Mandatory Climate-Related Financial Disclosures

In January 2024, the Australian Treasury released for consultation the Exposure Draft Legislation which sought to amend parts of the Australian Securities and Investment Commission Act 2001 and the Corporations Act 2001 (Cth) to introduce mandatory requirements for large businesses and financial institutions to disclose their climate-related risks and opportunities.

Following on from this consultation is the climate-related financial disclosures Treasury Bill, Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill 2024 (Bill) (Schedule 4) which was introduced into Parliament last week on 27th March 2024.

In summary the Bills sets out the introduction of climate-related financial reporting mandates¹:

For organisations, utilising the existing financial reporting framework outlined in Chapter 2M of the Corporations Act. Chapter 2M covers record-keeping, financial reports, and audit obligations. Includes the introduction of a new ‘sustainability report’ for each financial year that entities must compile alongside their financial reports.

This sustainability report comprises of:

• The climate statement for the year
• Corresponding notes to the climate statement
• Any statements prescribed by regulations for the year
• Relevant notes to those prescribed statements (if applicable)
• The directors’ declaration affirming the adherence of the statements and notes to the relevant sustainability standards

Climate statements are required to adhere to the sustainability standards issued by the Australian Accounting Standards Board (AASB). The obligation to prepare a sustainability report follows a phased-in approach with the proposed start date for Group 1 entities now delayed from 1 July 2024 to 1 January 2025 (subject to parliamentary processes).

Group 1 entities with a 31 December year-end have no change to expected timeline (financial year ended 31 December 2025). For entities with a 30 June year-end, this means their first reporting period will be the financial year ended 30 June 2026. This phased approach initially affects a restricted group of very large entities before gradually extending to encompass other large entities.

The determination of when entities must commence climate reporting is based on size thresholds derived from existing concepts in the Corporations Act and Regulations, specifically consolidated gross assets, consolidated revenue, and employee thresholds.

Small and medium entities falling below the relevant size thresholds (unless they are National Greenhouse Energy Reporting (NGER) Scheme controlling corporations) are exempt from making climate-related financial disclosures, as are entities exempt from lodging financial reports under Chapter 2M.

A transitional period will apply a modified liability approach to allow reporting entities, auditors, and directors time to adapt to reporting standards. Following this period, existing liability arrangements will be upheld.

To meet these obligations and requirements companies need to:

• Understand the proposed legislation and how this applies to their organisation.
• Start planning for these proposed changes. Does the organisation have effective internal controls in place to support sustainability reporting processes and meet the auditing and assurance requirements.

If you would like to learn more about how to prepare for these upcoming changes, get in touch with our ESG expert, Ann-Marie Ingeri.

^1. Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill 2024 – Explanatory Memorandum

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