Ready or not: Mandatory Climate Reporting commences 1 January 2025

On 9 September 2024, the Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill 2024 (Bill) was passed by the Parliament and has now received royal assent. The fourth schedule of the Bill sets out a new mandatory sustainability reporting regime in Australia which will commence on 1 January 2025.

In this alert, we arm you with the latest intel on mandatory climate reporting, providing a snapshot of the Bill as passed and what is still to come.

A snapshot of the Bill

The following table provides a high-level overview of the Bill:

For more detail, we have previously written about the Bill at length here and here.

Still to come

There is much work under way to prepare for mandatory climate reporting in Australia.

The AASB is currently developing localised versions of the ISSB standards for Australian companies (Australian Sustainability Reporting Standards or ASRS).

It is expected that the ASRS will initially comprise two standards:

1. AASB S1 'General Requirements for Sustainability-related Financial Information', a voluntary standard that will be equivalent to the ISSB’s standard S1 'General Requirements for Sustainability-related Financial Information'; and
2. AASB S2 'Climate-related Disclosures', a standalone mandatory standard aligned to the ISSB’s standard S2 ‘Climate-related Disclosures’ with modifications to remove industry-based disclosures and guidance.

These standards are expected to be finalised in coming weeks.

The AASB is also currently consulting on AASB ED 331 (Climate-related and Other Uncertainties in the Financial Statements). This draft proposes introducing eight illustrative examples into other accounting standards to explain how climate-related and other uncertainties may affect measurement and disclosures in an entity’s financial report. It is open for comment until 4 October 2024.

Additionally, the Australian Auditing and Assurance Board (AUASB) is developing assurance standards for climate disclosures. These are also expected to be finalised soon.

In the meantime, ASIC has released guidance on its website in relation to sustainability reporting, including who must prepare a sustainability report, what the report should contain, how and when to lodge the report, relief from the reporting requirements, and the modified liability settings.

As part of this, ASIC has also provided its forward workplan which clarifies that:

1. From September 2024: ASIC will consider and decide any applications for relief from one or more of the sustainability requirements;
2. From November 2024: ASIC will consult on, and issue new or updated regulatory guidance relating to mandatory climate reporting; and
3. From 2026: ASIC will undertake its first annual climate-related disclosures surveillance program and have a new directions power to require entities to confirm, explain, substantiate or correct statements that it considers to be incorrect, incomplete or misleading.

Next steps

You and your business can prepare for mandatory climate reporting by:

1. reviewing the Bill, Explanatory Memorandum and ASIC website to determine when and how it will impact your business;
2. considering whether your current systems and governance structures need to be updated, including to upskill sustainability, legal and finance teams on mandatory climate reporting;
3. ensuring accountability structures are in place to support compliance with mandatory climate reporting and accuracy of disclosures (not only in annual / sustainability reports but also across other marketing, website and similar materials in light of regulatory focus on greenwashing);
4. undertaking a gap analysis to determine the changes required to uplift any current voluntary reporting to meet the mandatory reporting requirements; and
5. establishing a robust due diligence and verification process for climate reporting, ensuring statements accurately reflect practices and there are reasonable grounds for forward looking statements, as we’ve written about in more detail elsewhere.

For further information and assistance with the transition to mandatory sustainability reporting, please contact a member of the team at King & Wood Mallesons or Owl Advisory, our compliance and governance risk advisory firm that offers specialist technical advice on climate reporting from our climate scientists.