The Australian Accounting Standards Board (AASB) has released the exposure drafts of three proposed Australian Sustainability Reporting Standards: [Draft] ASRS 1 General Requirements for Disclosure of Sustainability-related Financial Information; [Draft] ASRS 2 Climate-related Financial Disclosures, and [Draft] ASRS 101 References in Australian Sustainability Reporting Standards.
This follows the proposed implementation of mandatory climate-related disclosures in Australia released by Treasury on 27 June 2023. Under that proposal, all entities (subject to size thresholds) required to prepare annual reports under Chapter 2M of the Corporations Act, including private and public unlisted companies, would be required to adopt the new sustainability reporting standards, beginning as early as 1 July 2024. It is additionally proposed it will be required to have these disclosures audited. We are awaiting a final announcement from Treasury to confirm which entities will be required to report in compliance with these new standards, which is expected imminently.
The exposure drafts of ASRS 1 and ASRS 2 are substantially aligned to the international IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information (IFRS S1) and IFRS S2 Climate-related Disclosures (IFRS S2) released by the International Sustainability Standards Board (ISSB) on 26 June 2023. However, the AASB has limited the scope of [Draft] ASRS 1 to climate-related financial information, removing the requirement for the entity to consider sustainability-related risks and opportunities beyond the topic of climate. A full analysis of the differences between the IFRS Sustainability Disclosure Standards and the draft Australian Sustainability Reporting Standards is available below.
International IFRS Sustainability Disclosure Standards: Summary of disclosure requirements
The required disclosures in IFRS S1 and S2 are detailed and go well beyond the scope of purely financial information.
IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information
- Outlines the core principles and framework for determining material sustainability-related financial information.
- Requires the entity to identify all sustainability-related risks and opportunities that are reasonably expected to affect the entity, and to disclose material information about these risks and opportunities.
- In identifying the sustainability-related risks and opportunities, and the material information to disclose, requires the entity to consider, in addition to the IFRS Sustainability Disclosure Standards:
- the Sustainability Accounting Standards Board Standards (SASB standards).
- Other sources including:
- the Carbon Disclosures Standards Board Framework (CDSB Framework);
- the Global Reporting Initiative (GRI);
- the European Sustainability Reporting Standards (ESRS);
- Industry practice; and
- any other standard setters or investor focused frameworks.
- Establishes a disclosure framework under four key pillars, consistent with the Taskforce on Climate-related Financial Disclosures (TCFD) recommended disclosures:
- Governance: How the entity monitors sustainability-related risks and opportunities;
- Strategy: The anticipated impact of sustainability-related risks on the business model, value chain, financial position and performance;
- Risk management: The processes used to identify, assess, and manage sustainability-related risks and opportunities, including the use of scenario analysis; and
- Metrics and Targets: Disclosure of sustainability-related metrics, and progress towards any targets the entity has set.
IFRS S2 Climate-related Disclosures
- First topic standard of the IFRS Sustainability Disclosure Standards.
- Fully incorporates all 11 TCFD recommendations plus incremental disclosures.
- Requires the entity to consider climate-related risks and opportunities, including physical risks (e.g. increased natural disasters), as well as transition risks (arising from moving to a lower-carbon economy), and the potential impact on their current and future financial position and performance.
- Specifies required disclosures under the same four pillar framework:
- Governance: How the entity monitors climate-related risks and opportunities;
- Strategy:
- The anticipated impact of climate-related risks on the business model, value chain, financial position and performance; and
- Requires the entity to use climate scenario analysis to assess the climate resilience of the business.
- Risk management: The processes used to identify, assess, and manage climate-related risks and opportunities; and
- Metrics and Targets: Disclosure of climate-related metrics (see below), and progress towards any targets the entity has set.
|
Greenhouse gas emissions
|
Scope 1 – 3 emissions
Approach used in measuring emissions
|
| Transition & physical risks |
Amount and % of assets and business activities vulnerable to risks
|
| Climate opportunities |
Amount and % of assets and business activities aligned to opportunities
|
| Capital deployment |
Amount and % of assets and business activities deployed to risks or opportunities |
| Internal carbon pricing |
The $ price and how carbon is priced internally for decision making purposes |
| Remuneration |
How remuneration is linked to climate considerations |
Key changes in the Australian exposure drafts [Draft] ASRS 1 and [Draft] ASRS 2
Area
|
IFRS S1
|
[Draft] ASRS 1
|
| Interaction with other pronouncements |
Includes definitions and content identical to the Conceptual Framework for Financial Reporting. |
Includes references to the Conceptual Framework for Financial reporting and Framework for the Preparation and Presentation of Financial Statements. |
| Application |
For-profit entities only |
Both for-profit and not-for-profit entities.
Language has been clarified so that the concepts of “the entity’s prospects” and “business model” now incorporate “the entity’s ability to further its objectives over the short, medium, and long term”. |
| Scope of issues |
All sustainability-related risks and opportunities that are reasonably expected to affect the entity. |
Only climate-related risks and opportunities that are reasonably expected to affect the entity. |
| Determination of material climate-related risks and opportunities |
No requirement to disclose anything if the entity determines that there are no material climate-related risks and opportunities that could reasonably be expected to affect the entity’s prospects. |
If the entity determines that there are no material climate-related risks and opportunities that could reasonably be expected to affect the entity’s prospects, the entity is required to disclose this fact and explain how it came to this conclusion. |
| Sources of guidance |
Requires entities to consider the applicability of disclosure topics in the SASB standards. |
Removes requirement to refer to the SASB standards. |
| Location of disclosures |
Requires the entity to identify the report within which the climate-related financial information is located. |
Removes the requirement for an index of disclosures or similar, provided that the information is provided in a manner that allows the user to locate its disclosures. |
| Timing of reporting |
Gives examples of information being prepared for a period other than 12 months and interim reporting. |
Specifies the same reporting period as the related financial statements. Does not address interim reporting. |
Area
|
IFRS S2
|
[Draft] ASRS 2
|
| Interaction with other pronouncements |
Includes definitions and content identical to the Conceptual Framework for Financial Reporting. |
Includes references to the Conceptual Framework for Financial reporting and Framework for the Preparation and Presentation of Financial Statements. |
| General disclosure requirements |
Includes requirements related to general disclosures on governance, strategy, and risk management, identical to IFRS S1. |
Includes references to the general disclosure requirements of [draft] ASRS 1. |
| Application |
For-profit entities only |
Both for-profit and not-for-profit entities.
Language has been clarified so that the concepts of “the entity’s prospects” and “business model” now incorporate “the entity’s ability to further its objectives over the short, medium, and long term”. |
| Cross industry metrics – executive remuneration |
Requires disclosure of whether and how climate-related considerations are factored into executive remuneration. |
Requires disclosure of whether and how climate-related considerations are factored into key management personnel remuneration as defined in AASB 124 Related Party Disclosures. |
| Scope of standard |
Climate-related risks and opportunities. |
Clarifies that the Standard does not apply to climate-related emissions that are not greenhouse gas (GHG) emissions, and does not replace existing legislation or pronouncements prescribing reporting requirements related to other sustainability-related topics. |
| Use of climate scenario analysis |
Does not mandate the use of a particular scenario or number of scenarios. |
Requires that resilience assessments are performed against at least two relevant possible future states, one of which must be consistent with the most ambitious global temperature goal set out in the Climate Change Act 2022 (currently 1.5 degree scenario). |
| Measurement of greenhouse gas emissions |
Requires that greenhouse gas emissions are measured in accordance with the Greenhouse Gas Protocol Corporate Standard |
Requires that the entity convert greenhouse gases to CO2 equivalents using the same global warming potential values (GWP values) from the IPCC report as those applying under the Paris Agreement and the National Greenhouse and Energy Reporting Act 2007 (NGER).
Requires the entity to prioritise the methodologies in NGER scheme legislation as the default methodologies to measure greenhouse gas emissions before referring to foreign frameworks. |
| Disclosure of scope 2 emissions |
Requires an entity to disclose location-based Scope 2 greenhouse gas emissions and information about contractual instruments related to Scope 2 emissions. |
Requires an entity that is required by the Corporations Act 2001 to prepare climate-related financial disclosures to additionally disclose its market-based Scope 2 greenhouse gas emissions (transitional relief for the first 3 years that the entity applies ASRS 2). |
| Disclosure of scope 3 emissions |
Requires that the data used in the disclosed emissions is aligned to the reporting period. |
Permits an entity to disclose Scope 3 emissions using data from the immediately preceding reporting period, if reasonable and supportable data for the current period is not available to the entity at the reporting date without undue cost or effort. |
| Disclosure of scope 3 emissions |
Requires that sources of Scope 3 emissions are categorised in accordance with the 15 categories of Scope 3 emissions in the Greenhouse Gas Protocol Standards. |
Removes the requirement to disclose the sources categorised in accordance with the 15 categories of Scope 3 emissions in the Greenhouse Gas Protocol Standards. |
| Industry-based metrics |
Requires entities to consider the applicability of metrics in the SASB standards. |
Removes requirement to refer to the SASB standards.
When identifying material industry-based metrics, entities must use an industrial classification system that aligns with that developed by the Australian Bureau of Statistics. |
ASRS 101 - References in Australian Sustainability Reporting Standards
ASRS 1 & ASRS 2 make references to a number of external documents or sources of guidance not contained in the ASRS standards, which over time may be updated or amended.
To enable these external documents to have the same authoritative status as the standards [Draft] ASRS 101 has been developed to list the relevant versions of non-legislative documents published in Australia, and foreign documents referenced. The documents and the specific versions listed in [Draft] ASRS 101 are required to be applied by an entity to the extent required by the ASRS in order to claim compliance with the ASRS Standards.
Preparers should be conscious that compliance with the [Draft] ASRS 1 and [Draft] ASRS 2 will therefore not comply with the international standards IFRS S1 and IFRS S2, and entities will not be able to make a statement of compliance with the international standards, unless additional disclosures beyond the requirements of the ASRS are made to meet IFRS S1 and IFRS S2 compliance.
Responding to the exposure drafts
The exposure drafts have a 120-day public comment period, ending 1 March 2024. The AASB is seeking feedback from a wide range of respondents.
We expect that this will be followed by finalisation of the draft standards, with the final ASRS 1 and ASRS 2 released in June 2024, ready for use by the first entities required to report climate-related financial information under proposed legislative changes.
Grant Thornton is preparing a response to [Draft] ASRS 1 and [Draft] ASRS 2. We encourage all stakeholders to participate in direct feedback to the AASB, but are interested in the thoughts of stakeholders who do not wish to contact the AASB directly on this matter. If you have any feedback that you would wish for inclusion in a submission, but do not wish to submit directly to the AASB, please consider contacting us at sustainability.reporting@au.gt.com
Preparing to report
It is important for entities that know they will be required to report using the Australian Sustainability Reporting Standards to prepare to implement the standards as early as possible. The information necessary to enable these disclosures may require development of new reporting systems, processes and controls.
If you would like to have a conversation about preparing for sustainability reporting, please reach out.
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