The Senate of Australia has adopted the changing rules of the Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill 2024, a new regime that will make it mandatory for large-listed and unlisted Australian companies to standardize climate risk reporting. Come January 2025, large listed and unlisted Australian companies will be required to disclose comprehensive and specific climate information in their annual reports.
New laws were hailed by Treasurer Jim Chalmers, who said they “provided the clarity and certainty needed to deliver the net-zero transformation.” He noted that such reforms had further underpinned Australia’s credibility as a premier destination for international capital and would lead the country toward a global spearhead on climate action.
A central component of the new reporting framework requires companies to carry out and disclose the results of assessments on their climate resilience under two scenarios of critical warming: 1.5°C and 2.5°C. The dual-scenario approach, elaborated by the Climate Change Act of 2022, is intended to help businesses calibrate their strategies with relation to climate risk at different global warming levels. It is not only about getting companies ready for short-term impacts but also to make them resilient in the face of more severe future climate change scenarios.
“The Australian Accounting Standards Board is well underway in finalizing the Australian Sustainability Reporting Standard, and these will be very much closely aligned with IFRS,” says Chalmers. “These standards will ensure that Australia’s reporting framework remains competitive on the global stage.” The move is likely to place Australia in a stronger platform in the international financial market by giving it a coherent and credible framework for climate reporting.
New reporting requirements will also be put on investors, besides the corporate sector. By 2027, the asset owners with more than $5 billion under management will be required to report their climate risks. This extension of the reporting framework underlines that it is not only the corporate sector but the broader market staking a role in the low-carbon transition. According to Louise Davidson, CEO of ACSI, “A universal reporting framework will enhance comparability and comprehensibility across the market.” The step will see that investors are well informed on the climate risk issues attached to their investments and hence work towards a sustainable investment environment.
The Australian Securities and Investments Commission will play a key role in enforcing the new regulations. ASIC is aiming to release guidance on the new reporting requirements following the Royal Assent of the bill and to create a specialist team that would enforce compliance and deal with relief applications under the new requirements. ASIC’s efforts are likely to offer important support for companies and investors grappling with the changed reporting landscape.
The remaining challenges have to do with sourcing reliable sustainability data from portfolio companies. Some firms may be based in countries that do not align with the standards of ISSB, hence complicating the reporting for the asset owner or asset manager. A big challenge with the roll-out of new regulations is the requirement of correct and consistent data.
Alongside the passage of the legislation, ASIC also released its report on greenwashing interventions it has made in recent times. These include court actions and over $123,000 in penalties over misleading environmental claims. According to Commissioner Kate O’Rourke, “[s]uch enforcement action, highlighted the need to use verifiable, precise language when making ESG claims” as well as emphasising the importance of ensuring information about sustainability is not only accurate but clear and able to be fully and comparably understood, by investors. This action underscores ASIC’s very high bar for market disclosure and signaling in climate reporting.
As Australia steps into this new era of required climate disclosures, companies and investors alike brace for the increased scrutiny and responsibilities brought in by the new laws. This legislation significantly advances the efforts that the country is taking to address climate change and, in doing so, also supports global action to transit into a more sustainable future. Through the setting of a high standard for reporting in relation to climate, Australia hopes to provide an economic lift that will go hand in hand with care of the environment, with the ultimate goal of working their way into a much wider, open, and transparent approach in handling climate risk.
(Source:- ESG News)