Mandatory Sustainability disclosures for Australian entities.

What

In Australia, a sustainability report is now mandated to accompany annual financial reporting requirements, with a phased approach for different sized and emission-intensity entities, with legislation passing Parliament on September 9 2024.

Required disclosures relate to an entity’s exposure to physical climate risks (think extended high temperatures, more frequent extreme weather events), how the value-chain and business model is exposed and able to transition to a low-carbon economy, and an entity’s governance structures that enable the entity’s decision making and target setting.

Decision makers will now sign off on a report that considers the systemic risk and opportunities arising from climate change, which could have a material impact on the future financial position, performance or prospects of the organisation.

Australian corporate strategy and planning will move towards greater awareness and preparedness for climate risk impact and economic transition considerations.

Why

A framework for consistent, comparable climate-related financial disclosures for use by investors, lenders and the market generally, is set to enable greater confidence in assessing and pricing climate-related risks and opportunities of Australian organisations’.

The new mandatory requirements, position Australia amongst other jurisdictions, including the EU, UK, New Zealand and Japan on mandatory sustainability reporting.

Many Australian subsidiary entities, and businesses forming part of international supply chains have complied with international reporting regimes over recent years.

When

From January 1 2025, the first group required to start to disclose information about climate-related risks and opportunities are large entities that prepare and lodge annual reports under Chapter 2M of the Corporations Act. This includes listed and unlisted private companies.

First sustainability reports for entities with financial years commencing January 1 2025 – Dec 31 2025 or July 1 2025 to June 30 2026 will be submitted within three months of the end of the financial year. First mandatory sustainability reports will start to be submitted between March 30 2026 and Sep 30 2026. 

Who

Entities subject to mandatory climate-related financial disclosure will be phased in three groups, based on the size or level of emissions, and over a four year period (see table below).

The table sets out when mandatory disclosures must commence, on the assumption they are required to prepare and lodge annual reports under the Corporations Act, and they fall within two (or more) of the listed three categories.

How

The Australian Accounting Standards Board (AASB) stipulates the final reporting standards. The AASB will incorporate Australia’s national greenhouse gas emissions estimation methodologies and climate risk reporting requirements into the Australian standard, and the standard will be aligned with International Sustainability Standards Board (ISSB) requirements.

Some disclosures will take time to develop reporting content, and an entity will start to think about data structures to enable ease of regular reporting.

Analytical tools in carbon accounting and physical climate risk scenario planning will also likely start to feature in entity decision-making, to protect financial and stakeholder interests.

The introductory phased approach is not only for the size of entity required to report, but also the content of reports in the first three years.

Reporting content will need to include:

• • Information relating to governance, strategy, risk management and metrics and targets (including Scope 1 and Scope 2 greenhouse gas emissions) is required from the first year of reporting.
  • Scope 3 emissions (i.e. emissions that occur up or down their supply chain and emissions associated with their financing or investment activities) will be required from the second year of reporting. Scope 3 disclosures represent information that is available at the reporting date without undue cost or effort.

Further information will continue to be posted on the AASB website and ASIC.

A fantastic layout of requirements can also be found here: Allens.

More detailed information about Scope 1, 2 and 3 emissions can be accessed via reports provided by www.dcceew.gov.au.

For assistance in navigating your requirements, from strategy to solutions, to reporting content or data structures, reach out to make a time to start the discussion with Good Natured ESG.