Background
The draft exposure of the Treasury Laws Amendments Bill 2024: Climate-related financial disclosure (Bill) was released by the Treasury on 12 January 2024. The Bill, which is open to the public for consultation until 9 February 2024, seeks to introduce mandatory climate-related financial disclosures through amendments to the Corporations Act 2001 (Cth) (Corporations Act) and related legislation. The new disclosure regime will leverage the existing financial reporting requirements under Chapter 2M of the Corporations Act.
Outcome
The proposed climate disclosure regime will aim to provide more transparent and comparable information on the climate-related risks and opportunities of large entities to investors and the public. The regime will also bring Australia in line with other jurisdictions including the United Kingdom, New Zealand, Japan and the European Union.
In-scope entities
The following entities will be required to make climate-related financial disclosures:
- Large entities required to lodge annual reports under Chapter 2M of the Corporations Act;
- Asset owners managing funds in excess of $5 billion; and
- Entities of any size that are subject to both the annual reporting requirements under the Corporations Act and the National Greenhouse and Energy Reporting Act 2007.
Small and medium businesses which fall below the relevant size threshold and companies exempt from lodging financial reports under Chapter 2M of the Corporations Act will not be required to make disclosures. However, such businesses may nevertheless get caught up inadvertently as companies required to disclose emission from their supply chain.
A phased approach over a four-year period will be taken to the commencement of disclosure obligations with entities split into three groups based on size and level of emissions. Group 1, consisting of the largest entities with the highest emission levels, will be subject to disclosure obligations from 1 July 2024.
Disclosure contents
In line with the Australian climate disclosure standards, mandated climate-related financial disclosures will be required to contain information about an entity’s climate-related risks and opportunities. From the first year of reporting, entities must include information in relation to direct greenhouse gas emissions from owned or controlled sources (Scope 1 emissions), and indirect greenhouse gas emissions from the generation of purchased electricity, steam, heating, and cooling consumed by the entity (Scope 2 emissions). Supply chain and related emissions (Scope 3 emissions) must be disclosed from the second year of reporting.
In-scope entities will also be required to prepare a ‘sustainability report’ for the financial year which must contain:
- the climate statement for the year;
- notes to the climate statement;
- any statements prescribed by the regulations for the year; and
- the directors’ declaration about the compliance of the statements with the relevant sustainability standards.
Assurance and liability
Climate-related financial disclosures will be subject to similar assurance requirements to those currently contained in the Corporations Act for financial reports. The regime will be maintained through sustainability and assurance standards governed and developed by the Australian Accounting Standards Board and the Australian Auditing and Assurance Standards Board. Crucially, a transition period between 1 July 2024 and 30 June 2030 will operate during which only limited assurance of sustainability reports will be required. Climate-related disclosures will also be subject to the existing liability framework under the Corporations Act and the Australian Securities and Investments Commission Act 2001 (Cth). However, a modified liability regime will operate for the first three years in relation to Scope 3 emission disclosures.
Key takeaways
- Companies should be aware that they may be required to make climate-related financial disclosure requirements from as early as 1 July 2024.
- Companies need to develop systems and processes for collecting and maintaining relevant information regarding climate-related risks and opportunities.
Is your business ready to meet your disclosure requirements?
With the latest updates to the proposed climate-related financial disclosure regime, businesses need to be prepared to meet their requirements as early as 1 July 2024. Our experienced team can help you identify any gaps in your reporting and ensure you’re ready to meet your disclosure requirements.
For more information reach out to Michael Tooma, James Delesclefs or our ESG Team.
