The final position has confirmed the entities in-scope (as set out in the June 2023 consultation) and introduced some additional criteria. The draft legislation also addresses a number of questions arising from the previous consultation.
Executive summary
The draft legislation proposes amendments to the Corporations Act 2001.
In summary:
- All entities preparing annual reports under 2M of the Corporations Act that meet certain size thresholds must prepare a sustainability report as part of their annual report.
- The sustainability report must be prepared in compliance with Australian Sustainability Reporting Standards (ASRS).
- The legislation will be in force for financial years commencing on or after 1 July 2024 (i.e. for periods ending on or after 30 June 2025).
- There is an exemption for subsidiaries that are included in the consolidated financial statements of their ultimate Australian parent entity.
- The sustainability report is subject to assurance:
- limited assurance over Scope 1 and 2 greenhouse gas emissions for financial years commencing on or between 1 July 2024 until 30 June 2030; and
- reasonable assurance of the sustainability report for financial years commencing on or after 1 July 2030.
- Legal actions in relation to Scope 3 greenhouse gas emissions and climate-scenario analysis is restricted to ASIC only for financial years between 1 July 2024 and 30 June 2027. Directors remain exposed to the risk of legal actions for all other disclosures in the sustainability report.
Entities in-scope
Entities meeting the following criteria will be required to prepare a sustainability report in accordance with ASRS:
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Consolidated reporting
If an entity is required to prepare financial statements on a consolidated basis, the group head is the only entity that must prepare a sustainability report and it must be prepared as if the consolidated entity is a single entity – i.e. on a consolidated basis.
In practice, this would result in preparing a consolidated sustainability report in the ultimate Australian parent entity.
Mandatory assurance
The final position has simplified and extended the assurance timeline initially proposed in the June 2023 consultation.
The draft legislation requires:
- limited assurance over Scope 1 and 2 greenhouse gas emissions for financial years commencing on or between 1 July 2024 until 30 June 2030; and
- reasonable assurance of the sustainability report for financial years commencing on or after 1 July 2030.
The sustainability report will be audited by the registered auditor of the Company supported by climate and sustainability experts where appropriate.
Content of the sustainability report
The sustainability report will be prepared in accordance with ASRS. The draft ASRS disclosure requirements were released in an exposure draft in October 2023.
ASRS are based on the IFRS Sustainability Disclosure Standards issued in June 2023 by the International Sustainability Standards Board. However, the Australian Accounting Standards Board has limited the scope of the draft ASRS to climate-related financial information only.
For a more detailed analysis of the Australian exposure draft, refer to our previous insight article, or to our new Sustainability Reporting Alert SRA 2024-1 Australian Sustainability Reporting Standards Exposure Draft ED SR1.
Modified legal liability
The draft legislation has clarified how the modified liability approach proposed in the June 2023 consultation will be implemented.
In the new draft legislation, modified legal liability is granted only in relation to Scope 3 emissions or scenario analysis disclosures for financial years commencing between 1 July 2024 and 30 June 2027.
For those disclosures in that period of modified liability:
- only ASIC will be able to initiate legal action;
- the legal action will be civil in nature; and
- the legal action will either relate to contravention of a law requiring a fault element (e.g. negligence), or the only remedy sought in relation to the action would be an injunction or declaration.
During this period, if ASIC considers that a statement an entity makes in a sustainability report is incorrect, incomplete, or misleading in any way, ASIC may direct the entity to correct, complete or amend the statement in accordance with the direction.
Note that this relief is only in relation to Scope 3 emissions and climate scenario analysis. The rest of the sustainability report will contain inherently forward-looking statements. Under the Corporations Act, forward-looking statements made without reasonable grounds may be taken to be misleading. Directors must actively ensure the content of the sustainability report can be substantiated.
Next steps
For entities that are required to report for the financial year commencing 1 July 2024, it is imperative to begin preparation as soon as possible.
Grant Thornton has a team of sustainability reporting specialists who understand the intricacies of the sustainability reporting requirements. Our team can work closely with you to navigate through the process of getting ready for sustainability 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.
Learn more about how our ESG, sustainability and climate reporting services can help you
To guide preparers we have also released two sustainability reporting alerts
SRA 2024-1 Australian Sustainability Reporting Standards Exposure Draft ED SR1 and
SRA 2024-2 Climate-related financial disclosure: exposure draft legislation.
