This article was co-authored with Hannah Duke.
Introduction
On 12 January 2023, the Treasury released an exposure draft of the highly anticipated Treasury Laws Amendment Bill 2024: Climate-related financial disclosure (the Climate Disclosure Bill) for consultation. This follows two rounds of consultation on the Treasury’s Climate-related Financial Disclosure Consultation Paper (Consultation Paper) that occurred between December 2022 and July 2023.
As foreshadowed in the Consultation Paper, the Climate Disclosure Bill seeks to amend parts of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) and the Corporations Act 2001(Cth) (Corporations Act) to introduce mandatory climate-related financial disclosure requirements for large businesses and financial institutions by leveraging the existing financial reporting regime under chapter 2M of the Corporations Act.
The mandatory reporting regime will require in-scope entities to disclose climate-related risks and opportunities in a manner that is standardised and internationally aligned.
This legal update provides a snapshot of the proposed amendments which Treasurer Jim Chalmers stated was “an important step for improving transparency and will help investors and companies make more informed investment decisions and lay the foundation for a stronger, more robust financial system”.1
Purpose of the amendment
The proposed amendments contained in the Climate Disclosure Bill require in-scope entities to disclose information about their climate-related financial risks and opportunities in annual financial reports.2 This seeks to incentivise organisations to make high quality and fulsome climate-related financial disclosure and support regulators to assess and manage systemic risks to the financial system due to climate change and efforts taken to mitigate its effects.3
Such climate-related financial disclosures are proposed to be based on the Australian Accounting Standards Board’s (AASB) SR1 Australian Sustainability Reporting Standards - Disclosure of Climate-related Financial Information accounting standard. AASB’s SR1 is aligned, albeit in an Australian context, with the International Sustainability Standards Board’s (ISSB) IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information (IFRS S1) and IFRS S2 Climate-related Disclosures (IFRS S2).4 Read more about IRFS S1 and IRFS S2 in our previous legal update.
The proposed amendments in the Climate Disclosure Bill will improve transparency as businesses, investors, regulators, and the public will have clarity on the obligations for entities to disclose climate-related financial risks and opportunities, in line with international standards.5
Key amendments
Sustainability reports and records
The Climate Disclosure Bill introduces a new ‘sustainability report’, which in-scope entities will need to prepare in addition to annual financial statements that form part of the annual financial report.6 The policy intention for this inclusion is to improve the quality and comparability of disclosures of material climate-related financial risks and opportunities within the financial reporting framework.7
A sustainability report required by the Climate Disclosure Bill is to include:8
- a climate statement for the reporting year which details:9
- material climate-related financial risks and opportunities the entity faces;
- any metrics and targets of the entity related to climate, including scope 1, 2 and 3 emissions of greenhouse gases; and
- any governance or risk management processes, controls and procedures of the entity related to these matters.
- notes to the climate statement;
- any statements required by legislative instrument; and
- the directors’ declaration about the compliance of the statements with the relevant sustainability standards.
The climate statements are to be prepared in line with the sustainability standards issued by the AASB which, considering its SR1 exposure draft, are likely to be closely aligned to IFRS S1 & S2.
In conjunction with the sustainability report, the Climate Disclosure Bill introduces an obligation on reporting entities to keep “sustainability records” for a period of seven years after the date of the sustainability report to which those records relate.10 Sustainability records are defined to include documents and working papers needed to explain the methods, assumptions and evidence used in the climate statements, notes to climate statements, and other statements included in the sustainability reports.11 These records will be important for the purpose of assurance as well as mitigating liability arising in relation to climate related statements made in sustainability reports.
Phasing
The Climate Disclosure Bill retains the phased in approach outlined in the Consultation Paper; three reporting groups will be phased in over a four-year period. The threshold requirements which govern the phasing-in are summarised in the table below.
| First annual reporting periods starting on or after |
Large entities and their controlled entities meeting at least two of three criteria: |
National Greenhouse and Energy Reporting (NGER) Reporters |
Asset Owners |
| Consolidated revenue |
EOFY consolidated gross assets |
EOFY employees |
1 July 2024
Group 1 |
$500 million or more |
$1 billion or more |
500 or more |
Above NGER publication threshold |
N/A |
1 July 2026
Group 2 |
$200 million or more |
$500 million or more |
250 or more |
All other NGER reporters |
$5 billion assets under management or more |
1 July 2027
Group 3 |
$50 million or more |
$25 million or more |
100 or more |
N/A |
N/A |
| Figure 1: Phasing of reporting requirements12 |
The Climate Disclosure Bill sets the commencement date for Group 1 entities as 1 July 2024. However, the Treasury has invited submissions on whether an extension of the commencement date for Group 1 entities to 1 January 2025 would improve the quality of reporting during the transition year.
The Climate Disclosure Bill introduces a Group 2 entity that was not included in the Consultation Paper - an entity with a value of assets under management of $5 billion or more. The first annual reporting period for these entities will commence on 1 July 2026.
A further key difference to the proposals contained in the Consultation Paper is that the Climate Disclosure Bill proposes a narrower approach in relation to Group 3 entities, such that these entities would, from 2027-28, be subject to mandatory reporting only if it were determined that the entity has material climate related risks and opportunities, based on a mandatory materiality assessment. Treasury assumes that only 5% of Group 3 entities (estimated to be 278 entities) have material climate risks, and so this change significantly reduces the reporting burden on Group 3 entities.13 It is proposed that the question of whether an entity does or does not face material climate risks or have material climate opportunities for a financial year is to be decided in accordance with the sustainability standards to be published by the AASB.14
Limited immunity for statements in the new sustainability reporting15
The proposed amendments modify existing liabilities and offences that apply generally to corporate reporting to provide entities time to adjust and build capability in relation to the new climate-related financial reporting requirements.16 This modification temporarily suspends liability for misleading and deceptive, and other, conduct in relation to the most uncertain parts of a climate statement, i.e., scope 3 greenhouse gas emissions and scenario analysis.17 This limited immunity applies to climate statements prepared for financial years commencing between 1 July 2024 and 30 June 2027.18 Importantly, the modified liability regime will not prevent ASIC from being able to take action for misleading and deceptive conduct in relation to climate disclosures.
Assurance
Significantly, the Climate Disclosure Bill has introduced a simpler transition plan for the phasing in of assurance requirements to that contemplated in the Consultation Paper. For reporting periods between 1 July 2024 and 30 June 2030, only limited assurance will be required with only statements relating to scope 1 and scope 2 greenhouse gas emissions needing to be audited in accordance with auditing standards.
From 1 July 2030, all climate disclosures will be subject to auditing.19 The extent and level of assurance required will be set out in Australian assurance standards for climate disclosures, developed by the Auditing and Assurance Standards Board (AUASB).20 The Treasury considers this approach to be appropriate as it “provides the AUASB with the flexibility to develop a roadmap to full assurance, ensuring that consideration is given to the international standard on sustainability assurance and the development of market capability”.21
Timing and next steps
Submissions on the Climate Disclosure Bill and accompanying explanatory materials are encouraged, with the Treasury seeking feedback on whether the Climate Disclosure Bill and explanatory materials appropriately reflect and give effect to policy intent.
Consultation closes on 9 February 2024. You can participate in the consultation by emailing the Treasury in accordance with the submission guidelines set out on the consultation website.
How we can assist you
The Climate Disclosure Bill proposes to integrate climate considerations into strategic decision-making, foster organisational resilience, and catalyse sustainable practices. If you would like more information on how the introduction of mandatory climate-related financial disclosures might affect your existing operations or future projects or would like assistance with preparing a submission to the Treasury, please contact a member of our Environment and Planning team.
