Following the exposure draft legislation earlier this year, the Government has introduced a bill into Parliament to implement mandatory climate-related financial disclosure requirements.
In summary:
- There is no change to the scope of entities caught by the proposed legislation, or the reporting timeline for Group 2 and Group 3 entities from the previous exposure draft legislation.
- The start date for Group 1 entities is delayed from 1 July 2024 to 1 January 2025. 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.
- The delay in timing will provide entities time to develop the necessary sustainability reporting processes and implement appropriate internal controls over sustainability reporting information. Entities should be conscious that a lack of appropriate internal controls over sustainability reporting processes for the full financial year may impact the related assurance opinion.
- The timing and extent of assurance requirements of the sustainability report will be phased in on a timeline determined by the Auditing and Assurance Standards Board (AUASB).
- Broader modified legal liability provisions than the exposure draft legislation have been introduced, including forward looking climate-related statements for the first 12 months of the regime, and requirement for Directors to declare the entity has taken “reasonable steps” to comply with the sustainability reporting standards and Corporations Act 2001 (Corporations Act).
Introduction
On 27 March 2024, the Government introduced a bill into Parliament that 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. This follows the exposure draft of the legislation published by the Australian Treasury on 12 January 2024.
The climate-related financial disclosure requirements have been incorporated as Schedule 4 of an omnibus bill: Treasury Laws Amendment (Financial Market Infrastructure and other measures) Bill (“the Bill”).
The Bill sets out climate-related financial reporting requirements for entities, leveraging the existing financial reporting regime defined by Chapter 2M of the Corporations Act. Consistent with the exposure draft legislation, the Bill requires a new ‘sustainability report’ that will form part of the annual financial report.
The Bill has been referred to the Senate Economics Legislation Committee, which is due to report by 30 April 2024. Subject to the legislation being enacted by the Parliament and receiving Royal Assent by 2 December 2024, the legislation will be in force for financial years commencing on or after 1 January 2025.
Relevant sustainability reporting and assurance standards
The sustainability report will be prepared in compliance with the Australian Sustainability Reporting Standards (ASRS) issued by the Australian Accounting Standards Board (AASB). The ASRS public consultation period closed 1 March 2024, and we now await either a re-exposure of draft ASRS or the issuance of final standards.
The sustainability report will also be subject to mandatory assurance requirements which are phased in over time. Unlike the previous exposure draft legislation, the Bill requires the AUASB to make assurance standards defining the extent to which the sustainability report is subject to assurance, and the timeline to phase in those assurance requirements. The AUASB recently has opened a public consultation regarding the development of assurance phasing. As a result, it is possible that the transition from limited to reasonable assurance over the whole sustainability report will occur on a quicker timeline than the 1 July 2030 timing that was in the original exposure draft legislation. Comments on the AUASB public consultation close 3 May 2024.
Entities in-scope and timeline of implementation
The requirement to prepare a sustainability report will phase in over a period of 4 years, in three groups that remain consistent with the exposure draft legislation, as shown in the following table.
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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. If the legislation is enacted by 1 June 2025, the start date will be 1 July 2025. If the legislation is enacted after 1 June 2025, the start date is the next 1 January or 1 June that is at least 29 days from date of enactment.
The Bill has delayed the start date of the legislation from 1 July 2024 to 1 January 2025. 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.
The delay in timing will provide entities time to develop the necessary sustainability reporting processes and implement appropriate internal controls over sustainability reporting information. Entities should be conscious that a lack of appropriate internal controls over sustainability reporting processes for the full financial year may impact the related assurance opinion.
Legal liability provisions
The Bill also introduces broader modified legal liability provisions than originally contemplated in the exposure draft legislation.
For financial years commencing within 12 months of the start date (i.e. 1 January 2025 – 31 December 2025):
- Limited immunity is extended to all forward-looking statements in relation to climate, made in a sustainability report in compliance with the sustainability reporting standards.
For financial years commencing within 3 years of the start date (i.e. 1 January 2025 – 31 December 2027):
- Limited immunity for statements in relation to Scope 3, transition planning and climate-scenario analysis.
- Directors’ declaration on the sustainability report will be whether, in the directors’ opinion, the entity has taken “reasonable steps” to ensure the substantive provisions of the sustainability report are in accordance with the Corporations Act.
Where limited immunity applies, only ASIC will be able to take legal action for misleading and deceptive conduct. This does not prevent criminal proceedings. Existing liability provisions, including the presumption that forward-looking statements made without reasonable basis are misleading, will apply after the limited immunity periods.
The limited immunity will also be available to entities that choose to early-adopt or voluntarily adopt the ASRS during the limited immunity periods. Entities seeking to rely on this protection must explicitly state that the sustainability report is in compliance with the ASRS.
Next steps
The expectation is that entities will have implemented appropriate processes and internal controls over the sustainability information in place for the full period covered by the report. Therefore, it is imperative that entities begin preparing for reporting well in advance of the first reporting period.
Even if you have previously done some sustainability reporting under a different framework, like TCFD or GRI, there will be additional work needed to meet the requirements of ASRS reporting. This work will need to be completed in advance of the commencement of the first reporting period in which the entity publishes an ASRS compliant report.
Grant Thornton has a team of sustainability reporting specialists who understand the intricacies of the ASRS reporting requirements. Our team can work closely with you to navigate through the process of getting ready for ASRS reporting, including:
- climate-related risk and opportunity guidance;
- reporting gap identification;
- greenhouse gas emissions guidance;
- assurance readiness;
- climate reporting support; and
- training and education.
If you would like to learn more, please reach out to one of our sustainability reporting specialists.
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