Australia is ready to introduce into law the Treasury Laws Amendment Financial Market Infrastructure and Other Measures Bill, in anticipation of its passage, which makes the mandatory climate reporting commencement date January 1, 2025. As the nation faces increased environmental pressures, the new legislation aims to make businesses face realities regarding climate change and disclose openly how companies manage risks related to climate change. The new requirements will phase in over time, first requiring larger entities, then medium and smaller entities in subsequent years.
Approach: Who Will Be Affected?
The act covers those organizations that must lodge financial reports with ASIC, but only if they satisfy certain criteria concerning their size. There are three categories of entities based on annual revenue:
Group 1 – Large entities: $500 million and over
Group 2 – Medium entities: Greater than $200 million but less than $500 million
Group 3 – Smaller entities: Greater than $50 million but less than $200 million
Reporting would begin with entities in Group 1, whose mandatory climate reports would be due by December 31, 2025. Groups 2 and 3 would follow over the next two years, with Group 2 reporting in 2027 and Group 3 in 2028.
Key Dates and Compliance Timelines
January 1, 2025: The Act commences. From this date, Australian businesses are under obligation to comply with compulsory climate reporting.
For instance, the first filing of the obligatory climate reports by Group 1 entities would fall due on December 31, 2025. The first two filings are due for Group 2 entities in 2027 and for Group 3 entities in 2028. In fact, all companies falling into these three categories will need to start focusing on data compilation and analysis much in advance from their respective deadlines, with a view to fulfilling the new reporting requirements and avoiding any penalties.
Scenario Analysis: Preparing for Climate Risks
Perhaps the most significant of these new requirements is that of adding climate scenario analysis to firm reports. Partly as a result of Australian Greens amendments, companies now have to assess two key global warming scenarios:
1. 1.5-Degree Scenario: A global goal of keeping limit warming to 1.5°C above pre-industrial levels is codified under the Paris Agreement.
2. Extreme-impact Scenario (2.5+°C): Under the graver scenario, companies should consider the potential for disastrous global warming greater than 2.5°C.
The law thus makes sure that, on one hand, the broad range of risks-from physical risks of increasing frequency and severity of climate-related disasters to transition risks, which include changes in regulations and market dynamics while the world shifts toward a low-carbon economy-have been considered by mandating reporting on both scenarios.
Scenario analysis requirement also reflects the growing awareness that long-term consideration of climate change risks would have to be proactive in nature for continued operations and supply chains, customers, and stakeholders.
Transparency and Accountability: The Bigger Picture
The passing of the Treasury Laws Amendment Bill represents a major development in Australia’s climate governance. The country is manifestly on an upward trajectory of climate risk as evidenced by increased frequency of bushfires, heatwaves, and flooding events; as such, investors, regulators, and the general public demand more transparent disclosure from businesses with respect to their exposure to climate-related risks.
The Australia government wants businesses to fall in line with international best practice through the mandated climate reporting. It places Australia in a position to align with other leading markets such as the European Union and the United States, where the disclosures of climate-related financial information are becoming common.
Besides, it underscores one of the most important ways anyone thinks about how different climate outcomes could affect the bottom line of a business: scenario analysis. Because reports will have to include both a 1.5-degree scenario and an alarmist global warming scenario, companies will be showing further depth regarding their exposures and what they’re doing to limit them.
Preparing for the New Climate Reporting Regime
The preparations for this law will be essential for those organizations that come into its ambit. Group 1 organizations have only one year to ensure they have the proper data and processes to report on their needs. For many, the most significant challenge will be achieving a robust scenario analysis that reflects appropriately the multifaceted nature of climate risk.
Companies will need to invest in climate risk management tools, enhance data gathering processes, and may retain third-party experts in the fields of climate science and risk modeling. The phasing in of implementation gives smaller entities in Groups 2 and 3 more time to prepare, but the scope of the challenge is still considerable.
Conclusion: A Tipping Point for Australian Businesses
Australia’s new mandatory climate reporting regime really raises the bar on corporate accountability and transparency regarding climate risks. With the clock now ticking toward the first reports falling due in December 2025, companies must quickly get to work embedding climate risk assessments into their business strategies. This interplay of mandatory reporting and scenario analysis brings about the fact that businesses not only show their risks but also how they prepare for a future defined by a transition to a low-carbon economy and the physical consequences of a heating world.
The new climate reporting requirements of Australia are only a signal that the world is ever-battling climate change, and businesses cannot afford to neglect a changing climate in environmental, financial, and social risks.