More alignment between Australian and global climate disclosures

In our previous article, we welcomed the decision of the Australian Accounting Standards Board (Board) at its 6-7 June 2024 meeting that Australian climate-related financial disclosures will align more closely with the baseline of IFRS® Sustainability Disclosure Standards. Further discussions at the Board’s 26 June 2024 meeting on [Draft] ASRS 2 Climate-related Financial Disclosures, as proposed in Exposure Draft ED SR1 Australian Sustainability Reporting Standards – Disclosure of Climate-related Financial Information (October 2023), will result in further alignment with the baseline of IFRS S2 Climate-related Disclosures in five areas:

1. Climate-related scenario analysis

[Draft] ASRS 2 proposed that entities reporting climate-related financial disclosures under Chapter 2M of the Corporations Act 2001 must disclose climate resilience against at least two relevant possible future states, one of which must be consistent with the most ambitious global temperature goal set out in the Climate Change Act 2022, or 1.5 degrees above pre-industrial levels. However, IFRS S2 merely requires disclosure of an entity’s climate resilience using scenario analysis using an approach that is commensurate with the entity’s circumstances (this is explained in more detail in paragraphs B1 to B18 of IFRS S2).

The Board decided to remove the Australian-specific proposal to align with IFRS S2. We note that at the time of writing, the Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill 2024 (Bill) which introduces climate reporting for Australian entities reporting under Chapter 2M of the Corporations Act 2001 is before the Senate for approval. Proposed amendments by the Greens, if passed by the Senate, would nevertheless result in disclosure of at least two scenarios: one being if the increase in the average global temperature is limited to 1.5 degrees above pre-industrial levels, and the other being if the increase is 2.5 degrees or more above pre-industrial levels.

2. Cross-industry remuneration metrics

IFRS S2 requires disclosure of cross-industry metrics for remuneration, including:

  • An explanation of whether, and how, climate-related considerations are factored into ‘executive’ remuneration, and
  • The percentage of ‘executive management’ remuneration recognised in the current period that is linked to climate-related considerations.

[Draft] ASRS2 clarified that ‘executive’ and ‘executive management’ has the same meaning as ‘key management personnel’, and ‘remuneration’ has the same meaning as ‘compensation’, in AASB 124 Related Party Disclosures.

The Board decided to remove these Australian-specific clarifications in order to align with IFRS S2.

3. Scope 3 greenhouse gas (GHG) emissions

In measuring Scope 3 GHG emissions, IFRS S2 requires an entity to use all reasonable and supportable information available to the entity without undue cost or effort. [Draft] ASRS 2 went further - if reasonable and supportable data related to the current period is unavailable, it permitted an entity to disclose in the current reporting period, its Scope 3 GHG emissions using data for the immediately preceding period.

The Board decided to remove the Australian-specific proposal to align with IFRS S2.

4. Financed emissions

IFRS S2 requires additional disclosures regarding category 15 Scope 3 GHG emissions by entities participating in financial activities (asset management, commercial banking, and insurance).

[Draft] ASRS 2 merely required these entities to refer to and consider the applicability of the extra disclosures regarding ‘financed emissions’.

The Board decided to remove the Australian-specific proposal to align with IFRS S2.

5. Definition of ‘carbon credits’

The table below shows how the definition of ‘carbon credit’ in IFRS S2 and [Draft] ASRS 2 differ (emphasis added):

IFRS S2 definition

[Draft] ASRS 2 definition

An emissions unit that is issued by a carbon crediting programme and represents an emission reduction or removal of greenhouse gases. Carbon credits are uniquely serialised, issued, tracked and cancelled by means of an electronic registry.

 

An emissions unit that is issued by a carbon crediting programme and represents an emission reduction or removal of greenhouse gases. Carbon credits are uniquely serialised, issued, tracked and cancelled by means of an electronic registry or otherwise are recognised under the Australian Carbon Credit Unit Scheme.

The Australian definition would have resulted in inflated levels of carbon credits because it would have recognised non-Kyoto Australian carbon credit units (ACCUs), which are not uniquely serialised.

Once again, the Board decided to remove the Australian-specific proposal to align with IFRS S2.

Superannuation entities

The Board also decided not to specify in [Draft] ASRS 2 the extent to which superannuation entities must comply with climate-related financial disclosures. Rather, this is a matter for the Corporations Act 2001, noting that the (Bill) currently specifies that large registrable superannuation entities with assets of $5 billion or more will have to prepare climate disclosures.

How BDO can help

Climate reporting requirements in Australia continue to evolve. Understanding what is required, and then preparing your first climate report can seem overwhelming. Our sustainability reporting experts can help you understand what this might mean for your organisation.

Contact us today.