Australia will soon be among the countries in which climate-related disclosures are required from large, listed companies. The Australian Treasury published the country’s consultation paper on climate-related financial disclosures in mid-December, which opens a public comment period that closes on February 17, 2023.
Australia Lays the Groundwork for Climate-Related Financial Reporting
The publication of the paper represents Australia’s recognition that climate change poses a material risk to the global financial system—a risk that needs to be “managed by capital markets, regulators and corporations.” The reporting framework will initially apply to Australia’s large, listed businesses and will be implemented in a phased approach that may begin as early as 2024.
The consultation paper also signals the country’s commitment to internationally aligned climate-related financial reporting. Government officials have acknowledged that with other jurisdictions implementing their own climate-related reporting frameworks, Australia must follow suit. In a statement announcing the publication of the paper, Australia’s Minister for Climate Change and Energy Chris Bowen and Minister for Financial Services Stephen Jones said: “As more countries move towards global best practice, and as investors demand higher-quality disclosures, it’s important that Australia now establish a framework for consistent, credible, internationally-comparable disclosures.”
These climate-related financial disclosures will be one part of a more comprehensive sustainable finance framework, the development of which will be led by Australia’s Treasury. The broader framework will also include climate-related disclosure requirements for public sector organizations and other companies.
Principles for Australia’s Climate-Related Financial Disclosures
Six principles will guide the development of the disclosure requirements, and the comments and feedback received during the consultation period will be considered against these principles. According to the principles, the requirements must:
- Support climate goals by assisting with Australia’s transition to net zero by 2050, its adaptation to climate change and broader efforts and initiatives that promote a sustainable finance system in Australia and around the world.
- Improve information flows by facilitating a greater number of higher-quality, more comparable disclosures that strengthen transparency, provide more useful information to investors and help regulators assess and manage risk.
- Promote a clear and common understanding of the disclosure obligations, as well as who must comply with them, how and when the disclosures should be made and which details the disclosures should provide. This principle aims to ensure a thorough understanding of the obligations among businesses, investors, regulators and the public.
- Align with international reporting practices to minimize compliance costs for Australian businesses that have international operations and reinforce Australia’s credibility in international markets.
- Be scalable and flexible to accommodate future developments in the global baseline for climate and sustainability reporting to minimize compliance costs. The requirements should also build on the existing financial reporting system.
- Be proportional to the risks they aim to address, particularly with respect to who they apply to, the costs incurred, the data and capabilities needed to report and the liabilities that may be associated with the requirements.
Additionally, the requirements for climate-related financial reporting should be consistent with the existing regulatory framework for financial reporting. The existing regulatory framework includes, among other things, regulatory guidance, listing rules and standards. It also includes legislation, which is needed before the reporting requirements can go into force.
Sustainability Reporting Standards Are Also on the Way
In addition to publishing the consultation paper for financial risk reporting, the Australian government has released exposure draft legislation that empowers the Australian Accounting Standards Board (AASB) to set sustainability reporting standards. The aim is for these standards to provide investors with more transparent reporting of companies’ climate-related financial plans, financial risks and related opportunities.
Questions for Consideration
In its consultation paper, the Australian Treasury poses 19 questions, and the responses to these questions will be considered as the reporting requirements are developed. Questions address topics such as:
- The costs and benefits of aligning with international practice on climate-related financial risk disclosure.
- The organizations that should initially be required to disclose.
- Where the new climate reporting disclosures should be reported.
- The level of assurance that should be required for climate disclosures.
- The considerations that should apply to Scope 1, 2 and 3 emissions reporting requirements.
(Consult this document for the full list of questions and instructions on how to submit comments.)
After comments have been weighed, the government will issue a proposal with more details for the reporting requirements, their implementation and sequencing. The government will also release the draft legislation that is needed for the requirements to take effect.
The Australian government has launched this complex effort, in part, to ensure that the country’s businesses can continue to access capital from investors and financial institutions that now demand a more accurate assessment of the climate-related risks that companies face. If all goes to plan, investors and financial institutions should start seeing these reports in 2025.