Mandatory Climate Disclosure Laws Coming Soon in Australia
The Australian Senate recently passed the Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill 2024, paving the way for the introduction of a national mandatory climate-related financial reporting regime in Australia. This significant development marks a crucial step towards enhancing transparency and accountability in businesses’ reporting of climate-related risks and opportunities.
Commencement of the Regime
The mandatory climate-related disclosure regime is set to commence on January 1, 2025, with many entities required to comply with the reporting requirements from that date. However, there will be phased implementation for other entities in 2026 and 2027. Reporting entities will be mandated to submit an audited “sustainability report” alongside their annual financial report to the Australian Securities and Investments Commission (ASIC). These sustainability reports will encompass various climate-related disclosures in alignment with the new regulatory standards.
Scenario Analysis Requirement
One of the key amendments introduced by the Senate pertains to the scenario analysis requirement. Reporting entities will be required to conduct scenario analyses to assess potential outcomes of future events under uncertain conditions. The Senate stipulated that reporting entities must undertake at least two scenario analyses – a “high warming scenario” where the global average temperature increases by 2.5°C or higher above pre-industrial levels, and a “low global warming scenario” where the temperature rises by 1.5°C above pre-industrial levels. These scenarios aim to evaluate the climate resilience of entities’ strategies and business models, addressing both significant temperature increases and risks associated with transitioning to a lower-carbon economy.
Preparing for Compliance
As the Bill moves towards its final stages of becoming law, entities are urged to assess their readiness to comply with the new reporting requirements. Companies should evaluate their capacity to disclose climate-related risks in accordance with Australian standards and consider the necessary internal and external verification processes. Additionally, directors and officers should ensure that their assurance and audit resources are aligned with the regime’s requirements. While the analysis required by the Australian regime may mirror that of other jurisdictions, companies must adhere to specific Australian legal frameworks and unique reporting obligations.
Guidance from ASIC
The Australian Securities and Investments Commission (ASIC) has pledged to release guidance for companies once the Bill receives Royal Assent. ASIC has also emphasized its commitment to taking enforcement action against companies that provide misleading or deceptive climate change reporting. Private plaintiffs are expected to focus on complaints and claims once reporting becomes mandatory, highlighting the importance of accurate and transparent disclosures in the evolving regulatory landscape. The Bill provides for limited grace periods and a modified liability regime during the transition period, aiming to support entities in adapting to the new regulatory requirements.
Implications for Businesses
Businesses operating in Australia must prepare for the upcoming changes in climate-related disclosure requirements. As the implementation date approaches, companies should prioritize evaluating their reporting practices, developing relevant policies and processes, and ensuring compliance with the new regulatory standards. By proactively addressing these requirements, entities can enhance their transparency, risk management, and overall sustainability practices in alignment with evolving environmental considerations.
Conclusion
The impending introduction of mandatory climate disclosure laws in Australia signals a significant shift towards greater accountability and transparency in reporting climate-related risks and opportunities. As entities gear up to comply with the new regulatory framework, proactive assessment, preparation, and alignment with the evolving standards will be critical for navigating the changing landscape of environmental reporting. The forthcoming guidance from ASIC, coupled with the amended requirements introduced by the Senate, underscores the importance of accurate and comprehensive climate disclosure practices in driving sustainable business operations and fostering stakeholder trust in the Australian market.
