Australian Senate Passes Historic Climate Reporting Legislation
The Australian Senate today passed landmark legislation to mandate climate risk reporting by large and medium-sized companies, marking a significant step toward a new Climate Risk Transparency Framework in Australia. The legislation was a paramount step for the country in improving transparency and accountability about climate-related financial risks and opportunities.
Australia’s Treasurer, Jim Chalmers, welcomed the reforms after having gone through the Senate, terming them important to both investors and companies. “These critical reforms provide investors and companies the clarity and certainty they need to support the net zero transformation and further strengthen Australia’s reputation as an attractive destination for international capital.” The phrase reflects that the government wants to be part of the mainstream while creating investment conditions that are relatively predictable.
It is consistent with the latest, recently launched standards by the IFRS Foundation’s International Sustainability Standards Board. This requires extensive climate-related disclosure, including the risks and opportunities associated with climate change and greenhouse gas emissions along the value chain. This means that companies must present clearly and meaningfully the impact of their business concerning climate issues in order to bring greater transparency to the market, allowing ultimately for better decisions among investors.
The legislative move is part of the broader sustainable finance strategy that the government of Albanese has set forth, which is outlined in the government’s Roadmap toward Sustainable Finance released in June. The Roadmap sets the comprehensive plan toward reform of financial markets for mobilizing the private capital needed to make the shift toward a net-zero economy. Some of the priorities that have been set forth by the Roadmap include getting a sustainable finance taxonomy and getting a sustainable investment labeling system in place.
New mandatory climate disclosure requirements under the new law first impact public and large proprietary companies that are not categorized as small or medium size but have obligations to file audited annual financial reports with the Australian Securities and Investments Commission (ASIC). The affected companies are those with over 500 employees, revenues over $500m, or assets above $1 billion. Regulations for big businesses, larger than $5 billion in assets, will also be imposed under the new legislation. Medium-sized companies will be brought under the law two years after the legislation, where more than $200 million is the annual revenue or over 250 employees or assets more than $500 million will define a medium-sized firm. Only one year will be allowed, thereafter smaller companies, defined as having 100 employees or public float of $50 million or more with incomes greater than $50 million, or more than $25 million of assets, will also have to comply with this requirement a year after the big companies.
The Australian AASB is in the process of setting its climate disclosure standards consistent with international best practice expectations, and they are expected some time soon. The AUASB is in the process of developing assurance standards for them, and it is expected that this will be finalized by the end of the “calendar year.”.
The introduction of this mandated climate reporting regime could be a potential turning point in the history of Australian climate risk and sustainability. The legislation is, in the main, aimed at consolidating confidence in investors as well as taking further the scale of accountability by businesses through the ability of the companies to report in accordance with international standards. What the Albanese government wants with this strategy is more than just incorporating climate factors into financial decision-making but to place Australia at the top destination for sustainable investment. The expected development of reporting and assurance standards will go further in supporting this movement, in making companies hold commitments on disclosure rigorous and transparent.
In a nutshell, the endorsement of the climate reporting bill by the Senate puts the final stamp on Australia’s journey towards a sustainable and transparent financial system. With the country now readying itself in preparation for these new requirements, that journey will be characterized by the development of standards and frameworks required to back effective climate risk disclosures. It is important to drive the transitions expected in a net-zero economy.
(Source:- ESG Today)