Climate-related disclosures bill passes Senate

On 22 August 2024, the Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill 2024 (the Bill) passed the Senate with amendments. From there, it will return to the House of Representatives to approve the amendments, which is expected to go ahead.

The Bill implements mandatory climate-related financial disclosure requirements for entities meeting certain criteria that prepare annual reports under Chapter 2M of the Corporations Act, or have emissions reporting obligations under the National Greenhouse and Energy Reporting Act 2007.

There is now a very high likelihood the legislation will be enacted by 2 December 2024. This means the Act will be in force for financial years beginning on or after 1 January 2025. 

The sustainability standard to be issued by the Australian Accounting Standards Board (working draft standard AASB S2 Climate-related Disclosures) is also anticipated to be finalised in the near future, subject to the legislation receiving Royal Assent.

Who must report and when?

The requirement to prepare a sustainability report will be phased in over a period of four years, in three groups as shown below. 

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*The start date of 1 January 2025 for Group 1 entities is subject to the legislation being enacted by 2 December 2024. 

However given the bill has passed the Senate, there is now a very high likelihood the legislation will be enacted by 2 December 2024. This means the Act will be in force for financial years beginning on or after 1 January 2025.

What does the legislation require?

• All entities preparing annual reports under Chapter 2M of the Corporations Act meeting the criteria above will be required to prepare a “Sustainability Report”.
• The contents of the Sustainability Report will include disclosure requirements from the Corporations Act, and from the sustainability standard set by the AASB (current working draft title AASB S2 Climate-related Disclosures). Refer to our recent Sustainability Reporting Alert for more information on the sustainability standard.
• Directors will need to sign a Directors' Declaration in relation to the Sustainability Report.
• The Sustainability Report will be subject to assurance, provided by the registered company auditor. The AUASB will set the timeline for assurance and the assurance standard to be applied.

The requirements of the Bill are summarised below:

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What was amended?

The amendment passed by the Senate clarifies how a compliant climate-related scenario analysis must be carried out. 

The use of climate-related scenario analysis to assess the climate resilience of the entity's business model is a requirement in working draft standard AASB S2 Climate-related Disclosures, but the working draft standard does not specify how this is done. 

The amendment specifies the analysis must involve at least two scenarios:

• one scenario must be a limitation in the global average temperature to the most ambitious target in the Climate Change Act 2022 (currently 1.5 degrees)
• one scenario must be an increase in the global average temperature that well exceeds the 2 degrees Celsius above pre-industrial levels specified in the Climate Change Act 2022 (interpreted to be 2.5 degrees or more in the explanatory memorandum)

How should entities prepare?

• Entities in scope of the legislation are expected to implement appropriate processes and internal controls over the sustainability information in place for the full period covered by the report. 
• In our experience, preparing for reporting is complex, and may take between 12-18 months to establish the necessary reporting processes.

Grant Thornton has a team of sustainability reporting specialists who understand the intricacies of the reporting requirements. Our team can work closely with you to navigate through the process of getting ready for reporting, including:

• climate-related risk and opportunity guidance;
• reporting gap identification;
• greenhouse gas emissions guidance (including scope 3 emissions);
• assurance readiness;
• climate reporting support; and
• training and education.