Mandatory Climate Reporting: Australia’s Position and Global Trends

Our highly anticipated Sustainability Networking Forum, held in collaboration with the CA ANZ Sustainability Group, recently returned to BDO’s Perth office with its first event for 2024, attracting our biggest crowd to date. In this session, the discussion focused on how Australia will be aligning with the global imperative of ‘climate first, not climate only,’ and provided insights into the new mandatory climate reporting standards set to be released soon in Australia.

The discussion was introduced by Kristy Porter (BDO Partner, Sustainability and Consulting), with Dr Lynie Bayne (CA ANZ and Senior Lecturer, UWA Business School) moderating a fireside conversation with Siobhan Hammond (Director of the Australian Accounting Standards Board).

Global sustainability reporting milestones

The forum began with Dr Lyndie Bayne and Siobhan Hammond discussing the broader sustainability reporting milestone events, and the significant evolution of sustainability reporting over the past few decades. It focused on the key milestone events, starting with the UN Brundtland Report in the 1980’s.

In 1987, the ‘Our Common Future’ report by the UN Brundtland Commission was published. It is one of the most regarded, simplified definitions in the sustainability movement, which popularised the term sustainable development:

“Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs.”

The discussion highlighted some of the other important milestones from 1987 to 2020, including the development of the Global Reporting Initiative (GRI) in 1997 and the Paris Agreement in 2015, a legally binding successor to the Kyoto Protocol.

In the past three years, we have seen sustainability reporting pick up pace as shareholders and stakeholders demand more information from corporations. Since 2021, there have been seven key milestone events in the global sustainability reporting space:

1. 2021: Formation of the International Sustainability Standards Board (ISSB)
2. 2021: The merger of the International Integrated Reporting Council (IIRC) and the Sustainability Accounting Standards Board (SASB) to form the Value Reporting Foundation (VRF)
3. 2022: The introduction of the EU Corporate Sustainability Reporting Directive (CSRD)
4. 2022: VRF and Climate Disclosure Standards Board (CDSB) consolidated into the IFRS (International Financial Reporting Standards) Foundation
5. 2023: ISSB launched IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosures
6. 2023: 12 European Sustainability Reporting Standards (ESRS) were released
7. 2024: Task Force on Climate-related Financial Disclosures (TCFD) work completed and monitoring responsibilities by IFRS Foundation from 2024.

How does Australia’s climate approach compare with international standards?

The focus then shifted to the situation closer to home, looking at the significant steps the Australian Government is taking toward mandatory climate reporting, starting with large businesses. This approach reflects a concerted effort to align with international standards while addressing local context and needs through a comprehensive process of engaging with Australian stakeholders.

The Australian Accounting Standards Board (AASB) closed the comment period for Exposure Draft ED SR1 Australian Sustainability Reporting Standards – Disclosure of Climate-related Financial Information on 1 March 2024 after inviting stakeholders to provide feedback on the proposed Australian Sustainability Reporting Standards (ASRA), which included:

• [Draft] ASRS 1  General Requirements for Disclosure of Climate-related Financial Information, developed using IFRS S1 as the baseline but with a scope limitation to climate-related financial disclosure
• [Draft] ASRS 2  Climate-related Financial Disclosures, developed using IFRS S2 as the baseline, and;
• [Draft] ASRS 101  References in Australian Sustainability Reporting Standards, developed as a service standard that would be updated periodically to list the relevant versions of any non-legislative documents published in Australia and foreign documents that are referenced in ASRS Standards.

Under the proposed climate reporting requirements, expected to be implemented in stages starting from 1 July 2024, certain entities will be mandated to disclose climate-related financial information in a separate sustainability report as part of their annual report. In time, they will also be required to obtain an assurance report over their sustainability report from their financial auditors.

While initially focusing on climate disclosures, this report is expected to encompass broader sustainability aspects over time. This approach resonates with international sustainability standards, although it diverges from the climate standard IFRS S2 of the ISSB and the recommendations from the TCFD.

Australia's emphasis on harmonising with global standards underscores its commitment to transparency and accountability in corporate reporting, positioning it as a key player in the global movement towards sustainable business practices.

How do the proposed Australian Sustainability Reporting Standards differ from IFRS S1 & IFRS S2?

The panel also discussed the differences between the Australian Sustainability Reporting Standards and IFRS® Sustainability Disclosure Standards (currently that is, IFRS S1 and IFRS S2), which serve distinct purposes and have different scopes.

The Australian Sustainability Reporting Standards have emerged in response to the growing imperative of addressing climate change. They focus primarily on mandatory reporting for large businesses operating within Australia in the first instance, narrowing sustainability disclosures to climate-related matters. This involves replacing ‘sustainability’ references in IFRS S1 with ‘climate’ for ASRS 1. The standards aim to enhance transparency by mandating the disclosure of climate-related financial risks and opportunities only, in order to align with the requirements of existing Australian legislation.

AASB recommends prioritising National Greenhouse and Energy Reporting (NGER Scheme) methodologies for measuring GHG emissions before referring to other GHG measurement methods. For instance, scope 2 emissions can be quantified through location-based or market-based methods. While IFRS S2 mandates disclosing location-based scope 2 emissions, AASB suggests also disclosing market-based emissions where applicable. This recommendation stands except for the initial three annual reporting periods under the ASRS 2 application.

BDO’s team of sustainability experts have recently compared the Australian Sustainability Reporting Standards and IFRS® Sustainability Disclosure Standards in more detail. Read more about the proposed changes and what they could mean for Australian organisations in our recent article.

What is next in this space?

While the proposed changes outlined in the new Australian Sustainability Reporting Standards are still subject to approval by Treasury, the discussion evolved to review the key influencers of the Australian sustainability reporting regulatory landscape and who they will be looking to to provide clarity on what’s next in this space. These influencers include:

• The Australian Treasury
• The Department of Finance
• Australian Accounting Standards Board (AASB)
• ASX – with particular focus on continuous disclosure rules, Corporate Governance Council etc.
• Australian Securities and Investments Commission (ASIC) – with a particular focus on greenwashing
• Auditing and Assurance Standards Board (AUASB)
• Accounting Professional & Ethical Standards Board (APESB)
• Domestic legislation - including NGER (National Greenhouse and Energy Reporting) scheme, Climate Change Act, Safeguard Mechanism, Modern Slavery Act, Water Accounting Standards and so on.

While diverging from international standards, such as IFRS S2 and TCFD recommendations, Australia's emphasis on addressing climate change through mandatory reporting positions it as a significant contributor to the global movement towards sustainable business practices. As the proposed changes await finalisation and approval by the Treasury, key influencers in the Australian sustainability reporting landscape will play a crucial role in providing clarity on the next steps.

More information

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