Australia: Mandatory Climate Reporting – The Draft Australian Standards are Here!

By: Jim Bulling, Lisa Lautier and Ben Kneebush

On 23 October 2023, the Australian Accounting Standards Board (AASB) released the long-awaited Exposure Draft outlining the Australian climate-related reporting standards.

The following issues are relevant for financial services entities:

Which Entities are Captured

Certain entities which are required to lodge financial reports under the Corporations Act 2001 (Cth) in Australia will be captured. Treasury has proposed a phased-in approach (as previously outlined here) which will mean Australia’s largest superannuation funds and asset-managers will begin reporting on 1 July 2024. Many other superannuation funds and asset-managers will begin reporting from 1 July 2026.

Governance, Strategy and Risk

The governance, strategy and risk disclosures are (largely) unsurprising, with only a handful of specific modifications to the ISSB standards.

One of the modifications proposed will require that if any entity determines that there are no material climate-related risks or opportunities, the entity will need to disclose that fact and explain how it came to that conclusion. Directors should also be aware of the executive remuneration disclosures as these link executive remuneration to climate-related considerations.

GHG Emissions

The AASB propose to align the methodologies for the purpose of measuring Greenhouse Gas Emissions (GHG Emissions), modifying the approach taken by the ISSB standards. Entities will be required to prioritise applying relevant methodologies in the NGER Scheme for scope 1, 2 and 3 GHG Emissions. Previously, scope 3 emissions were proposed to be measured in accordance with certain categories taken from the GHG Protocol Standards.

In addition, the Exposure Draft provides the option to use another jurisdictional methodology or the GHG Protocol if the NGER Scheme methodologies are not practicable. This provides flexibility to asset-managers, especially ones with extensive foreign operations, to utilise the most practical methodology.

Superannuation Funds

Acknowledging the Scope 3 emissions reporting challenges identified in our previous post, the AASB has asked superannuation funds to provide feedback on the potential time, cost and complexity in complying with Scope 3 emissions reporting. Whilst the AASB decided not to proceed with issuing a separate set of standards for superannuation funds, they have not ruled it out for the future.

Asset Managers

Although the Treasury’s second consultation paper was silent on the issue, the Exposure Draft proposes entities that participate in ‘asset management activities’ to consider the applicability of additional disclosures relating to ‘financed emissions.’ This includes disclosing absolute gross ‘financed emissions,’ disaggregated by Scope 1, Scope 2 and Scope 3 GHG emissions. The AASB highlighted this measurement serves as an indicator of an entity’s exposure to climate-related risks and opportunities and how the entity might need to adapt to its financial activities over time.

Industry-Based Metrics

Whilst the AASB has decided not to incorporate the ISSB industry-based metrics, entities can make industry-based disclosures by considering the metrics disclosed by entities that operate in the same industry (classified by ANZSIC).

The exposure draft is open for comment until 1 March 2024.

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