In December 2022, the Australian Treasury issued its Climate-Related Financial Disclosure Consultation Paper, inviting submissions on the design and implementation of standardised, internationally-aligned requirements for the disclosure of climate-related financial risks.
Broadly, it is proposed that commencing with the 2024/2025 financial year, large, listed entities and large financial institutions in Australia will be required to disclose climate risks. A phased approach is proposed whereby disclosure requirements will be applied gradually to smaller listed entities over time as climate reporting, independent assurance, and auditing capabilities are developed and institutionalized. Initially, reporting would align with the disclosure framework recommended by the Taskforce on Climate Related Financial Disclosures ("TCFD"), addressing governance, strategy, risk management, targets, and metrics, and the framework subsequently would transition to reflect the climate disclosure standards currently being developed by the International Sustainability Standards Board ("ISSB") once those standards have been finalised.
Other aspects of the proposal in respect of which input was sought include:
- Whether mandated disclosures should also apply to large non-listed entities to avoid creating adverse competition impacts;
- Whether, in addition to the mandatory disclosure of scope 1 and 2 greenhouse gas emissions (i.e., direct and indirect operational emissions), scope 3 emissions (being upstream and downstream emissions throughout the entity's value chain) should also be disclosed;
- Questions as to what level of assurance and auditing should be required of mandated disclosures; and
- Mindful of the challenges in making forward-looking statements, especially in the context of inherent uncertainties with climate disclosures, whether a safe harbour regime or other legislative reforms are warranted so as to strike a balance between incentivizing comprehensive and timely disclosures, and the appropriate management of liability risk.
The consultation period closed in mid-February 2023. Further public consultation has been foreshadowed for later this year once a specific design proposal has been prepared.
In anticipation of climate disclosure reforms, Australian companies should review their current reporting framework and practices to gauge their ability and preparedness, to disclose climate-related risks in accordance with the TCFD framework (if they are not doing so already) and, in due course, the standards being developed by the ISSB. Further, companies and their directors and officers, should consider their internal and external verification, assurance, and audit resources and capabilities.
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