Key elements of the new Australian mandatory climate-related reporting requirements

Starting from 1 January 2025, Australia’s largest significant emitters, companies and asset managers will progressively be required to produce a climate-related report as part of their annual reporting obligations. The reporting requirement was introduced via the Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Act 2024 (Cth) (the Act). The Act is the culmination of consultations and proposed amendments to the Corporations Act 2001 (Cth) (Corporations Act) and Australian Securities and Investment Commission Act 2001 (Cth) (ASIC Act).¹

At a high level, the Act requires companies disclose material information in relation to:

• the impact of climate risks and opportunities on their business model, strategy and financial performance;
• how those risks and opportunities are governed, managed and resourced; and
• Scope 1, 2 and 3 emissions as well as other climate-related metrics and targets.

The key elements of the climate reporting requirements are outlined below.

• Applicability and timing: Unless ASIC relief is granted, Australia's largest entities producing financial reports under Chapter 2M of the Corporations Act will need to produce sustainability reports over the next three years.
  The regime will be phased-in, with the first entities requiring a sustainability statement for their financial year starting on or after 1 January 2025. The year of reporting for an entity depends on the type of entity; its size based on their consolidated assets; consolidated revenues and employee numbers for the Australian entity and those it controls; and whether it is registered under the National Greenhouse and Energy Reporting (NGER) Scheme.

• Sustainability reports: In-scope entities will need to produce a sustainability report that will accompany the financial report and must be published on the reporter's website.
• Sustainability standards: The sustainability report will need to include climate statements prepared in accordance with a new AASB S2 Climate-related Disclosures standard, produced by the Australian Accounting Standards Board (AASB). The AASB has decided that AASB S2 will adopt the global International Financial Reporting Standard (IFRS) S2 text with minimal amendments to remove references to industry-based metrics and to be consistent with how the legislation treats consolidated reporting.
• Scenario analysis: One significant departure of the Australian laws from IFRS S2 is in relation to the climate scenario analysis which underpins a company's analysis of its resilience to climate risks and opportunities. Whereas IFRS S2 does not define which scenarios can be used, the Australian legislation requires reporting entities include at least two scenarios in its analysis:
• A high warming scenario where the global average temperature increases by 2.5°C or higher above pre-industrial levels.
• A low warming scenario where the global average temperature increases by 1.5°C above pre-industrial levels.
• Consolidation: Entities with consolidated financial statements may elect to produce a consolidated report covering in-scope companies. Similarly, unconsolidated entities in a group may apply to ASIC to produce a consolidated sustainability report.
• Global reporting: For Australian subsidiaries of international parent companies, an Australian sustainability report is necessary unless an ASIC exemption is granted. Companies will not be able to rely on International Sustainability Standards Board (ISSB)-compliant reports from foreign parent companies to satisfy Australian climate-related disclosure requirements.
• Auditing: Sustainability reports will be audited and need to comply with upcoming assurance standards set by the Australian Auditing and Assurance Board (AUASB). The AUASB has indicated that it will create an Australian equivalent of the International Auditing and Assurance Standards Board (IAASB) ISSA 5000 standard. The indication from the AUASB is that auditing requirements will also be phased-in.
• Liability: The existing criminal and civil liability framework under the Corporations Act and the ASIC Act will apply to the sustainability report. This includes directors' duties, misleading and deceptive conduct provisions, and general disclosure obligations. However, reporting entities will be granted temporary relief for civil actions for disclosures related to Scope 3 emissions, transition plans and certain forward-looking climate statements for a three-year period from 1 July 2025 to 30 June 2028. During this period, actions can only be brought by ASIC, and the available remedies will be limited to injunctions and declarations. In addition, the directors' declaration accompanying the sustainability report in this period will be of a lesser standard compared to financial reports. Directors will need to state that the entity has taken 'reasonable steps' to ensure the substantive provisions of the sustainability report are in accordance with the Act.

What’s next?

Now that the legislation is in place, we expect ASIC, the AASB and AUASB to issue further guidance as to how to interpret and apply the standards.

Based on DLA Piper’s global experience supporting clients to prepare for mandatory reporting requirements, there are some key steps that in-scope entities are taking:

• identifying and preparing controls and systems to be ready for “Day 1” of the relevant reporting year;
• creating buy-in and establishing accountability for the climate-related risk and opportunity identification process;
• assessing what a defensible and auditable scenario analysis process will look like for that company; and
• identifying the appropriate and credible disclosure narrative the entity is aiming to produce in its first disclosure year and to identify any gaps that exist in its governance, systems and processes.

Wherever you are on your journey, our team would be happy to talk through the insights and suggested approaches to effectively preparing your organisation to respond.

Our team leverages global experience supporting clients with the legal, strategic and operational aspects of complying with ESG reporting regimes across Europe, UK, US, NZ and Asia.