Policy and legislation

Legislation for mandatory climate reporting now before parliament

Earlier today the Treasurer introduced mandatory climate-related disclosure legislation into parliament, contained within Schedule 4 of the Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill 2024. The legislation is broadly consistent with the Exposure Draft and Treasury consultations.

What you need to know

1. It’s official, responsibility for sustainability reports sits with directors

Today’s legislation ushers in a new era of sustainability reporting that requires all directors to be responsible for sustainability reporting and integrating climate-related considerations throughout their company. Responsibility should no longer be left solely to the sustainability or ESG departments, but needs to include the company’s directors, risk, finance, legal, operations and sustainability teams.

2. Start dates have been delayed, but your data collection and climate-related risk management shouldn’t be

Of greatest significance is the confirmed delay of the first mandatory sustainability reports by up to 1 year for most companies, with the first reporting period likely to be the financial year that commences 1 January 2025. This extension gives the necessary time for uplift across the key areas of governance, metrics and reporting and climate risk and opportunity identification and analysis, to be in a robust position to commence. Even Energetics' most mature clients have identified areas of improvement for their first reporting period. 

3. Reporting thresholds haven’t changed

The entering of legislation provides greater certainty to business, particularly in regards to reporting thresholds which have remained unchanged.

4. Directors' statements and auditing of sustainability reports require climate-related issues to be based on robust data and assumptions

Boards and directors have sufficient certainty to take action, particularly with the legislation confirming that sustainability reports will be audited and that director statements are required to accompany the sustainability report and climate statements. Although limited immunity from third party actions is provided for some statements, this immunity does not extend to action taken by ASIC or the regulator.   

5. More detail on what needs to be contained within a sustainability report and audit and assurance will be provided

The legislation provides the framework, including thresholds and requirements for audits, however the detail of what should be contained within a sustainability report and what needs to be provided for audits has been delegated.

What we know is that the government has affirmed the intention for the Australian mandatory climate-related framework to align with the International Sustainability Standards Board (ISSB), requiring companies to disclose on their governance, climate risk and opportunities and metrics and targets, with a particular focus on material risks and opportunities. What needs to be disclosed and the level of assurance required will increase over time. These detailed requirements will be released by the Australian Sustainability Standards Board and the Auditing and Assurance Standards Board.

6. Climate first, but not only

The government has reiterated that its approach takes a ‘climate first, but not only’ approach. The focus of the current legislation and anticipated standards is on climate-related disclosures. However, the legislation provides for the Minister to make further legislative instruments requiring statements and disclosures on financial matters concerning environmental sustainability more broadly. This leaves the door open for nature-based disclosures, mirroring the global push towards nature based financial reporting. With more stringent requirements on the horizon, it’s even more important for companies required to report to have a good understanding of climate-related matters.