Climate transparency: Australia's new Mandatory Climate-Related Financial Disclosures
In a significant move towards promoting corporate transparency and making genuine steps towards a net-zero future, the Australian Government has announced a new policy mandating climate-related financial disclosures for certain entities. This policy represents a crucial step in aligning Australia with global standards and supporting the transition to a net-zero economy. Let's delve into the key aspects of this much needed policy and its implications for businesses and investors.
Why these disclosures matter
Improved Transparency: The new policy aims to provide Australians and investors with greater transparency and more comparable information about an entity's actions and exposure to climate-related financial risks and opportunities.
Risk Management: It will support regulators in assessing and managing systemic risks to the financial system resulting from climate change and mitigation efforts.
International Alignment: This move brings Australia in line with other jurisdictions, including the EU, UK, New Zealand, and Japan, enhancing our reputation as an attractive destination for international capital.
Key elements of the policy
Who's affected?
The policy will be phased in over four years from 2025, targeting:
Large entities that are required to prepare and lodge annual reports under the Corporations Act
Asset owners with funds under management exceeding $5 billion
Entities subject to both annual reporting requirements and emissions reporting obligations under the NGER Act
The size thresholds for large entities are as follows:
Group 1 (reporting from 1 July 2024): Entities meeting at least two of these criteria:
Consolidated revenue of $500 million or more
End of financial year consolidated gross assets of $1 billion or more
500 or more employees
Above NGER publication threshold
Group 2 (reporting from 1 July 2026): Entities meeting at least two of these criteria:
Consolidated revenue of $200 million or more
End of financial year consolidated gross assets of $500 million or more
250 or more employees
All other NGER reporters
Asset owners with $5 billion or more under management
Group 3 (reporting from 1 July 2027): Entities meeting at least two of these criteria:
Consolidated revenue of $50 million or more
End of financial year consolidated gross assets of $25 million or more
100 or more employees
The policy provides exemptions for certain organisations:
Small and medium businesses below the relevant size thresholds are exempt.
Charities and not-for-profits registered with the Australian Charities and Not-for-profits Commission (ACNC) are not required to make climate-related financial disclosures.
Entities that are exempt from lodging financial reports under Chapter 2M of the Corporations Act, including where exemptions have been made through ASIC class orders, are also not required to make these disclosures.
What needs to be disclosed?
Entities will need to report on:
Governance
Strategy
Risk management
Metrics and targets (including greenhouse gas emissions)
Notably, Scope 3 emissions will be required from the second year of reporting.
Timeline for implementation
The policy outlines a phased approach:
Group 1 (largest entities): Reporting periods starting 1 July 2024
Group 2 (medium-sized entities): From 1 July 2026
Group 3 (smaller entities): From 1 July 2027
Assurance and liability
Climate disclosures will require assurance reports from financial auditors
The existing liability framework under the Corporations Act will apply, with some temporary relief for Scope 3 emissions and forward-looking statements
What this means for aussie businesses
Preparation is Key: Affected entities should start preparing now, especially in terms of data collection and reporting systems.
Opportunity for Leadership: Early adopters can position themselves as leaders in sustainability and attract environmentally conscious investors.
Skill Development: There will likely be an increased demand for professionals with expertise in climate-related financial analysis and reporting.
Looking ahead
The Government plans to review these requirements in 2028-29, examining their effectiveness and addressing any barriers to quality disclosures. As we move closer towards 2030 with many organisations now looking at how they will implement their net-zero targets, these mandatory climate-related financial disclosures represent a significant step in the right direction. They not only promote transparency but also encourage businesses to seriously consider their environmental impact, risk, opportunities and strategies ahead.