In January and June 2023, the Australian government released two consultation papers on the development of a climate risk disclosure framework for companies and financial institutions, with plans to introduce mandatory sustainability and ESG reporting requirements for large Australian entities in the next few years. The papers describe implementing these new rules using a 'phased' approach, beginning as soon as 2024.
Climate risk and corporate sustainability reporting has been a major business topic around the world. Certain markets like the EU, UK, and New Zealand have already enacted sustainability and climate disclosure laws, while the US SEC is set to announce its own ruling in October 2023. Australia's Treasury Department notes that climate-related risks 'are material to global financial risk', and companies and banks need to start assessing and communicating those risks to investors and other stakeholders:
"To ensure Australia remains aligned with major international capital markets, disclosure obligations need to be credible and comparable to other prominent jurisdictions. They need to provide investors with decision-useful information about the financial risks that firms face from climate change and provide regulators with information to identify and manage systemic risks" - Australian Treasury
According to the announcement, Australia's Treasury will lead the development of a broad sustainable finance framework for Australia, of which climate-related disclosure will form one part. These new developments are also in-line with the Australian government's net zero emissions target by 2050
Given that the evolution of Australia's climate, sustainability, and ESG regulations and standards can be challenging to track, we’ve prepared this guide to summarize the new standards the Australian government is proposing, and what they mean for organisations in 2023 and beyond.
Australia plans to require specific company-level disclosures from large Australian business and financial entities within their annual financial reporting related to carbon footprint, greenhouse gas (GHG) emissions, and climate risk
"The Government has committed to ensuring large businesses and financial institutions provide Australians and investors with greater transparency and accountability when it comes to their climate-related plans, financial risks, and opportunities. As part of this commitment, the Government will introduce standardised, internationally-aligned reporting requirements for businesses to make disclosures regarding governance, strategy, risk management, targets and metrics – including greenhouse gasses.
The goal of Austalian's new climate disclosure standards are to ensure that climate-related financial risks are transparent, well-understood, and reported by Australian companies and financial institutions in a way that's aligned with international standards.
The disclosure proposal is designed around six key principles outlined by the Treasury:
|Support climate goals||Climate disclosure reforms should assist with: Australia’s transition to net zero emissions by 2050; adaptation to a changing climate; and broader efforts and initiatives to promote a sustainable financial system in Australia and internationally.|
|Improve information flows||Reforms should deliver clear improvements in the quantity, quality, and comparability of disclosures, which will help regulators to assess and manage systemic risks and other risks to investors, strengthen transparency and improve the flow of useful information to investors (including what actions are being taken to mitigate risks).|
|Well-understood||Businesses, investors, regulators and the public should have a clear and common understanding about obligations for entities to disclose climate-related financial risks. This will require prescription of whom they apply to, how and when they should be made, and clarifying details on content of disclosures.|
|Internationally aligned||New requirements should, as far as possible, be aligned with international reporting practices, to minimise compliance costs for Australian businesses that operate internationally, and to ensure Australia’s regime is viewed with credibility by international markets.|
|Scalable and flexible||New requirements should, where possible, build on the existing financial reporting system, and be scalable and flexible to accommodate future developments in the global baseline for climate and sustainability reporting, to minimise the expected compliance costs and potential for unintended consequences.|
|Proportional to risk||Climate disclosure requirements should be proportional to the risks they seek to address, particularly regarding whom they apply to, what costs those entities will incur, what data or capability they will require and what liability they may enliven.|
Under Australia's proposed climate and sustainability reporting standards, disclosures will be mandatory for large, listed businesses (listed entities covered by the Corporations Act 2001), and financial institutions. Treasury is also considering whether or not large large private businesses should also be required to disclose.
Australia's current proposal will requires quoted companies, as well as (eventually), any eligible Australian company with over 100+ employees, $50 million+ revenue, $25 million+ assets. The current implementation timeline is:
|All proposed climate disclosure metrics, Scopes 1 and 2 GHG, but excluding Scope 3||Scope 3 GHG disclosure|
|Large entities and public companies (over 500+ employees, over $500 million annual revenue, or assets over $1 billion)||Fiscal year 2024 (filed in 2025)||Fiscal year 2025 (filed in 2026)|
|Medium-sized companies (over 250+ employees, over $200 million annual revenue, or assets over $500 million)||Fiscal year 2025 (filed in 2026)||Fiscal year 2026 (filed in 2027)|
|Smaller reporting companies (over 100+ employees, over $50 million annual revenue, or assets over $525 million)||Fiscal year 2027 (filed in 2028)||Fiscal year 2028 (filed in 2029)|
Australia's current proposal will requires quoted companies to assess, collect, and report the following annual data and disclosures:
One question Australian regulators leave open for comment is the level of assurance these climate and sustainaiblity disclosures should meet. What level of assurance should be required for climate disclosures, who should provide assurance (for instance, auditor of the financial report or other expert), and should assurance providers be subject to independence and quality management standards?
Australian regulators note that they want to implement these new standards around the same time as other major financial markets (US, UK, Canada, etc.) so there isn't a lag between what (or when) other global companies are disclosing vs. Australia's.
Because Australian regulators recognize larger entities have more resources to respond to new financial and non-financial reporting requirements, the proposed plan is for large Australian entities to begin reporting in financial year 2024-25, with Australian SME's required to report at a later date (and likely a more streamlined report).
Brightest helps hundreds of companies around the world measure, manage, and coordinate audit-ready, compliant climate, sustainability, and ESG reporting
As you can tell from the length of this article alone, there are a lot of new and evolving considerations around Australian and global climate reporting laws and standards going into effect in 2023, 2024, and future years. In fairness, it can feel very complex and daunting. However, from a positive perspective:
For organisations in the early stages of their Australian climate, sustainability, and ESG reporting roadmaps (or capability assessments), we have a few general recommendations, additional reading, and suggested next steps:
Materiality assessment - The principle of Materiality is embedded in Australian and most international climate disclosure and sustainability laws, particularly within TCFD and the concept of double materiality. Materiality essentially asks and attempts to answer a fundamental question: what are the most important (re: material) ESG, climate, and sustainability risks and considerations for a business or investment? If your organisation hasn't already done so, a materiality assessment can help determine what your top sustainability goals, targets, risks, and priorities should be in relation to regulatory and investor sustainability reporting. In turn, this can help clarify where to focus, what to prioritize, and what aspects of pending or forthcoming Australian and/or international sustainability reporting standards matter most to you.
Understand the laws in depth - A full, in-depth breakdown of each law is outside the scope of this piece, but it is critical that, if your organisation meets Australian climate disclosure criteria, you work with your leadership, directors, legal counsel, auditors, and other stakeholders to learn your organisation's specific obligations under each law.
Sustainability data systems and process - While this might go without saying, in order to report your organisation's climate performance and risk, you need to know what it is - with a high degree of accuracy. Your materiality process can help guide you toward the main sustainability themes you may need to focus on and collect data around. Is employee travel a big source of your organisation's carbon footprint? Facilities? Manufacturing sites? Where does that data exist today, and how will you access or collect it? Many organisations start their sustainability reporting with relatively simple spreadsheets, surveys, and documents, but things can get complex fast - particularly for larger companies. If you're an organisation with a medium-to-large or complex environmental footprint, you likely need dedicated sustainability reporting and data management software, like the kind we design here at Brightest to help organisations stay compliant with reporting requirements in different countries. Ongoing report archiving, version control, audit readiness, and governance are also important to think about, since you'll be reporting every year.
Further reading - Our free guides to sustainability measurement and sustainability reporting provide additional, detailed guidance and insights on how to measure and report your sustainability performance for TCFD and other standards.