Recent Legislative Developments:
The Australian Government has introduced the Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill 2024, which aims to establish a mandatory climate-related financial disclosure regime. The proposed legislation is designed to align with international standards and will require large businesses and financial institutions to disclose climate-related risks and opportunities in their annual reports starting from January 1, 2025 (Treasury).
The legislation will be implemented in phases over several years. Initially, entities will be required to report on Scope 1 and 2 greenhouse gas emissions, with Scope 3 emissions disclosures becoming mandatory from the second reporting year. This phased approach includes the development of technical and analytical capacities to meet the evolving standards (Herbert Smith Freehills).
Affected Entities
The new regulations will primarily impact:
- Large Businesses: Entities that fall under the Australian Securities and Investments Commission (ASIC) reporting requirements will need to comply with these new standards. This includes publicly listed companies, large private companies, and financial institutions.
- Entities Required to Prepare Financial Reports: Any entity required to prepare financial reports under Chapter 2M of the Corporations Act will need to include sustainability reports as part of their annual financial reporting.
- Financial Institutions: Banks, insurance companies, and asset managers will be significantly affected due to their extensive exposure to climate-related financial risks.
Key Reporting Requirements
- Climate Statements: Disclosure of climate-related risks, opportunities, governance, and strategies, including scenario analysis and transition planning.
- Greenhouse Gas Emissions: Reporting on Scope 1, 2, and eventually Scope 3 emissions, with specific methodologies for estimation.
- Governance and Strategy: Information on governance processes for managing climate-related risks and strategies for addressing these risks.
Implementation and Compliance
Entities must start preparing for these changes by performing gap analyses, enhancing their data collection and management systems, and developing the necessary technical skills for compliance. Early engagement with the standards and phased preparation will be crucial to meet the reporting deadlines and avoid non-compliance risks (Treasury).
Next Steps
- Familiarization with Standards: Understanding the Australian Sustainability Reporting Standards (ASRS) and their requirements.
- Gap Analysis and Roadmap Development: Identifying capacity constraints and planning for compliance.
- Stakeholder Engagement: Engaging with auditors, consultants, and regulatory bodies to ensure readiness and alignment with the new regulations.
These recent developments reflect the Australian Government’s commitment to enhancing transparency and accountability in managing climate-related financial risks and opportunities, aligning with global trends in sustainability reporting.