This article was originally published in August 2023. It was updated in November 2024 to reference the latest legislative requirements in the various jurisdictions mentioned.
The Australian Government has passed legislation that mandates sustainability reporting for all large Australian entities (including large proprietary companies lodging financial reports with the Australian Securities and Investments Commission (ASIC) under Chapter 2M of the Corporations Act 2001) according to the following timeframes:
- Group 1 entities - for years ending 31 December 2025 onwards
- Group 2 entities - for years ending 30 June 2027 onwards
- Group 3 entities - for years ending 30 June 2028 onwards.
Please refer to this article for more information about the criteria for each group noted above.
2027-2028 may seem a long way off. Still, some companies may be forced to prepare sustainability disclosures earlier if either their parent company is based in a jurisdiction where sustainability reporting is compulsory, or they operate in an overseas jurisdiction that requires sustainability reporting.
New Zealand, Europe and the United States (USA) are just a few jurisdictions that have already made sustainability reporting compulsory, or are about to. If you have a parent company or operate in these countries, please be aware that you may need to prepare sustainability disclosures now, or soon, and as part of this process, measure your greenhouse gas (GHG) emissions.
New Zealand
New Zealand already has mandatory climate reporting. The following types of large New Zealand entities must prepare climate-related disclosures for 31 December 2023 year-ends and later:
- Registered banks, credit unions, and building societies with total assets of more than NZ$1 billion
- Managers of registered investment schemes (other than restricted schemes) with greater than NZ$1 billion in total assets under management
- Licensed insurers with greater than NZ$1 billion in total assets, or annual premium income greater than NZ$250 million
- Listed issuers of quoted equity securities with a combined market price exceeding NZ$60 million
- Listed issuers of quoted debt securities with a combined face value of quoted debt exceeding NZ$60 million
- Authorised Bodies, that are managers of registered schemes and operate under the licence of another manager, where the total assets under that licensee (including assets of all authorised bodies) exceeds $1 billion.
What does this mean for Australian entities?
Australian entities that are subsidiaries of New Zealand entities noted above will need to prepare climate disclosures to assist their parent with their reporting requirements. These entities will be required to report earlier than expected in Australia by:
- Five years for Group 3 entities
- Four years for Group 2 entities
- Two years earlier for Group 1 entities.
The above time frames are based on amendments to the Corporations Act 2001 which mandate sustainability reporting in Australia.
At the time of writing, the Financial Markets Authority (FMA) has granted an exemption notice (Financial Markets Conduct (Climate-related Disclosures for Foreign Listed Issuers) Exemption Notice 2024) to certain foreign exempt issuers from their New Zealand climate-reporting obligations in either of the following circumstances (applies for the five-year period 5 April 2024 through to 4 April 2029):
|
New Zealand operations |
Type of relief |
Conditions for relief |
|
The foreign exempt issuer does not have significant business operations or investments in New Zealand |
Full relief |
Must comply with any mandatory home jurisdiction laws or home stock exchange requirements regarding climate-related disclosures |
|
The foreign exempt issuer has significant business operations or investments in New Zealand |
Partial relief |
Climate reporting only for New Zealand business operations or investments (not global businesses or investments) |
Foreign exempt issuers whose primary listing is on the ASX and whose secondary listing is on NZX Limited (the New Zealand stock exchange) should consider whether any New Zealand operations or assets will trigger climate reporting.
In addition to the above exemption, the FMA has also granted an exemption notice (Financial Markets Conduct (Climate-related Disclosures—Overseas Banks and Insurers) Exemption Notice 2024) to overseas registered banks and overseas licensed insurers that are climate reporting entities under Part 7A of the Financial Markets Conduct Act 2013. Those entities are exempted from the requirement to have their climate statements, or group climate statements, dated and signed by their directors.
The conditions of the exemption provide for:
- The climate statements or group climate statements to be dated and signed by the exempt entity’s New Zealand chief executive officer, and
- Certain information to be given to the Registrar of Companies.
The notice commenced on 29 July 2024 and continues until 3 November 2026.
You can read more about the FMA’s requirements for Climate Reporting entities here.
Europe
The European Union’s (EU’s) Corporate Sustainability Reporting Directive (CSRD) came into force on 5 January 2023, and EU member states have 18 months to incorporate the CSRD into their national law. For some European entities, climate disclosures are already mandatory, with reporting required for years ending 31 December 2024 by the largest entities.
What is CSRD?
The CSRD was designed to revise and strengthen the requirements of the Non-Financial Reporting Directive (NFRD). Its scope is much wider than the NFRD, covering more entities, and requiring more disclosures. Entities reporting under the CSRD will have to apply the disclosures contained in the EU Sustainability Reporting Standards (ESRS), which includes one overarching disclosure standard, and eleven topical standards. ESRS was adopted by the European Commission on 31 July 2023.
Timeline for CSRD
The table below shows the timeline for EU entities to report under the CSRD for the first time.
|
Type of entity |
First reporting year ending |
|
Large public interest entities (listed companies, banks and insurance companies) with more than 500 employees – includes consolidated groups and single entities. These entities are within the scope of the NFRD. |
31 December 2024 |
|
Listed companies (other than micro listed entities1) not within the scope of NFRD |
31 December 2025 |
|
Large companies/groups meeting two out of the following three criteria and not within the scope of NFRD:
This includes subsidiaries of non-EU groups. |
31 December 2025 |
|
Listed SMEs2 Small and non-complex credit institutions, captive insurance and reinsurance undertakings |
31 December 2026 |
|
A non-EU group that generated more than €150 million turnover in the EU for the last two consecutive financial years and has either:
|
31 December 2028 |
|
Notes:
|
What does this mean for Australian entities?
Certain Australian entities may need to prepare sustainability reports earlier than required by the Corporations Act 2001. For example:
- An Australian subsidiary of a large EU public interest entity will have to prepare sustainability disclosures for 31 December 2024 as part of the group’s consolidated sustainability report. In Australia, Group 1 entities only have to report for years ending 31 December 2025, and Groups 2 and 3 entities report even later.
- An Australian group with a large EU subsidiary will have to prepare sustainability disclosures for that subsidiary as at 31 December 2025. This would be two years earlier than expected if the Australian group is a Group 2 entity and three years earlier if the Australian group is a Group 3 entity.
Non-EU groups will report by 31 December 2028, but will have to report in Australia by 31 December 2027 as they will likely meet the size thresholds for a Group 2 entity. The sustainability report for a non-EU entity is required to cover the consolidated group of the ultimate non-EU parent, with the responsibility for publication in the EU being with the EU subsidiary or branch. It must be prepared in accordance with ESRS, which will result in an Australian parent having to prepare two sustainability reports: one using ESRS covering numerous sustainability topics, and one applying AASB S2 for climate reporting only.
Unless included in a consolidated group CSRD report, Australian entities will have to comply with the ESRS disclosure requirements, which are far more extensive than AASB S1 General Requirements for Disclosure of Sustainability-related Financial Information (voluntary standard) and AASB S2 Climate-related Disclosures (mandatory). Additionally, all the above sustainability information must initially have limited assurance, to be expanded to reasonable (audit) assurance in future.
In our view, the introduction of CSRD and ESRS presents an opportunity for forward-looking Australian organisations to get on the front foot with their sustainability reporting. Early adoption will allow entities to identify the reporting requirements that align with their current strategy and existing data and begin incrementally implementing reporting metrics. This could not only create a competitive advantage, but also reduce the workload and risks of facing a significant project when these disclosures become mandatory.
Please refer to our bulletins for more information about reporting under the CSRD:
- EU Reporting: Corporate Sustainability Reporting Directive – Summary of Scope and Requirements (September 2024)
- Corporate Sustainability Reporting Directive for Non-EU Companies (September 2024).
USA
In March 2024, the U.S. Securities and Exchange Commission (SEC) adopted final rules to require climate disclosures in registration statements and annual reports which do not require quantification of Scope 3 emissions. In April 2024, the SEC paused the rules pending a judicial review, effectively meaning that mandatory climate reporting in the USA is on hold for now. The judicial review is considering whether federal agencies such as the SEC have the regulatory authority to enforce environmental, social and governance (ESG) regulations. The SEC is steadfast in defending its regulatory authority over its climate disclosure rules.
Timeline for proposals
The table below shows the timeline for SEC registrants to provide climate-related disclosures and required assurance based on the final rules. These rules also apply to foreign private issuers, so will affect Australian entities with this status.
|
Registrant type |
Disclosure and financial effects audit |
GHG emissions/assurance |
Electronic tagging |
|||
|
All Reg. S-K and S-X disclosures other than as noted in this table |
Item 1502(d)(2), Item 1502(e)(2) and Item 1504(c)(2) |
Item 1505 (Scopes 1 and 2 GHG emissions) |
Item 1506 – Limited assurance |
Item 1506 – Reasonable assurance |
Item 1508 – Inline XBRL tagging for subpart 1500 |
|
|
LAFs1 |
Fiscal year beginning during the calendar year 2025 |
Fiscal year beginning during the calendar year 2026 |
Fiscal year beginning during the calendar year 2026 |
Fiscal year beginning during the calendar year 2029 |
Fiscal year beginning during the calendar year 2033 |
Fiscal year beginning during the calendar year 2026 |
|
AFs2 (other than SRCs3 and EGCs4) |
Fiscal year beginning during the calendar year 2026 |
Fiscal year beginning during the calendar year 2027 |
Fiscal year beginning during the calendar year 2028 |
Fiscal year beginning during the calendar year 2031 |
N/A |
Fiscal year beginning during the calendar year 2026 |
|
SRCs3, EGCs4 and NAFs5 |
Fiscal year beginning during the calendar year 2027 |
Fiscal year beginning during the calendar year 2028 |
N/A |
N/A |
N/A |
Fiscal year beginning during the calendar year 2027 |
|
Notes 1: Large accelerated filers 2: Accelerated filers 3: Smaller reporting companies 4: Emerging growth companies 5: Non-accelerated filers |
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For more information on the SEC’s proposed and adopted climate-related disclosure rule, refer to BDO USA’s Preparing for the Proposed SEC Climate Disclosure Rule.
What does this mean for Australian entities?
Despite the final rules being on hold for now, Australian entities with US parent entities or subsidiaries should be aware of the reporting deadlines that will apply once the stay is lifted. For example, some of the reporting deadlines for SRCs, EGCs and NAFs may be earlier than for Group 2 and Group 3 Australian entities, which could result in:
- Australian subsidiaries having to prepare relevant climate disclosures earlier so that they can be incorporated into the US parent’s climate disclosures
- Australian entities that are foreign private issuers having to prepare climate disclosures for inclusion in their US filings.
State-based legislation
In addition to the SEC climate disclosure rules, Australian entities should also be aware of additional climate disclosures imposed by various US state-based laws, such as California and Illinois. These laws may be more onerous than the SEC rules noted above and may require earlier reporting. While these rules apply to US companies (public and private) with total annual revenues of more than $1 billion, small Australian subsidiaries may have to provide data to the US parent if they do business in these states.
Need help?
For entities operating only in Australia, navigating the mandatory climate reporting rules is no easy task. So, imagine how complicated it is to keep up with the requirements in multiple jurisdictions. While this article summarises the requirements for only a few countries, there are many more to consider and it’s a moving feast. It is therefore, challenging to track which entities in your group must prepare climate disclosures and by when. If your organisation operates in jurisdictions outside Australia, our sustainability reporting experts can help you determine when you will have to report, and which standards you will have to apply. Contact us today.