Climate reporting legislation in parliament
Following our panel discussion Unlocking ESG Excellence on 22 March 2024, and in a pivotal milestone for climate and sustainability, the Australian government has since introduced climate reporting legislation into the house of representatives on 27 March 2024 in Schedule 4 to the Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill 2024 (Cth) (Bill). To read about past key milestones, please refer to previous articles by the authors (Thomas and Kenneth) on the development timeline and earlier Treasury proposals (accessible here), the codification of key climate targets into Australian law (accessible here), and the impact of ESG on mergers and acquisitions (accessible here). Thomas and Kenneth are corporate lawyers who have a particular interest in how ESG and climate change is shaping corporate transactions, as businesses adapt to the impacts of climate change and the transition to a net zero emissions world.
This Bill will amend the Corporations Act 2001 (Cth) to introduce mandatory sustainability reporting requirements. The requirements in the Bill are largely consistent with the exposure draft legislation released in January 2024, with certain key changes set out below:
- The start date for the largest group 1 entities (thresholds below) has been deferred from 1 July 2024 to financial years commencing on or after 1 January 2025.
- In the director’s declaration for the initial three years following commencement of the legislation, directors will be required to state that “all reasonable steps are being taken to ensure the substantive provisions of the sustainability report are in accordance with the Corporations Act”.
- The modified liability regime for the initial three years regarding disclosures related to scope 3 emissions and scenario analysis will be extended to include “transition plans” included in sustainability reports. We understand that this was a key point of contention raised by submissions during the exposure draft consultation, particularly because transition plans require entities to make certain assumptions regarding forward looking statements.
Thresholds for reporting entities
To recap, the thresholds for reporting entities are set out below:
| Timing | Thresholds for reporting entities |
|---|---|
| Group 1 - Very large entities 1 January 2025 onwards | Entities required to report under Chapter 2M and that fulfill two of the three thresholds: over 500 employees; value of consolidated gross assets is $1 billion or more (at end of financial year of company and any entities it controls); consolidated revenue is $500 million or more (for the financial year of the company and any entities it controls). |
| Group 2 - Large entities 1 July 2026 onwards | Entities required to report under Chapter 2M and that fulfill two of the three thresholds: over 250 employees; value of consolidated gross assets is $500 million or more (at end of financial year of company and any entities it controls); consolidated revenue is $200 million or more (for the financial year of the company and any entities it controls). |
| Group 3 - Medium entities * 1 July 2027 onwards | Entities required to report under Chapter 2M and that fulfill two of the three thresholds: over 100 employees; value of consolidated gross assets is $25 million or more (at end of financial year of the company and any entities it controls); consolidated revenue is $50 million or more (for the financial year of the company and any entities it controls). * Group 3 (Medium entities) can choose to instead state that they have no material climate risks and opportunities and choose not to report. |
| Asset owners: registered schemes or RSEs 1 July 2026 onwards | $5 billion of assets under management. |
| National Greenhouse and Energy Reporting Act (NGER) reporters 1 July 2024 onwards | Entities required to report under Chapter 2M that are a ‘controlling corporation’ under the NGER Act and meet the NGER publication threshold. Main thresholds: 50 kt of emissions; or 200 TJ of energy produced; or 200 TJ of energy consumed. |
| NGER reporters 1 July 2026 onwards | All others. |
What must entities disclose?
At a high level, climate statements must disclose all information required by the legislation including but not limited to material climate risks and opportunities, governance arrangements, scope 1 and 2 emissions, scope 3 emissions from the second reporting year, impacts of cash flows, revenues and asset values, and scenario analysis against at least two scenarios (with one scenario being a 1.5 degrees Celsius change in line with the Paris Agreement).
Action priorities for boards
It is now a question of when, not if, entities will need to comply with these climate reporting requirements. Here are three key considerations for boards in preparing for this new regime.
- Data governance and processes – Consider what data your organisation will need for the climate report so the relevant information can be requested and obtained from key stakeholders (including suppliers, contractors and other entities who work with your organisation). This must be initiated at board level to succeed and not simply be an exercise for your reporting officer or designated employee.
- Board climate competency and upskilling – Consider if the directors on the board have the climate knowledge and skills to assess disclosures against the new requirements and sign off on the sustainability report. We recommend that the board invest in upskilling (if required) and ensure they fully understand the expectations on directors and the relevant duties of directors given these new legislative requirements.
- Resourcing and implementation priorities – Consider if your organisation has staff with the right knowledge to support the board in this process as well as experienced external advisors to provide guidance.
Should gaps be identified, directors must work with management to consider whether there is a need for upskilling across the organisation, make investments in technology or knowledge and seek out external support. Climate change and now mandatory climate reporting are key priorities that cannot be ignored by businesses. If your organisation is unclear on its next steps, please contact us and we can provide guidance.
This article was written by Thomas Kim, Partner and Kenneth Lee, Special Counsel.
