ASIC seeks feedback on proposed regulatory guidance for sustainability reporting

On 7 November 2024, the Australian Securities and Investments Commission (ASIC) issued Consultation Paper 380 Sustainability reporting, seeking feedback on its proposed regulatory guide to assist entities required to prepare sustainability reports under Chapter 2M of the Corporations Act 2001. ASIC also proposes amending ASIC Corporations (Financial Reporting by Stapled Entities) Instrument 2023/673 to facilitate sustainability reporting relief for stapled entities.

ASIC’s role

The draft regulatory guide highlights that ASIC’s role is to administer and, where appropriate, enforce the sustainability reporting requirements in Chapter 2M of the Corporations Act 2001. Its role does not extend to assessing the ambition or merit of an entity’s climate-related strategy or targets. The draft regulatory guide provides a useful resource (summary) of the sustainability reporting requirements and application guidance. It is laid out in four sections, discussed in more detail below.

Section B (preparing the sustainability report)

Section B provides guidance about:

• Which entities must report and when
• How registrable superannuation entities (RSEs), registered schemes and retail corporate collective investment vehicles (CCIVs) can determine whether they meet the sustainability reporting thresholds
• Which accounting standards to apply to assess whether one entity controls another (this is to determine the consolidated asset and revenue numbers for the size tests in section 292A(3) and (6))
• Which entities have an obligation to keep sustainability records
• How material climate risks intersect with directors’ duties
• The temporary modified liability settings.

Section C (the content of the sustainability report)

Section C includes proposals regarding:

• Reporting entities with no material climate-related financial risks or opportunities under section 296(B)(1) – these entities must confirm this for the financial year by considering AASB S2 Climate-related Disclosures. They must also maintain adequate sustainability records to support this assertion and establish robust processes to ensure they meet the sustainability reporting requirements for any subsequent financial year.
• Statements with forward-looking climate information, including disclosing the basis for forward-looking statements (the methods and assumptions used) and maintaining adequate records to explain the methods, assumptions and evidence to support these statements.
• Cross-referencing the sustainability report to other documents – entities should lodge the other document together with the sustainability report if it has not already been lodged with ASIC.
• Labelling of reports – the sustainability report required by Chapter 2M has a precise meaning (currently only containing a climate statement) and should be distinguished from other reports that have historically been referred to as ‘sustainability reports’. To avoid confusion as to what sustainability information is mandatory and what is voluntary, the term ‘voluntary sustainability statements’ should be used for sustainability-related information other than climate-related financial disclosures.
• Proportionality mechanisms and how these concepts within AASB S2 should be interpreted and supported by adequate records.

Section D (sustainability-related financial disclosures outside the sustainability report)

Section D focuses on using information extracted from the sustainability report in other documents, such as the Operating and Financial Review for listed entities, disclosure statements for fundraising, and product disclosure statements. It notes that entities should consider AASB S2 as part of this process. Information reproduced elsewhere should not be selective to reflect a more favourable position compared to what is disclosed in the complete sustainability report.

Section E (ASIC’s role in administering sustainability reporting)

Here ASIC outlines its approach to providing relief from preparing sustainability reports and the related audit requirements. Relief may be granted on a class basis by issuing a legislative instrument, or for an individual entity under section 340.

ASIC also outlines its approach to granting extensions of time for lodgement of the sustainability report, consolidated sustainability reporting relief, audit relief, and enforcement. It is noted that a ‘proportional and pragmatic approach to supervision and enforcement’ will be taken by ASIC as entities build capabilities during the transition period as these reporting requirements are phased in.

Determining revenue, employees and assets

ASIC is seeking feedback on whether preparers require guidance on how to determine revenue, employees, and assets to apply the sustainability reporting thresholds in section 292A. Similar to the large-small proprietary company tests contained in section 45A, section 292A requires revenue and assets to be calculated in accordance with accounting standards.

Submission close date

We encourage entities to respond to ASIC’s request for feedback. Submissions close on 19 December 2024.