The Australian government has released draft legislation that would mandate climate-related financial disclosures for many Australian companies. The proposed “Treasury Laws Amendment Bill 2024: Climate-related financial disclosure” would require large companies and financial institutions to report on climate risks and opportunities in their annual financial filings.
The legislation aims to significantly improve transparency around climate risks and help investors, regulators, and the public make more informed decisions regarding climate change impacts. It also seeks to enable regulators to better assess and manage systemic financial risks posed by climate change across different sectors.
Who Does This Affect?
The climate risk reporting requirements would be phased in over four years, starting with the largest companies and major greenhouse gas emitters in 2024.
The first group captures public companies and their subsidiaries meeting at least two of the following criteria: $500 million or more in annual revenue, $1 billion or more in consolidated gross assets, or 500 or more employees. Major greenhouse gas emitters who meet emissions reporting thresholds would also fall under the initial 2024 reporting deadline.
By 2026, reporting requirements extend to cover public companies with over A$200 million in revenue or A$500 million in assets. The legislation also newly covers asset owners like investment managers or superfunds with over A$5 billion under management.
Finally, by 2027, public companies meeting minimum thresholds of A$50 million in revenue or A$25 million in assets would need to report if they face material climate change risks and opportunities. The Treasury expects around 5% of this smallest reporting group to meet materiality criteria.
What Disclosures Are Required?
The climate risk disclosures would be based on Australian accounting standards aligned with international sustainability reporting standards (ISSB standards) on climate. Companies would need to report in a “climate statement”:
- Material climate-related financial risks and opportunities
- Climate metrics and emissions targets
- Climate governance and risk management details
Assurance Requirements Phased In
To allow companies time to build their disclosure capabilities, the bill introduces limited liability protections for certain climate reporting elements like scope 3 emissions or scenario analysis. These protections phase out by mid-2027.
Assurance requirements would also be phased in, starting with limited assurance audits focused only on emissions reporting. By 2030, full assurance audits would be required on all climate disclosures by auditors verifying compliance with Australian climate disclosure standards.
The legislation opens for public consultation until early February 2024 before expected passage later next year. The move aligns Australia with major economies mandating climate risk reporting like the UK and EU. Companies across most industries should start preparing now to meet the proposed reporting obligations.
Preparing for compliance
For treasury and finance teams, early preparation will be key to meeting climate reporting obligations smoothly. Even before legislation passes, treasurers should take several proactive steps:
- Conduct an initial materiality assessment of financial risks from climate impacts using TCFD and ISSB standards as guidance.
- Put together a data collection plan for emissions, targets, transition analysis or other reporting elements. Identify key data sources and system improvements needed.
- Research service providers that can assist with assurance, audits, emissions measurements, scenario modelling and other services likely required.
- Begin drafting an overarching climate risk framework and governance plan even in draft form.
- Start conversations within leadership teams and board on resourcing needs for compliance. Consider recruiting sustainability expertise into finance teams.
Though smaller Group 2 and 3 companies have more time, material climate risk exposures may still warrant early action. By taking purposeful steps now, treasurers across impacted companies can position themselves well for effective compliance when legislation kicks in. Reaching out early to peers, advisors and government representatives may also help clarify open questions.