The demand for businesses to disclose information about their sustainability has increased over recent years. Stakeholder groups are seeking an understanding of organisations ESG issues when making decisions.

There are currently no mandatory requirements in Australia for companies to disclose ESG information, however many organisations are disclosing voluntarily. Most Australian organisations use a combination of frameworks including disclosures created by the Task Force on Climate-related Financial Disclosures (TCFD).

Task Force on Climate-related Financial Disclosures (TCFD)

The TCFD was established in December 2015 by the Financial Stability Board (FSB) to design a framework that promotes market transparency of climate related financial risks. They identified the information needs of stakeholders such as investors, lenders and insurance underwriters. Final recommendations were issued in June 2017. Businesses across the globe have used the TCFD framework for making climate related disclosures with numbers increasing each year.

In June 2023, the International Sustainability Development Standards Board (ISSB) issued two IFRS Sustainability Disclosure Standards, IFRS S1 regarding disclosures of sustainability-related financial information and IFRS S2 climate-related disclosures which is based on the TCFD framework.

Mandatory climate-related disclosures in Australia

Treasury released a consultation paper in June 2023 detailing a timeline for mandatory climate-related financial disclosures to be implemented in Australia. Depending on the number of employees in the company, its gross assets and its revenue, the starting mandatory reporting date ranges from 2024-25 to 2027-28. These disclosures are modelled on the TCFD framework and IFRS S2.

The Australian Accounting Standards Board (AASB) is expected to issue an Australian equivalent of IFRS S1 and IFRS S2 by the end of 2023.

Initially the mandatory disclosure requirements relate to companies required to lodge financial reports with ASIC. It is expected in future that this disclosure requirement will include other organisations including not for profit.

What disclosures are required?

Climate-related disclosures are separated into four pillars:

  1. Governance – information about governance processes, controls and procedures used to monitor and manage climate-related financial risks and opportunities
  2. Strategy – reporting on your organisations strategy for identifying and addressing climate-related risks and opportunities. Disclosures include scenario analysis, transition planning and climate related targets including offsets, target setting, mitigation strategies and progress towards targets. Climate scenario analysis also details the impact on the business of different climate scenarios (e.g. impact of global warming at two degrees above pre-industrial levels).
  3. Risks and Opportunities – information about material climate-related risks, opportunities and how the organisation assesses and manages them.
  4. Metrics and Targets – Greenhouse gas emissions being Scope 1 and Scope 2 from reporting commencement and Scope 3 from the second reporting year, and industry-based metrics:
    o Scope 1 – direct emissions from sources that an organisation owns or controls directly.
    o Scope 2 – indirect emissions from energy purchased and used in the organisation.
    o Scope 3 – indirect emissions not produced by the organisation but those it’s indirectly responsible for up and down its supply chain.

Future disclosures

The FSB have also established the Task Force on Nature-related Financial Disclosures (TNFD), who released their final recommendations in September 2023. The ISSB are expected to add the development of a nature-related disclosure standard to their work program.

Currently, sustainability standards are focused on environmental issues as this is the most urgent, however additional standards covering social disclosures are expected in future years.

This article was co-authored by Rebecca Zuromski, Associate Director, ESG Advisory. It was first published in the Summer 2023-24 Issue of Financial Times.