Australia to Begin Mandatory Climate Reporting in 2024
According to a new consultation paper released by the Australian Treasury that outlined and solicited feedback on the proposed reporting standards, the Australian government intends to enact mandatory climate-related financial disclosure obligations for businesses and financial institutions. Large enterprises would be subject to reporting requirements as early as 2024, with smaller entities being brought in over the ensuing three years.
The announcement comes in response to a ‘Discovery consultation’ that the Treasury released in December 2022 regarding proposals for mandatory reporting and the creation of a framework for disclosing climate risk. The current consultation seeks feedback on the feasibility of the proposed coverage, content, framework, and enforcement procedures and builds on the feedback from the previous paper with detailed disclosure recommendations.
What does the consultation paper propose?
The paper emphasises the significance of aligning reporting requirements with global international frameworks, particularly on the new standards created by the International Sustainability Standards Board (ISSB) of the IFRS Foundation. Earlier this week, the ISSB published the finalised versions of its new sustainability and climate reporting guidelines. The paper also suggests a phased-in approach to the new reporting requirements for climate change, taking into account both the size of the organisation and specific disclosure needs that call for time to develop capabilities and experience.
Larger organisations, such as those with over 500 employees, revenues over USD 500 million, and assets over USD 1 billion, would be subject to the new regulations starting in 2024–2025, followed by medium-sized businesses (250+ employees, USD 200 million+ revenue, and USD 500 million+ assets) the following year, and smaller organisations (100+ employees, USD 200 million+ revenue, and USD 500 million+ assets) in 2027-2028.
The proposal includes a 3-year transitional period for enforcement for areas like scenario analysis, transition planning, and Scope 3 emissions, as well as an additional year for entities to implement Scope 3 reporting and time for scenario analysis to move from qualitative to quantitative.
What does the climate report focus on?
Australia's planned climate-related disclosure rules, which follow a similar path as the ISSB, concentrate on essential areas such as governance, strategy, specific risks and opportunities, measurements, and targets. Some specific suggestions include requiring businesses to declare their transition plans, along with details on offsets, target-setting and mitigation measures, procedures for monitoring and managing opportunities and risks associated with climate change, and scenario analysis. In addition to industry-specific measurements, the regulations would also call on companies to report Scope 1 and 2, and major Scope 3 emissions.
Why are countries implementing mandatory climate-specific reporting laws?
The European Union has developed an ESG reporting framework that will shortly go into force and ensure that businesses disclose any relevant information on their vulnerability to climate change, greenhouse gas emissions, risk management practices, and corporate governance.
Australia will soon adopt mandatory climate-related reporting, which requires all businesses, regardless of size, to submit their climate-related financial reports in order to be transparent and accountable regarding their climate-related strategies and financial risks. So, why is there a sudden increase in climate reporting laws?
It's easy to understand why.
In addition to harming people's livelihoods and health, anthropogenic climate change has had a terrible effect on international corporations that frequently overlook the severity of the climate catastrophe. The recent Canadian wildfires caused dense smog to cover much of the US, causing flights to be cancelled and the public to be advised to stay indoors to avoid the hazardous chemicals present in the chemical smoke that not only worsened air quality but also posed a health risk to the populace.
If this isn’t a good enough reason for countries to implement mandatory climate-related financial disclosures, here is another fact. According to a World Meteorological Organization report, In the next five years, heat-trapping greenhouse gases and a naturally occurring El Niño event are anticipated to cause global temperatures to rise to record levels.
The report also states that between 2023 and 2027, there is a 66% chance that the annual average near-surface global temperature will be 1.5C or higher over pre-industrial levels for at least one year. You may think 1.5C is a small jump, but it’s worth keeping in mind what that actually means.
The fact is that businesses can only survive if they implement strict and transparent reporting measures to ensure that there are no instances of greenwashing and that business operations are held accountable for the pollution caused by their irresponsible business activities, whether it be the ESG reporting laws that are soon to be implemented in the EU or Australia's soon-to-be-enacted mandatory climate-related reporting law for companies.
Businesses shouldn't wait until the last minute to start working towards sustainability goals, even though these proposals will take time to become law. It is of immediate importance for organisations to realise the fact that for every instant that is spent demonstrating the value of ESG, climate change is pushing us closer to the point where our civilization will cease to exist.
There is no time for debate, the clock on climate change is running out. Take advantage of the new climate-related reporting regulations to make your company more environmentally conscious, and therefore competitive, or wait for climate catastrophes to negatively impact your business.
The choice is yours.
For more articles on ESG, click here.