Senate Economics Legislation Committee reports back on climate reporting legislation

When the Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill (Bill) was introduced into Parliament on 27 March 2024, it was referred to the Senate Economics Legislation Committee (Committee) for inquiry. The Committee reported back on 3 May 2024 and noted that there was broad support for the mandatory climate reporting regime introduced by the Bill, including the phased-in approach to have the largest entities reporting sooner and smaller entities later. However, the following broad issues were raised, where some submitters were supportive of the proposals and other not:

• Delaying the start date
• Modifying liability for three years
• Auditing requirements and timing of the phase-in period.

Audit requirements for Group 3 entities

Several submissions questioned the requirement for Group 3 entities to have an audit of their climate disclosures when they concluded that they have no material climate risks and opportunities. The estimated cost for a reasonable assurance engagement (audit) is likely to be between $20,000 and $50,000 for these entities. There may also be limited skills and capacity for audit firms to service the Group 3 cohort of entities within the four-month reporting deadlines, and this would cause significant pressure on the quality of auditing services. It was also suggested that the audit requirement for Group 3 entities be substituted with a requirement for a review.

Regarding not-for-profit entities, some submitters suggested those not registered with the Australian Charities and Not-for-profits Commission should be exempt from climate reporting.

Exemption for Australian subsidiaries of global groups

Several submitters also sought clarity on whether an Australian subsidiary of a global group that prepared consolidated climate disclosures needs to prepare a separate climate report under Australian legislation.

Minister’s discretionary powers

Questions were raised about the Minister’s broad power in the Bill to extend reporting beyond just climate, without appropriate consultation.

Disclosure of Scope 3 emissions

Lastly, some stakeholders raised concerns about the requirement for entities to disclose Scope 3 emissions, and related cost versus benefits. It was also noted that Scope 3 reporting includes activities in the entity’s value chain that concern suppliers and customers, going beyond the usual accounting boundaries for the reporting entity, and entities under its control.

Recommendation to pass the Bill with some dissent

The Committee's final recommendation is that the Bill should be passed in its current form. However, the Coalition noted that there will be a significant increase in the cost of compliance that has been under-scrutinised. It also had concerns that the legislation is being rushed through without sufficient evidence, particularly in light of matters raised by some of the submitters.

Watch this space

In the Second Reading debate of the Bill in the House of Representatives on 15 May 2024, the Coalition voiced various concerns, including that:

• There will be a significant compliance burden for entities subject to mandatory climate reporting
• There will also be significant compliance costs for small businesses that won’t have to report – these entities will still have to quantify and disclose their emissions so that suppliers up and down the supply chain can disclose their Scope 3 emissions
• The Bill is at odds with our peers, with climate reporting in the USA, Canada and the UK not going as far as the proposals in the Bill.

The Coalition noted that they will be proposing amendments to the Bill, and have indicated that they will oppose the Bill if their concerns are not addressed. They have also said that it is not about being pro or anti-climate; it's about being pro-small and family business.

We will endeavour to update you on the progress of this Bill in future articles.