Mandatory climate disclosures

Australia’s new mandatory climate-related reporting regime – how is it shaping up?

The legislation and standards defining Australia’s new mandatory climate-related reporting regime are yet to be finalised. Here’s what we know about how they’re shaping up.

The processes defining the final shape of the incoming climate reporting regime are the passage through Parliament of the Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill 2024, and the discussions of the Australian Accounting Standards Board (AASB) of its Australian Sustainability Reporting Standards – Disclosure of Climate-related Financial Information.

Since its consultation on the exposure draft ED SR 1, the AASB has been working through feedback, and the AASB board papers reveal its thinking. The June board papers show the AASB plans to make the final ASRS more aligned with the ISSB’s global baseline standards. ASRS 1 will become voluntary, and cover all sustainability-related disclosures (like IFRS-S1), and ASRS 2 will become a standalone mandatory climate-only standard (like IFRS-S2). Within ASRS 2, there will be more flexibility in reporting scope 1 and 2 emissions, less in reporting scope 3 emissions. And requirements defining one of the scenarios to be used by disclosing entities in assessing their climate resilience will be deleted from the draft ASRS 2 – but are expected to reappear in the legislation.

The AASB received a lot of feedback on its proposal to mandate that companies assess their climate resilience against a scenario aligned with a 1.5°C limit on global average temperature rise, along with one other deliberately unspecified scenario. Some of this – including from Energetics (from pg 271) – urged the AASB to mandate a “high physical risk” scenario so that entities are required to consider their risks under a higher level of global temperature rise, such as 3°C or 4°C. However, AASB’s board discussion got gazumped by the politics – just ahead of the meeting the Greens secured agreement from the government to include in the law both the 1.5°C scenario and another higher-temperature one described variously as “2.5°C or above” or “temperature well exceeds [well below 2°C]”. Subsequently the AASB decided to remove its 1.5°C reference. 

What does this all add up to?

Reassuringly, the vast bulk of the ASRS is either unchanged or made easier to comply with. Specifying mandatory climate scenarios in the legislation makes it more difficult to adjust them in future, which may become a problem if the additional mandatory scenario becomes understood in the market as a ceiling rather than a floor for physical risk consideration. However, given increasing focus by users of financial reports on physical climate risk, not to mention the value to companies themselves of understanding their physical risk exposures, we believe this is unlikely.