standards Board.
The draft Australian Sustainability Reporting Standards recently released for consultation cover following matters:
Governance
- Governance bodies / individuals responsible for oversight of climate-related risks/opportunities
- Governance processes, controls and procedures to monitor/manage/oversee climate-related risks/opportunities
Strategy
- Climate-related risks/opportunities that could reasonably be expected to affect prospects, and relevant time horizons
- Current/anticipated effects of those climate-related risks and opportunities on business model and value chain (including where these are concentrated)
- How the business is responding to climate-related risks/opportunities in its strategy and decision-making, and progress against disclosed plans
- The effects of climate-related risks/opportunities on financial position/performance and cash flows for the reporting period and their anticipated effects on the financial position/performance and cash flows over the short/medium/long term
- The resilience of the strategy and business model in relation to climate-related changes and uncertainties
Risk
- Processes to identify, assess, prioritise and monitor climate-related risks and opportunities
- Information used to assess the entity’s overall risk profile and its overall risk management process
Targets / Metrics (for each climate-related risk/opportunity)
- Metrics required by an applicable Australian Sustainability Reporting Standard
- Metrics used to measure and monitor specific risk/opportunity and performance in relation to that risk/opportunity (targets).
Modified liability
The Bill proposes to modify existing liabilities and offences that apply generally to corporate reporting, for the duration a transitional period. This will provide entities time to adjust and build capability in relation to the new reporting requirements.
Liability for misleading and deceptive, and other, conduct in relation to the most uncertain parts of a climate statement will be temporarily suspended for a period of 3 years. During this time, only ASIC will have the ability to bring action for misleading and deceptive conduct in relation to the protected disclosures. Civil enforcement actions will not be possible.
The modified liability will apply to “protected statements”, being statements made in a sustainability report within the transitional period, or an auditor’s report of audits or reviews of such sustainability reports, which are about any of the following:
- scope 3 greenhouse gas emissions;
- scenario analysis made in those sustainability reports; or
- a transition plan.
This modified liability is also proposed to extend to alleged breaches of directors’ duties in relation to “protected statements”.
If you have any questions regarding how the reporting requirements will affect your business, please do not hesitate to contact us.
