In recent years, the global focus on Environmental, Social, and Governance (ESG) factors has intensified, influencing how companies approach transparency and accountability. This shift was further formalised with the creation of the International Sustainability Standards Board (ISSB) in November 2021. Its aim is to develop a comprehensive global baseline of sustainability disclosure standards. It builds on existing frameworks and aims to standardise ESG reporting.
Implementation and Impact in Australia
In Australia, the emphasis on ESG has been steadily increasing as investors, consumers, and regulators demand greater transparency and accountability regarding corporate sustainability and ethical practices. Australian companies are not only responding to domestic expectations but are also aligning with global trends, including those set by international regulations.
Today, there is no specific legislative requirement for ESG reporting in Australia. However, many ASX-listed companies, private companies and other entities have been preparing ESG reports of some description for years, using voluntary international reporting standards. The Australian Treasury has signalled that mandatory climate disclosures, aligned with IFRS S1 and S2, will be phased in for Australian entities from the 2024-2025 financial year. Climate related financial disclosures will be mandated through amendments to the Corporations Act 2001 and related legislation. Detailed sustainability and assurance standards will be made and maintained by the Australian Accounting Standards Board (AASB) and the Australian Auditing and Assurance Standards Board (AUASB)
Key ESG Reporting Categories
ESG Metrics: Australian companies are increasingly expected to report on their performance regarding various ESG indicators. This includes environmental impact, social responsibility, and governance practices. Accurate reporting on these metrics helps stakeholders assess a company’s overall impact and sustainability.
Climate Disclosures: In Australia, there is a strong focus on climate-related disclosures. The Australian government has committed to aligning with the Task Force on Climate-related Financial Disclosures (TCFD) framework, which encourages companies to report on their climate risks and strategies. This aligns closely with the climate disclosure requirements under U.S. legislation. Certain entities with high emitting facilities are currently required to report information about their emissions annually to the Clean Energy Regulator under the National Greenhouse and Energy Reporting Act 2007 (NGER Act).
The TCFD and IFRS S1 and S2 will require large companies to disclose the following:
- Four pillars of climate reporting – governance, strategies, risk management and metrics and targets (reporting of Scope 1, 2 and 3 emissions)
- Disclosure of Climate Risks – physical, acute and transition risks
- Climate Scenario planning
Executive Remuneration: Disclosures related to executive pay and compensation structures are becoming more important in Australia as well. Investors and stakeholders are looking for transparency regarding how companies manage remuneration and ensure fair pay practices. KPI’s linked to ESG reporting will be used by boards to motivate executive management to monitor these metrics.
Challenges and Opportunities
The integration of ESG into accounting poses several challenges for Australian businesses. Companies must navigate the complexities of measuring and reporting on ESG factors, which often involve qualitative data and evolving standards. This requires significant investment in new technologies, data management systems, additional ESG audit related services and potentially revising corporate strategies.
However, embracing these challenges also presents opportunities. Australian companies that lead in ESG transparency can differentiate themselves in a competitive market, attract socially conscious investors, and enhance their reputation. The shift towards comprehensive ESG reporting aligns with broader global trends and can position Australian businesses as leaders in sustainable and ethical practices.
Conclusion
The increase in ESG related legislation and disclosure requirements, represents a significant step towards standardising ESG reporting, and its influence extends to Australia’s financial reporting landscape. As Australian companies adapt to these evolving standards, the integration of ESG factors into accounting practices will become increasingly important. By enhancing transparency and aligning with global best practices, Australian businesses can navigate the complexities of ESG reporting while contributing to a more sustainable and ethical business environment.
Our Firms Commitment – “the E”
Our firm Walker Wayland NSW has focused on our “E” Environmental footprint over the last 10 years – in the form of annual emissions reporting, actions designed to reduce emissions and offsetting emissions that cannot be eliminated. We achieved Carbon Neutral Status with the Federal Governments Climate Active program annually since 30 June 2020. As we have reported our own emissions, we are well equipped to assist our clients in reporting their environmental footprint.
Please feel free to reach out to us for a discussion about your ESG reporting pathway on info@wwnsw.com.au
