Mandatory corporate ESG financial reporting: Is your business ready?

As of 1 January 2025, many large Australian businesses and financial institutions must prepare annual sustainability reports on mandatory climate-related financial disclosures. This requirement arises from the passing of the Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill 2024 (Cth) through parliament in September 2024, which amended the Corporations Act 2001 (Cth) (Corporations Act) to introduce these new measures.¹

Further to our previous insight, this article explores the new mandatory climate-related disclosure requirements, the potential consequences of non-compliance and the steps that we recommend companies take in order to ensure compliance with the new requirements.

Who is required to report under the new legislation?

The entities that are required to produce sustainability reports pursuant to Chapter 2M of the Corporations Act are:

1. large proprietary companies: a company is a large proprietary company if it satisfies two of the following criteria:
   1. consolidated revenue for a financial year is $50M or more;
   2. value of consolidated gross assets for a financial year is $25M or more; and
   3. company has 100 or more employees;
2. asset owners managing funds in excess of $5 billion; and
3. National Greenhouse and Energy Reporting reporters: entities with annual emissions reporting obligations under the National Greenhouse and Energy Reporting Scheme and entities registered under the National Greenhouse and Energy Reporting Act 2007 (Cth).²

Who is not required to report under the new legislation?

There are three main exemptions to the new requirements:

1. Entities exempt from preparing and lodging financial reports under Chapter 2M of the Corporations Act.
2. Companies with parent entities submitting consolidated sustainability reports.
3. Registered not-for-profit organisations and charities.

When does reporting start?

The mandatory climate reporting requirements will be progressively phased in over the next three years across three groups of reporting entities based on the size of the entity as well as its reporting requirements under the National Greenhouse and Energy Reporting Scheme. Entities must report to ASIC, with the first cohort required to prepare annual sustainability reports for the financial year commencing on or after 1 January 2025, the second commencing on or after 1 July 2026 and the third commencing on or after 1 July 2027.

All reporting entities, including those in the second and third reporting cohorts, should begin preparing for the new climate disclosure regime.

Reporting must occur each financial year by way of a sustainability report, likely contained in the entity’s annual report to be lodged with ASIC.  Existing timeframes in respect of submitting annual financial reports also apply to the sustainability report. Refer to the table below for a summary of when the reporting requirement commences.

First annual reporting periods starting on or after	Large entities and their controlled entities meet at least two of three criteria:			NGER Act Reporters	Asset Owners
	Consolidated revenue	EOFY consolidated gross assets	EOFY employees
1 January 2025	$500 million or more	$1 billion or more	500 or more	Above NGER publication threshold	N/A
1 July 2026	$200 million or more	$500 million or more	250 or more	All other NGER reporters	$5 billion assets under management or more
1 July 2027	$50 million or more	$25 million or more	100 or more	N/A	N/A

What must the sustainability report contain?

The report must contain a climate statement that addresses the following:³

Climate Statement	material financial risks and opportunities relating to climate; any climate related metrics and targets during the financial year required to be disclosed by the Australian Sustainability Reporting Standards, including scope 1, 2 and 3 emissions; any information about the governance, strategy or risk management by the entity with regard to the metrics mentioned above and targets; and scenario analyses to demonstrate resilience to climate-related and transition-related changes, if: the global average temperature “well exceeds 2°C” above pre-industrial levels, or (as provided by the explanatory materials), an increase of 2.5°C or greater; AND the global average temperature increased 1.5°C above pre industrial levels.
Accompanying Notes to the Climate Statement	relating to the preparation of the climate statement; required by the Australian Sustainability Reporting Standards; and required by the Corporations Act.4
Director’s Declaration	Declaration that the climate statements and the notes comply with the Corporations Act. Please note that: during the three year transition period, the regime mandates that directors make a declaration which provides that, ‘in their opinion, the entity has taken reasonable steps to ensure the substantive provisions of the sustainability report are in accordance with the Corporations Act’; and from 1 January 2028, the regime removes the ‘reasonable steps’ threshold and mandates that directors make a declaration which provides that, ‘in their opinion, the substantive provisions in the sustainability report are in accordance with the Corporations Act’.

Limited assurance starts from year 1 reporting. From 1 July 2030, all climate disclosures in the sustainability report will be subject to external audits and assurance requirements.

What are the consequences of non-compliance?

For a three-year period from 1 January 2025 to 31 December 2027, a modified liability regime will provide limited immunity from proceedings for certain climate-related financial disclosures classified as ‘protected statements’. A protected statement is:

• a statement within a sustainability report or an auditor’s report or review of such sustainability reports that is also about any of the following:
  • scope 3 greenhouse gas emissions (including financed emissions);
  • scenario analysis made in those sustainability reports; or
  • a transition plan (within the meaning of the Australian Sustainability Reporting Standards).

This modified liability regime will likely affect proceedings that may be brought for alleged misleading or deceptive conduct, and breaches of directors’ duties. This immunity does not apply if the proceedings are brought by ASIC, or the statements are criminal in nature.⁵ In recognition of this transition period, ASIC has indicated that it will take a “pragmatic and proportionate approach to supervision and enforcement”, prioritising enforcement action against misconduct of a serious nature.⁶

From 2026, ASIC will start undertaking climate-related disclosures surveillance programs which consist of reviewing statements in sustainability reports to determine whether they are incorrect, incomplete or misleading. If so, ASIC may, at their discretion, use their new directions power under s 296E of the Corporations Act to direct an entity to:

• confirm that the statement is correct or complete;
• explain the statement in question;
• provide information or documents that substantiate or support the statement;
• correct, complete or amend the statement; and/or
• publish the corrected, completed or amended statement, or give the statement to specified persons, in accordance with the direction.⁷

It is clear that directors must exercise reasonable care when preparing and approving sustainability reports, or risk facing significant civil penalties.

With the introduction of mandatory climate-related financial disclosures, entities should be increasingly mindful of how they present their statements and whether they are at risk of greenwashing in their sustainability reports. ASIC provides guidelines on how to avoid greenwashing, which was discussed in further detail in our previous Insight.

Is the new legislation still relevant if my company doesn’t fall within the reporting thresholds?

Smaller entities that do not fall within the reporting thresholds may still be indirectly impacted by the new reporting requirements, including with respect to the Scope 3 emissions disclosure requirements. This is because Scope 3 emissions are defined to include upstream and downstream emissions, including financed emissions, that occur in a reporting entity’s supply chain. Consequently, reporting entities may require their suppliers, and entities that they invest in or provide loans to (who may not have reporting obligations directly imposed on them) to provide their emissions data to the reporting entity in order to fulfil that reporting entity’s compliance obligations.

Accordingly, smaller entities should be mindful that they might be required by their business partners to track, quantify and share their emissions data. Reporting entities are required to report Scope 3 emissions from their second reporting year.

Looking forward

As Australia takes a significant leap forward regarding reporting requirements and director responsibilities within the ESG space to match international standards alongside the United Kingdom, European Union, Japan and New Zealand, it is critical for large entities to prepare for mandatory climate reporting by:

• assessing current systems and strategies against the Australian Sustainability Reporting Standards and determining whether they need to be updated and reviewed;
• developing robust due diligence and verification procedures to validate climate-related disclosures and emission data;
• developing accountability structures within the board and executive teams to oversee climate-related financial risks and opportunities; and
• creating a cross-functional team within your company to help coordinate and prepare annual sustainability reports to ensure accurate and consistent reporting.

If you are uncertain whether you will be required to prepare a sustainability report, or any of the requirements within, reach out to Jo Ruitenberg or Matt Baumgurtel.

The Hamilton Locke team advises across the energy project life cycle – from project development, grid connection, financing, and construction, including the buying and selling of development and operating projects. For more information, please contact Matt Baumgurtel.

---

¹Corporations Act 2001 (Cth) ch 2M.

²National Greenhouse and Energy Reporting Act 2007 (Cth).

³Corporations Act 2001 (Cth) s 296D.

⁴Ibid ch 2M.

⁵Ibid.

⁶‘ASIC’s Administration of the Sustainability Reporting Regime’, ASIC (Web Page) <https://asic.gov.au/regulatory-resources/sustainability-reporting/asic-s-administration-of-the-sustainability-reporting-regime/>.

⁷Ibid.