The mandatory climate reporting bill was passed by the Senate on 22 August 2024, with the Bill expected to be passed in the House of Representatives in the September sitting. The legislation will require certain organisations to make disclosures about their climate-related risks and opportunities, commencing with the largest emitters and corporations for financial reporting periods beginning on or after 1 January 2025.
High Level Summary:
- Mandatory climate reporting will come into force for financial reporting periods beginning on or after 1 January 2025, commencing with the largest emitters, companies and financial institutions (Group 1 entities). Group 2 and 3 entities will then be phased in from financial reporting periods beginning on or after 1 July 2026 and 1 July 2027 respectively, with group thresholds based on organisational size. The regime excludes charities but will cover those Not-for-Profits that meet size thresholds.
- Disclosures must be made annually within a ‘Sustainability Report’ within the Annual Reporting suite, and be in line with the Australian Sustainability Reporting Standards’(ASRS).
- Directors will need to make a declaration that the Sustainability Report complies with the legislation (including compliance with the ASRS). In the first three years, the declaration will be qualified to only require that a director confirm that the entity has “taken reasonable steps” to comply.
- To encourage fulsome disclosures, the legislation includes a three-year modified liability period which provides for regulator-only enforcement over forward-looking disclosures. This includes all forward-looking disclosures under the ASRS for the regime’s first year, and scope 3, scenario analysis and transition planning disclosures for the first three years.
- The legislation includes a new requirement that organisations undertake at least two mandatory climate scenarios as part of their climate scenario analysis and resilience disclosures– one scenario must be consistent with keeping warming to 1.5 degrees, and the other must be a ‘high warming’ scenario which ‘well exceeds’ 2 degrees.
What is required under the Climate Reporting regime?
Groups and phase-in dates
| Item | Group 1 | Group 2 | Group 3 |
| When to report | Periods on or after 1/1/25 | Periods on or after 1/7/26 | Periods 1/7/27 on or after |
| Thresholds
(meets two of three thresholds) |
|
|
|
| Other | NGER Act Reporters | NGER Act Reporters | NGER Act Reporters |
WHO must report and WHEN
Mandatory climate reporting will cover those entities which are already required to prepare financial reports under Part 2M of the Corporations Act (reporting entities) and which meet certain size thresholds. Entities will be phased in according to three cohorts, which are set out above.
Charities registered with the Australian Charities and Not-for-Profit Commission (ACNC) are excluded from the regime, but other Not-for-Profits (NFPs) who meet the relevant size thresholds are required to report.
The Legislation also extends ASIC’s current powers of financial reporting relief to climate reporting.
Group 3 entities only need to report under AASB S2 Climate-related Financial Disclosures if they determine they have material climate-related risks and opportunities. However, a statement of ‘no material climate-related risks and opportunities’ still needs to explain the reasoning for this conclusion and be subject to a director declaration and mandatory audit requirements.
WHERE will the disclosures be set out?
Disclosures are to be made annually in a separate Sustainability Report which sits within the Annual Report (the other ‘parts’ of the Annual Report being the Financial Report, Directors’ Report and Audit Report).
WHAT DISCLOSURES will be required?
Entities must disclose under the Australian Sustainability Reporting Standards (ASRS) Climate Standard, AASB S2, which is an Australian adaptation of the International Sustainability Standards Board (ISSB) climate standard, IFRS S2.
The ASRS and ISSB build on the Taskforce for Climate-related Financial Disclosure (TCFD) framework of governance, strategy, risk management and metrics and targets disclosures, but require more detailed and granular disclosures and commonly referred to as the Four Pillars of Climate Reporting.
The ASRS are expected to be finalised by the Australian Accounting Standards Board (AASB) shortly. As currently proposed (and expected to be passed), the ASRS include the mandatory climate standard (AASB S2), as well as a voluntary general sustainability standard, AASB S1 (aligned with IFRS S1).
Directors’ Declaration
Directors will be required to state whether, in their opinion, the Sustainability Report complies with the Legislation (including the ASRS).
However, as a transitional measure, for the first three years of the regime directors are only required to make a qualified Directors’ Declaration (Qualified Directors’ Declaration) whereby they affirm “whether, in the directors’ opinion, the entity has taken reasonable steps” to ensure compliance. After that, an unqualified Directors Declaration must be given.
WHAT ASSURANCE will be required?
Assurance over all climate disclosures will be mandatory from 1 July 2030, with the Auditing and Assurance Standards Board (AUASB) to set interim mandatory assurance requirements. The AUASB anticipates issuing a proposed assurance timetable for consultation shortly.
WHAT are the CONSEQUENCES OF NOT COMPLYING/ POOR COMPLIANCE?
The failure to keep and retain sustainability records and make the Sustainability Report publicly available after lodgement with ASIC will attract civil penalties or even gaol time.
Modified Liability regime
As a transitional measure, a fixed three-year regulator-only enforcement period (Modified liability) will apply, such that private litigation will be barred and only ASIC can bring civil proceedings for reporting in financial years commencing during the period 1 January 2025 to 31 December 2027.
The Modified Liability will apply to the following ‘Protected Statements’:
- all forward-looking climate disclosures made for the purpose of compliance with a Sustainability Standard or auditing standard for the first year of the regime (i.e. will apply to Group 1 entities only); and
- scope 3, scenario analysis and transition planning disclosures for the first three years of the regime’s operation.
The Explanatory Memorandum states that the policy intent is to “ensure that during the transitional period, ASIC can undertake a role that promotes education about compliance with the new reporting regime and deter poor behaviours and reporting practices that are contrary to the objectives of the new reporting regime.”
Where to from here?
As stated above, the AASB is due to issue the finalised ASRS shortly. The AUASB will also release a proposed assurance timetable for consultation and draft sustainability auditing standards. The latter will be an adaptation of the International Auditing and Assurance Standard Board Sustainability Assurance Standard, ISSA 5000.
What if you are NOT in a Group 1, 2 or 3 Reporting Category
If your organisation dos does not meet the Thresholds for a Group 1, 2 o 3 Reporting Category and your organisation is NOT a NGER Reporting Entity, you will not have to prepare an annual Sustainability Report.
However, we strongly recommend that organisations that fall outside the scope of Mandatory Climate Reporting, they consider the supply chain they form part of, which could mean they are part of a Group 1, 2 or 3 reporting entities Scope 3 emissions, which may ultimately result in the Group 1, 2 and 3 reporting entities requesting Climate Reporting Data from the Non Reporting Entity. Having this, non reporting entities have an opportunity to gain a competitive advantage over their peers if they have their Climate Reporting Data readily available.
Our firms Climate Reporting Journey
We at Walker Wayland NSW have been measuring our firms carbon footprint since the 2014 financial year and achieved the “organisational” Carbon Neutral Status with the Federal Government Climate Active Program since 2020.
As part of this program our firms baseline year footprint (June 2020) was independently verified by an external auditor and following the baseline year, Climate Active as part of its compliance activities engaged a Big 4 firm to carry out ‘agreed upon procedures engagements’ on our 30 June 2021 and 30 June 2023 greenhouse gas footprints.
Further to the above, our firm is also able to provide greenhouse gas footprint assurance services to provide you with comfort over your reported emissions. Over the last 5 years we have assisted over 40 organisations in providing assurance services over their voluntary reported emissions.
It is fair to say, that we actively “walk the walk” before we talk the talk when it comes to sustainability reporting and verification.
Please feel free to reach out to our sustainability reporting experts for obligation free discussion about your organisations footprint:
Wali Aziz
Kate Douglass
