Update on Australia's New Climate-Related Financial Disclosure Regime
Australia's mandatory climate-related financial disclosure regime is inching closer to implementation after the proposed legislative reforms were passed by both Houses of Parliament in September 2024. As discussed in our previous Commentary, the Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill 2024 ("the Bill") was introduced into the Australian Federal Parliament in March 2024. The Bill is now awaiting Royal Assent after an amended Bill was passed by the Senate in August 2024 and subsequently approved by the House of Representatives on September 9, 2024. The new regime will bring Australia in line with other jurisdictions which have (or have proposed) similar mandatory sustainability reporting requirements, including the European Union, United Kingdom, United States, New Zealand, and Japan.
Under the Bill, the reporting requirements for Group 1 entities may commence as early as January 1, 2025, with reporting requirements for Group 2 and 3 entities likely commencing from July 1, 2026, and July 1, 2027, respectively. A Group 1 entity is an entity filing financial statements under Chapter 2M of the Corporations Act 2001 (Cth) (a "Chapter 2M filer") that:
- Meets at least two of the following three conditions: (i) over 500 employees, (ii) more than AU$1 billion in consolidated gross assets, or (iii) over AU$500 million in consolidated revenue; or
- Is a registered corporation under the National Greenhouse and Energy Reporting Act 2007 (Cth) ("NGER Act") and meets the NGER publication threshold.
A Group 2 entity is an entity that is a Chapter 2M filer that:
- Meets at least two of the following three conditions: (i) over 250 employees, (ii) AU$500 million in assets, or (iii) AU$200 million in revenue; or
- Is an NGER Act reporter not captured in Group 1; or
- Is an asset owner (registered scheme, registrable superannuation entity, or retail CCIV) where the value of assets at the end of the financial year (including the entities it controls) is equal to AU$5 billion or more.
A Group 3 entity is an entity that is a Chapter 2M filer that meets at least two of the following three conditions: (i) over 100 employees, (ii) $25 million in assets, or (iii) $50 million in revenue.
The Australian Sustainability Reporting Standards ("Standards") referenced in the Bill are presently being finalized by the Australian Accounting Standards Board ("AASB"), with the AASB due to consider and vote on the Standards after the Bill receives Royal Assent. This means that there will be only a narrow window of time in which to prepare for the new regime. One important feature of the regime, which was introduced as a late-stage amendment to the Bill, is the requirement that where scenario analysis is required to be undertaken and disclosed in accordance with the Standards, that analysis must be carried out using both a high global warming scenario (being an increase in global average temperature greater than 2.5°C above pre-industrial levels) and a low global warming scenario (being an increase in global average temperature limited to 1.5°C above pre-industrial levels), based on sub-paragraphs 3(a)(i) and 3(a)(ii) of the Climate Change Act 2022 (Cth).
Another important aspect is the modified liability regime, which prohibits private actions (excluding criminal proceedings or actions by the Australian Securities and Investments Commission) in respect of: (i) statements in sustainability reports (or a related auditor's report) regarding Scope 3 greenhouse gas emissions, scenario analysis, or transition plans for a period of three years from commencement; and (ii) forward-looking statements about climate for a period of 12 months from commencement.
These reforms will have a significant impact on Australia's regulatory and reporting landscape. Accordingly, all entities with any operations in Australia should take steps to: (i) assess whether they may be subject to the regime (and if so, what group they fall within); (ii) undertake a gap analysis of their current sustainability-related disclosures (if any) against the requirements of the Bill and the draft Standards; and (iii) consider their sustainability reporting requirements in Australia compared to other jurisdictions, and seek to implement an approach that meets the requirements of all applicable regimes.
Claire Goulding, an associate in the Sydney Office, assisted with the preparation of this article.
