Nearly two years after the initial public consultation on a climate disclosure framework in Australia, the legislation that will make this framework law for large entities has passed the Senate. The new reporting regime, which is set to commence on 1 January 2025, will be the biggest shift in corporate reporting since the adoption of IFRS in Australia almost two decades ago. Businesses of all shapes and sizes need to be thinking about what this means for them.
The passage of The Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill 2024 (the Bill) from first consultation paper in December 2022 to draft legislation in January 2024 has been relatively quick, expedited by global sustainability developments and pressure on governments to join ranks to collectively combat the effects of climate change.
The Bill was first tabled in Parliament on 27 March 2024, making its way through the lower house in early June and clearing the Senate last Thursday, on 22 August 2024.
The effect of the legislation, when it receives royal assent, is amendments to the Corporations Act 2001 and the Australian Securities and Investment Commission Act 2001 that would see the conception of Australia’s framework for mandatory climate-related financial disclosures.
Entities subject to the new climate reporting regime would be required to disclose information about their climate-related risks and opportunities, as well as measure and report their greenhouse gas emissions across scope 1, scope 2 and scope 3. This information would be presented in a sustainability report that sits alongside their financial report.
A point of difference between the legislation initially introduced into Parliament and the legislation passed by the Senate on Thursday relates to scenario analysis. To secure Senate support, a requirement has been introduced to make scenario analysis disclosures against two global warming outcomes – a low warming scenario which limits warming to 1.5°C above pre-industrial levels, and a high warming scenario in which warming ‘well exceeds’ 2°C.
Although the Bill will go back to the House of Representatives for consideration during Parliament’s September sitting, there is unlikely to be further amendments and all indications are that the legislation will come into effect on 1 January 2025, starting with the largest entities in the Australian economy and expanding to progressively smaller large entities in 2026 and 2027.
Requirements relating to reporting thresholds and scope, phased implementation, location and timing of disclosures, the need for assurance, and the modified liability regime remain unchanged since being introduced into Parliament.
A summary of these key aspects of the Bill can be found in our previous articles published in December 2023 and January 2024.
While the mandatory requirements will certainly be the catalyst for reporting entities to prepare for the ensuing changes and add climate (and eventually sustainability more broadly) to their strategic agendas, smaller entities will be impacted too.
As large reporting entities start to disclose their scope 3 emissions, smaller businesses that fall within their supply chains may be asked to provide their own sustainability credentials, including their emissions data. Coles, Woolworths and Amazon are examples of companies that have already indicated this intention in order to manage their scope 3 emissions to meet their future net zero commitments.
Something else smaller businesses need to consider is evolving stakeholder expectations. Increasingly, stakeholders are taking a more holistic and longer-term view of value creation, balancing short-term financial gains with longer-term sustainability. Entities that navigate this balance through alignment of strategic goals, profitability and risk management will be well placed to ensure not only the near-term success of their business but also their future growth and resilience.
If you need any assistance with understanding what the changes mean for your business and the actions you should be taking now, please get in touch with your local HLB Mann Judd contact.