Australia's Climate Disclosure Regime Moves Closer to Implementation Beginning 1 January 2025

Summary of the Regime and Departures from the Exposure Draft 

Schedule 4 of the Bill sets out the proposed national climate disclosure regime. The regime, in summary, will require subject entities to undertake the following: 

• Prepare and disclose, for each financial year, a "sustainability report", which will form part of the entity's annual financial report;
• Have the sustainability report audited by the auditor of the financial report, supported by technical climate and sustainability experts where appropriate (save that a transitional arrangement will be in place until 30 June 2030); and
• Keep, and make available to regulators or persons entitled to inspect when requested, sustainability records that correctly explain and record the preparation of the "substantive provisions" of the sustainability report. 

The provisions of the Bill are largely consistent with Exposure Draft, discussed in our previous Commentary, "Australian Government Releases Draft Climate Disclosure Laws". However, there are some material departures from the Exposure Draft, as discussed below.  

Entities Subject to the Regime 

The Bill applies the regime to all entities that lodge financial reports under Chapter 2M of the Corporations Act 2001 (Cth) and meet certain thresholds (set out below), or have current emissions reporting obligations under the existing National Greenhouse and Energy Reporting Act 2007 (Cth) ("NGER Act"). As in the Exposure Draft, the Bill proposes that implementation of the regime will be progressively phased according to whether an entity falls within Group 1, Group 2 or Group 3. There have been some adjustments to the definitions of Group 1, Group 2 and Group 3 Entities in the Bill (although the definitions remain substantially in line with the Exposure Draft). The present definitions are: 

• Group 1 Entities—Entities that: (i) meet at least two of the following three criteria at the end of the financial year: consolidated revenue of AU$500 million or more; consolidated gross assets of AU$1 billion or more; 500 or more employees; or (ii) are currently registered corporations (or are required to register) under the NGER Act, and that meet a publication threshold in s 13(1) of the NGER Act. The Bill has been amended to clarify that registered schemes, registrable superannuation entities and retail corporate collective investment vehicles are not included in Group 1 (even if they meet the Group 1 criteria).
• Group 2 Entities—Entities that: (i) meet at least two of the following three criteria at the end of the financial year: consolidated revenue of AU$200 million or more; consolidated gross assets of AU$500 million or more; 250 or more employees; (ii) are currently registered corporations (or are required to register) under the NGER Act; or (iii) are registered schemes, registrable superannuation entities or retail corporate collective investment vehicles where the value of assets they control at the end of the financial year is AU$5 billion or more.
• Group 3 Entities—All other entities that meet at least two of the following three criteria at the end of the financial year: consolidated revenue of AU$50 million or more; consolidated gross assets of AU$25 million or more; 100 or more employees. 

In each case, entities are to be assessed taking into account the assets, revenue and employees of entities they control. "Control" is to be determined in accordance with relevant accounting standards. 

In addition, companies limited by guarantee with annual (or annual consolidated) revenue of AU$1 million or more and that meet the sustainability reporting thresholds must comply with the requirements of the regime. 

Commencement Date 

The Bill now provides that, if the legislation comes into effect on or before 2 December 2024, the reporting commencement date for Group 1 Entities will be 1 January 2025. The Bill includes transitional provisions that will extend the reporting commencement date for Group 1 Entities further if the legislation comes into effect after 3 December 2024. The reporting commencement dates for Groups 2 and 3 Entities remain 1 July 2026 and 1 July 2027, respectively. 

Content of Sustainability Report 

The Bill confirms that sustainability reports will need to include disclosures regarding material financial risks and opportunities relating to climate, climate metrics and targets (for scope 1, 2 and 3 greenhouse gas emissions, including financed emissions), and information about governance, strategy and risk-management for those risks, opportunities, metrics and targets. The specific content of the required disclosures will be informed by the Australian sustainability standards to be made by the Australian Accounting Standards Board ("AASB"). Those standards were published in draft by the AASB in October 2023 and are yet to be finalised. The drafts were developed by the AASB by reference to, and are intended to align with, the equivalent International Financial Reporting Standards (S1 and S2).

Directors' Declaration 

For the first three years of the regime, directors of entities subject to the regime are now required to provide a declaration regarding whether the entity has taken reasonable steps to ensure the substantive provisions of the sustainability report are in accordance with the legislation. After that time, directors will need to declare that the substantive provisions of the sustainability report are in accordance with the legislation. 

New Directive Powers for ASIC 

The Bill contains a proposed new power for the corporate regulator, ASIC. That new power is to allow ASIC to issue directions to an entity where ASIC considers that a sustainability report is incorrect, incomplete or misleading in any way. By issuing a notice, ASIC can direct the entity to take certain steps, including explaining the statement to ASIC, giving ASIC information or documents that could substantiate or support the statement, or to correct, complete or amend the statement. Prior to giving a notice, ASIC must afford the entity an opportunity for procedural fairness, including the opportunity to make submissions to ASIC and attend a private hearing before ASIC. ASIC is required to publish on its website any directions it issues.

Definitional Changes 

The Bill contains some definitional changes, which now link the definitions of scope 1, 2 and 3 emissions and "financed emissions" to the sustainability standards to be made by the AASB. Notably, the Explanatory Memorandum to the Bill states that, for scope 3 emissions, entities will not be required to disclose exact data or detailed information that their customers or suppliers cannot provide easily. Further, entities will be required to disclose only scope 3 emissions from their second reporting year; this may comprise information from a reporting year up to 12 months prior to the current period, allowing entities to use information gathered from public disclosures made by other entities in the previous year. 

Entities Having No Climate Risks or Opportunities 

The Bill clarifies that entities falling within Group 3 which do not have any "material" financial risks or opportunities relating to climate change can satisfy their obligations by publishing a sustainability report containing a statement to this effect (with an accompanying explanation). "Materiality" will need to be determined by reference to the sustainability standards. 

Audit Requirements 

The Bill now expressly ties the auditing requirements for sustainability reports to standards being developed by the Australian Auditing and Assurance Standards Board ("AAASB"). Those standards will determine the extent to which sustainability reports prior to 1 July 2030 will need to be audited. It is expected that the AAASB will implement a phased approach which will require a more limited audit and assurance prior to 1 July 2030.  

Grace Period 

The Bill now provides a more expansive immunity for statements in sustainability reports during the first three years of the regime. During this period, no actions may be taken in relation to "protected statements" (except criminal proceedings or those brought by ASIC). "Protected statements" are statements in a sustainability report (or a related auditor's report) about scope 3 emissions (including financed emissions), scenario analysis and transition plans within the meaning of the sustainability standards. The same protection is also afforded, within the first 12 months of the regime, in respect of forward-looking statements about climate.