When will climate-related financial disclosure knock at your door?

Following the release of the International Sustainability Standards Board’s (ISSB) new sustainability standards, the Australian Government has initiated a second round of consultation on its proposed approach to implementing climate-related financial disclosure requirements in Australia.

ISSB standards and the Government’s consultation process

In December 2022, in anticipation of the release of forthcoming sustainability standards, the Australian Government opened its first round of consultation on ‘Climate-related financial disclosures’. The process closed in February 2023, when the Government received nearly 200 responses. Submissions are now published.

In June 2023, the ISSB issued its first two sustainability standards:

• IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information, and
• IFRS S2 Climate-related Disclosures.

According to the ISSB, these standards become effective from 1 January 2024, subject to endorsement in each respective jurisdiction.

The day after the ISSB standards’ release, the Australian Government announced its second round of consultation on implementing climate-related financial disclosures in Australia.

What’s different?

We believe the Government has introduced three key changes to its previous approach in this consultation process:

1. Changes to the impacted entities and schedule for implementation – more detail below
2. Requirements for providers of assurance over sustainability reports
3. Limiting the liability of the directors, for a limited period.

Now, which entities will be required to implement climate-related financial disclosures?

One of the key changes is a revised approach to the order of entities being introduced to mandatory climate-related reporting. While the previous consultation paper suggested focusing on large listed and large financial service providers, the new approach includes listed and non-listed organisations. The focus is still on the size of the organisation – starting with the ‘big end of town’ – and organisations that meet the reporting requirements of the National Greenhouse and Energy Reporting (NGER) Scheme.

The introduction of mandatory reporting will still phase in (now across four years) to allow the market to upskill and prepare.

According to the Government’s consultation paper, the new timing for entities is:

Timing	Reporting entities
Group 1
2024-25 onwards	Entities required to report under Chapter 2M of the Corporations Act and that fulfill two of the three thresholds: Has over 500 employees; The value of consolidated gross assets at the end of the financial year of the company and any entities it controls is $1 billion or more;   The consolidated revenue for the financial year of the company and any entities it controls is $500 million or more. AND Entities required to report under Chapter 2M of the Corporations Act that are a ‘controlling corporation’ under the NGER Act and meet the NGER publication threshold.
Group 2
2026-27 onwards	Entities required to report under Chapter 2M of the Corporations Act and that fulfill two of the three thresholds: Has over 250 employees; The value of consolidated gross assets at the end of the financial year of the company and any entities it controls is $500 million or more; The consolidated revenue for the financial year of the company and any entities it controls is $200 million or more. AND Entities required to report under Chapter 2M of the Corporations Act that are a ‘controlling corporation’ under the NGER Act and meet the NGER publication threshold.
Group 3
2027-28 onwards	Entities required to report under Chapter 2M of the Corporations Act and that fulfill two of the three thresholds: has over 100 employees; The value of consolidated gross assets at the end of the financial year of the company and any entities it controls is $25 million or more; The consolidated revenue for the financial year of the company and any entities it controls is $50 million or more. AND Entities required to report under Chapter 2M of the Corporations Act that are a ‘controlling corporation’ under the NGER Act.

Source: Table 2: Proposed roadmap for mandatory disclosure requirements, Climate-related financial disclosure - Consultation paper (June 2023)

What happens next?

Officially, we await the outcomes of this consultation process and the subsequent passing of legislation to formalise the effective timing. In the meantime, organisations of all sizes – whether listed or private – should take note of the group they fall into to anticipate what the mandatory reporting implications might be, both now and with consideration of any future growth plans.

But regardless of their status in the above groupings, entities should also assess and reflect on the organisations in their supply chain. With Scope 3 emissions – as required to be measured and reported under IFRS S2 – a reflection of the emissions from an organisation’s supply chain, organisations of all sizes are likely to be impacted by the introduction of mandatory reporting. As group one entities begin to measure and report emissions, Scope 3 could become a key component of emission reduction strategies. By having accurate, reportable data and a decarbonisation strategy, organisations of all sizes can positively impact their supply chain before mandatory reporting even knocks on their door.

Here to help

To understand more about what this means for your business, please contact our national sustainability team.