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Australian financial regulators have recommended that companies disclose their climate-related financial risks against the framework established by the Task Force on Climate-related Financial Disclosures (TCFD). Currently, a significant proportion of the ASX-200 report voluntarily against this framework, with the number growing steadily year-on-year.
Despite Australian businesses generally being proactive in the (voluntary) climate disclosure space through disclosure schemes such as the TCFD, Climate Active and the National Greenhouse Gas Reporting scheme (NGERs), the Government recognises that investors are demanding better quality and internationally comparable climate disclosures.
From a climate risk perspective, Australia remains a laggard compared to the EU, the UK and New Zealand, which has implemented mandatory climate-related disclosure for Financial Institutions from 1 January 2023.
The projected climate reporting regime is proposed to form part of Australia’s broader sustainable finance framework. The development of this framework will be led by Treasury and includes a sustainable finance taxonomy (building on pre-existing work already done by the Australian Sustainable Finance Institute), along with further initiatives to tackle greenwashing and strengthen ESG labelling.
In April 2023 the Labor government announced it would collaborate with the Australian Sustainable Finance Institute (ASFI) to finance the early stage of developing an Australian Sustainable Finance Taxonomy. This taxonomy would be the driver to a standardised reporting environment with uniform definitions, tools, and data to assist financial institutions in establishing targets, products, and transparent disclosures based on standardised criteria.
What has the government announced about mandatory climate risk reporting in Australia?
To help make Australia a leading destination for global green investors, the Government is implementing corporate climate disclosure requirements and developing a comprehensive Sustainable Finance Strategy. In the government’s budget announcement in May, it notes it intends to provide $14.2 million over four years from 2023–24 to support its sustainable finance agenda. This will include:
- $8.3 million over 4 years from 2023–24 (and $1.3 million per year ongoing) to establish a sovereign green bond program to raise capital for environmental and climate change related programs
- $4.3 million in 2023–24 for the Australian Securities and Investments Commission (ASIC) to ensure the integrity of sustainable finance markets by investigating and undertaking enforcement action against market participants engaging in greenwashing and other sustainable finance misconduct
- $1.6 million in 2023–24 to support the initial development of a sustainable finance taxonomy for classifying economic activities according to their impact on sustainability goals.
How will the reporting environment change?
Initially, it is anticipated that any new mandatory climate risk reporting or corporate climate disclosure requirements would apply to large ASX-listed entities and financial institutions. This would be the beginning, indicating that Australia’s mandatory climate reporting regime could follow a phased approach seen across other jurisdictions to expand the regime over time.
A consultation paper on climate-related disclosure, released by the Australian Treasury in December 2022, proposed that the overall regulatory framework for disclosure requirements should be broadly consistent with the existing regulatory framework for financial reporting and the delivery of climate-related reporting requirements initially be aligned with the TCFD framework but with the flexibility to accommodate the standards being developed by the International Sustainability Standards Board (ISSB), once finalised.
Note, the ISSB is scheduled to release two new standards – IFRS S1 ‘General Requirements for Disclosure of Sustainability-related Financial Information’ and IFRS S2 ‘Climate-related Disclosures’ – before the end of June 2023. On release, the ISSB will include guidance and training material to support and explain how these two new sustainability standards should be applied. The standards will come into effect on or after 1 January 2024 for reporting entities.
As this is such a short implementation timeframe, it is strongly advised that relevant reporting entities start evaluating the impact of these two new Standards as soon as possible.
In respect of scope 1 and 2 emissions, the consultation recognised that disclosure is already covered by other Australian regimes, such as the National Greenhouse & Energy Reporting (NGER) framework.
With regards to scope 3 emissions, there will be some requirements for disclosure on the basis that this is as an increasingly important metric for assessing climate-related risks.
This will be a considerable task for many companies, due to resource and capacity limitations and the unavailability of quality data to accurately quantify emissions from the value chain.
What this means for business and what you should do now
If your company is already reporting in alignment with the TCFD, you will be best placed to disclose your climate related disclosures once they become mandatory for reporting in Australia. If you are not currently reporting in alignment with TCFD, there will be a greater burden which will require significant effort and resources to reported in alignment with the anticipated ISSB standards.
The best advice. If you haven’t started – get started now.
- Research the TCFD and the ISSB standards (including the new standards being released)
- Get a good handle on what is relevant to your business and start the process now of understanding and preparing how to report
- Keep track of what the ASFI is up to and any new announcements
- Be mindful of the integrity of your reporting – ASIC is placing a focus on disclosures, reporting and greenwashing.
Need help to understand what’s ahead for mandatory climate risk reporting?
Anthesis supports businesses across all stages of their climate risk reporting including frameworks such as TCFD, PCAF (Partnership for Carbon Accounting Financials) and the ISSB standard. We also assist companies in developing holistic sustainability strategies and net zero targets. As technical experts and trusted advisors to some of Australia’s most well-known companies for over a decade, we’re here to help – contact us for advice