Mandatory climate reporting in Australia starts on January 1
Mandatory climate reporting is set to begin next year. What do you need to know to make sure you’re on top of the new laws?
Photo: Unsplash.
The Federal Government has fulfilled its promise to mandate climate reporting in Australia. The Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill (Bill), which was introduced into Parliament four months ago, passed through the Senate on 22 August 2024. Royal Assent is expected soon.
The mandatory climate reporting legislation commences the day after the relevant Act receives Royal Assent, which is expected soon. At this stage, it will most likely be prior to 2 December 2024 so the start date is set at 1 January 2025.
However, not all entities will have to prepare climate reports for the first financial year commencing on or after 1 January 2025. Group 1 entities must report first, with a phase-in for Group 2 and Group 3 entities.
Which entities must prepare climate reports?
The Bill mandates climate reporting for entities required to prepare and lodge financial reports with the Australian Securities and Investments Commission (ASIC) under Chapter 2M of the Corporations Act 2001, but only if they meet certain criteria.
In particular, entities that don’t meet the size thresholds tests in section 292A, and are neither NGER reporters nor asset owners, won’t have to prepare climate reports.
The following table shows which entities will have to prepare climate reports:
Source: Mandatory climate-related financial disclosures – Policy position statement
BDO Partner and ESG reporting specialist Josh Carver said failure to report would attract penalties under the Corporations Act.
“Directors of companies who are required to report should be aware of the directors’ declaration, which will accompany the sustainability report and state whether the report complies with the Legislation,” Carver said.
“A transitional measure in place for the first three years of reporting requirements includes a statement that ‘the entity has taken reasonable steps’ to ensure compliance.”
When is the first climate report required?
Group 1 entities will prepare their first mandatory climate report for the year ending 31 December 2025, which is less than eighteen months away. March, June and September reporters will have slightly longer.
There is a phase-in period during which Group 1 entities must prepare their first mandatory climate reports during the first transitional period, Group 2 in the second transitional period, and Group 3 entities thereafter.
To determine the first financial year for which a mandatory climate report is required, we first consider the date that the financial year commences within the relevant transition period, and from there we can work out which year-end is affected.
Say we are looking at a Group 1 entity with a financial year starting on 1 July each year. The first transitional period runs from 1 January 2025 to 30 June 2026. 1 July 2025 would fall within this first transitional period, meaning the first-year end for a mandatory climate report is 30 June 2026.
Similarly, a Group 2 entity with a financial year beginning 1 October must report for the first time during the second transitional period. 1 October 2026 falls within the second transitional period, and the entity will prepare its first climate report for the year ending 30 September 2027.
The table below shows the effect of applying these transitional periods to entities with different year-ends:
“Mandatory reporting requirements will not directly apply to the majority of small and medium enterprises (SMEs) in South Australia,” Carver said.
“However, businesses should consider whether they form part of the supply chain of one or more mandatory reporters, in which case they may be asked to supply sustainability-related information to assist with the reporting obligations of those larger companies.”
Late amendment
The Greens supported the passage of this Bill only after a late change to require entities to report against both a 1.5 degree, and a catastrophic warming scenario. The two scenarios are intended to ensure entities consider both transition and physical climate-related risks:
- Climate-related physical risks are generally associated with higher average global temperature outcomes, such as warmer climate, acute weather-related events or long-term shifts in climate patterns. This is a high global warming scenario, defined as an increase in global average temperature that well exceeds 2 degrees above pre-industrial levels. Therefore, the high global warming scenario analysis should be based on at least 2.5 degrees above pre-industrial levels.
- Climate-related transition risks are generally associated with lower average global temperature outcomes (reflecting efforts to transition to a lower carbon emission economy). This is a low global warming scenario, where the increase in global average temperature is limited to 1.5 degrees above pre-industrial levels.
Do you need help with your climate reporting?
Carver said BDO was well-placed to support businesses in meeting requirements under the new legislation.
“At BDO, we’ve been working with clients who have been voluntarily reporting for the past three to four years. Based on this experience, and in collaboration with Chartered Accountants Australia & New Zealand (CA ANZ), we have developed a practical roadmap for entities required to report under the new legislation,” Carver said.
“Our team of sustainability experts can help organisations prepare for mandatory reporting requirements and develop their reports, from conducting IFRS S2 gap analysis to calculating Scope 1, 2 and 3 emissions.
“We’ve prepared a range of tools and resources on our website to help companies understand the requirements and get started on their reporting journey.”
BDO’s sustainability reporting team can help you understand what this might mean for your organisation, contact us today.
