Australia's Climate Related Financial Disclosure Regime - draft legislation for comment

Introduction

On 12 January 2024 the Australian Treasury released draft legislation for its proposed climate-related financial disclosure regime. The legislation builds upon previous consultations by Treasury. It proposes a mandatory regime for large businesses and financial institutions to disclose their climate -related risks and opportunities. The aim of the exposure draft is to bring Australia in line with other jurisdictions such as the EU, the UK, New Zealand and Japan which have climate related disclosure regimes. 

The legislation remains open for comment until 9 February 2024. Readers may want to submit feedback or comments to Treasury to ensure that it gets an understanding of the real impacts of the proposals from different businesses and industries perspectives. In particular, providing comment will assist in influencing potential outcomes for climate related financial disclosures in a sustainability report forming part of the annual report, which are outlined below.

 

Who will it apply to?

The disclosure regime is intended to apply to:

• large entities (including listed and unlisted companies, financial institutions, registrable superannuation entities and registered investment schemes) that lodge annual reports under Chapter 2M of the Corporations Act;
• superannuation funds and managed investment schemes and other asset owners with funds under management of more than AUD5b; and
• entities reporting under the National Greenhouse and Energy Reporting Act 2007 (Cth) known as the NGER Act.

The regime is intended to exempt small and medium businesses below certain thresholds, and entities that are exempt from lodging reports under Chapter 2M.

 

Transitional approach

As foreshadowed, the regime is intended to be phased into operation over three years commencing 1 July 2024, with reporting entities in each year being based on consolidated revenues, gross assets and employee numbers and NGER applicability.

 

The proposed disclosure regime

Entities will make climate related financial disclosures in a sustainability report forming part of the annual report. Reporting would be in accordance with standards created by the Australian Accounting Standards Board. Their draft standard was published in October 2023. It is intended that reporting will initially involve both climate resilience assessments and disclosure of scope 1 and 2 emissions. 

Entities will need to obtain an assurance report from their financial auditors. The Australian Auditing and Assurance Board is intended to develop relevant assurance standards and guidance.

 

Scope 3 emissions (eg arising from a supply chain or financing/investment)

Scope 3 emissions were always going to be a difficult issue. It is also proposed that a transitional approach applies to disclosure of scope 3 emissions which only start in year 2, and are to be based on information that is reasonably accessible i.e. without undue cost or effort. Some flexibility in disclosing estimates of scope three emissions will also be enacted. Until 30 June 2028, only ASIC will be able to bring action for breaches of scope 3 emission disclosures, and will only be able to seek injunctions and declarations.

More detailed information on the proposed laws will be published by DLA Piper Australia.