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Following the enactment of a significant bill in Parliament, many major Australian corporations and financial entities will be required to produce yearly sustainability reports with mandatory climate-related financial disclosures starting January 1, 2025. The Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill 2024 (Cth) passed Parliament on September 9, 2024, and received Royal Assent on September 17, 2024.
Major businesses and financial institutions should establish appropriate governance structures and sustainability documentation processes before the mandatory climate reporting requirements take effect on January 1, 2025.
The mandatory climate reporting requirements will be implemented gradually over a three-year period, affecting three groups of reporting entities.
Who must prepare a sustainability report?
Who is exempt from preparing a sustainability report?
Entities that are not required to prepare annual financial reports under Ch 2M are also not required to prepare a sustainability report. The small or medium-sized entity that falls below the relevant size thresholds in s292A of the Corporations Act and is not an NGER reporter; or entity registered with the Australian Charities and Not-for-profits Commission can also be exempted.
What should be included in a sustainability report?
Under s296A(1) of the Corporations Act 2001 (Corporations Act), the sustainability report should include:
the climate statements for the year;
any notes to the climate statements; and
the directors’ declaration about the statements and notes.
Climate statements
Under new regulations, Australian businesses must provide comprehensive climate-related disclosures in accordance with forthcoming AASB sustainability standards. These disclosures mandated by the Corporations Act will require entities to report on material climate risks and opportunities, specific metrics including greenhouse gas emissions across all scopes, and details on governance and strategy related to climate issues.
Crucially, companies must conduct scenario analyses to assess their climate resilience under at least two future temperature scenarios: a 1.5°C increase and an increase well exceeding 2°C above pre-industrial levels. This robust reporting framework aims to provide stakeholders with a clear picture of how businesses are addressing and preparing for climate-related challenges and opportunities in the short and long term.
Consolidated reporting
Once the form is completed, either print a copy or save an electronic version for your records. This will When accounting standards mandate that a parent company produce consolidated financial statements for a given fiscal year, that parent company has the option to create a consolidated sustainability report covering the same period.
Notes to the climate statements
The new law requires sustainability reports to include annotations for climate statements. These notes must contain any ministerial-mandated disclosures, information required by sustainability standards, and additional details needed to satisfy the Corporations Act's section 296D content requirements. However, at present, neither the Minister nor the AASB has specified any mandatory notes for climate statements under the current or proposed sustainability standards.
Director’s declaration
Sustainability reports must include a directors' declaration stating their opinion on the report's compliance with the Corporations Act and sustainability standards. However, for the initial three-year period of the new reporting regime (January 1, 2025 to January 1, 2028), this requirement is adjusted. During this time, directors need only declare that the entity has made reasonable efforts to ensure the sustainability report aligns with the Corporations Act's requirements, rather than confirming full compliance.
Climate statements for entities with no material climate risks or opportunities
Smaller companies with no significant climate-related financial risks or opportunities can simplify their climate statements in the sustainability report. In such cases, they may include just two key declarations: first, a statement confirming the absence of material climate-related financial risks or opportunities for the entity; and second, an explanation justifying this assessment. This streamlined approach allows smaller entities to comply with reporting requirements while acknowledging their limited exposure to climate-related financial factors.
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