The importance of sustainability reporting has expanded over time, starting out as a way to build trust, transparency, and engagement with stakeholders and eventually becoming a vital element in a company’s operations. Sustainability reporting covers the ESG-related performance of a business and relays their annual progress, successes, and shortcomings. This transparency provides insights to stakeholders on where the business is heading on the long run during pressing times where every human action trickles down to reactions brought about by changes in the environment and in society. Consumers learn more about the sustainability of the products and services they avail and the gravity a business has towards the environment and the communities intertwined with their operations. Investors are given a clear outlook of ESG-related risks and opportunities that can affect operations and financial performance.
Sustainability reporting is a glimpse into the past, the present, and the future. It is one of the many ways to secure a business’s future and take it down a path parallel to other endeavors towards global sustainable development. With governing bodies recognizing the value sustainability reporting brings, there has been an increase in mandatory sustainability reporting for publicly listed companies across the globe.
For the past years, sustainability reporting in Australia has been a voluntary activity. However, changes in the reporting landscape have risen as the Australian Accounting Standards Board (AASB) released Exposure Draft ED SR1 last October 2023, with consultations ending last March 2024. ED SR1, or the “Australian Sustainability Reporting Standards – Disclosure of Climate-related Financial Information” details three proposals for sustainability reporting standards and climate-related financial disclosure requirements aligned with the ISSB Standards. Additionally, in January 2024, the Australian Treasury released Exposure Draft Treasury Laws Amendment Bill 2024: Climate-related financial disclosure, building more support and awareness towards the necessity of sustainability reporting in Australia.
If the treasury law is passed into legislation, this will shift the reporting landscape in Australia, making sustainability reporting a mandatory activity and aligning it with the standards proposed by the AASB. This progress will help companies in Australia advance towards sustainability alongside the global movement to build sustainable economies.
Mandatory sustainability reporting is still in development yet it is best to be prepared as soon as possible to keep up with changes, developments, and the requirements needed to comply with laws and regulations. Here is what you need to know about the proposed Australian Sustainability Reporting Standards (ASRS):
ASRS 1 or the General Requirements for Disclosure of Climate-related Financial Information takes after the ISSB’s IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information. However, the ASRS 1 limits its scope with climate-related financial disclosures unlike the IFRS S1, which spans overall sustainability-related information.
In this section, there are four core components: governance, strategy, risk management, and metrics and targets. For governance disclosures, this covers committees, teams, or individuals set to oversee climate-related risks and opportunities, and the processes and procedures established to manage these risks and opportunities. As for strategy-related disclosures, this includes initiatives and plans set by the business to manage climate-related risks and opportunities. Risk management spans how the business identifies, assesses, prioritizes, and monitors their climate-related risks and opportunities. Lastly, businesses are to report their metrics and targets, informing readers on their progress and performance.
ASRS 2 Climate-related Financial Disclosures mirrors the IFRS 2 Climate-related Disclosures yet primarily focuses only on climate-related risks and opportunities related to climate change and greenhouse gas emissions.
Included in ASRS 2 are disclosures on climate resilience. This entails the entity conducting a climate-related scenario analysis of at least two possible future states and the impact, risks, and opportunities that may occur on the business. In the scenario analysis, one of the future states should be consistent with the most ambitious global temperature goal set out in the Climate Change Act 2022, which is 1.5°C above pre-industrial levels.
Asides from reporting on the entity’s climate resilience, the sustainability report should also include details on their greenhouse gas emissions. Reports should contain their Scope 1, 2, and 3 emissions. For Scope 2 emissions, the report should show both location-based and market-based Scope 2 emissions. As for Scope 3, data should be organized according to the 15 categories and the Scope 3 emissions reported may use data for the immediately preceding reporting period in specific circumstances if reasonable and supported emissions data for the current period is unavailable.
It is important to note that under the ASRS 2, tools and methodologies used to measure emissions set out in the National Greenhouse and Energy Reporting (NGER) Scheme legislation should be first considered and prioritized before opting for another internationally accepted framework.
In addition to the disclosures included in the ASRS, the Treasury Law amendments also require entities to disclose material climate-related financial risks and opportunities, processes related to climate-related governance and risk management, climate-related metrics and targets, and greenhouse gas emissions. Included as well in the sustainability report are additional notes on the report, statements concerning environmental sustainability, and a declaration from directors.
Who is subjected to comply with the proposed requirements?
The proposed bill applies to entities that report under Chapter 2M of the Corporations Act. This includes financial institutions, listed and unlisted companies, registrable superannuation entities and registered investment schemes that satisfy any of the following for a financial year:
Regarding the size criteria, this splits the entities into three groups, each with different starting periods for reporting. A company falls under the said group if they meet 2 out of the 3 criteria. Group 1 consists of large entities that have a consolidated revenue of at least $500 million in the financial year, end of financial year consolidated gross assets worth at least $1 billion, and at least 500 full-time equivalent employees at the end of year. For Group 1 and for entities above the NGER publication threshold, first annual reporting periods begin on or after January 2025.
Meanwhile, Group 2 includes entities with a consolidated revenue of at least $50 million in the financial year, end of financial year consolidated gross assets worth at least $25 million, and at least 100 full-time equivalent employees at the end of year. Annual reporting begins on or after July 2026 for Group 2 entities, the rest of NGER reporters, and asset owners.
Lastly, Group 3 takes up entities with a consolidated revenue of at least $200 million in the financial year, end of financial year consolidated gross assets worth at least $500 million, and at least 250 full-time equivalent employees at the end of year. Reporting for Group 3 is proposed to begin on or after July 2027.
Exemptions are available for small to medium-sized businesses that do not meet the size criteria, and entities exempted from lodging financial reports such as ASIC class orders, registered Australian charities, and not-for-profits.
To guide businesses in sustainability reporting, the ASRS also includes the ASRS 101 References in Australian Sustainability Reporting Standard as a supplementary guide. This will be updated periodically to reflect new versions of non-legislative Australian documents and foreign resources referenced in the ASRS.
The bill also proposes a timeline for assurance. Last March 2024, the Auditing and Assurance Standards Board (AUASB) published a consultation paper that contains a proposed timeline for assurance requirements. By 2030, reasonable assurance is required for all climate disclosures.
The necessity of sustainability reporting has begun to sink in. Once a voluntary act meant to communicate their corporate social responsibility and sustainability performance to investors and other stakeholders, the sustainability report is now greater than what it was years ago, becoming a tool to evaluate and assess the impact, risks, and opportunities a business has towards society and the environment and a way to hold businesses accountable for their actions.
While the ASRS are still being finalized and while the amendments are yet to be passed into legislation, entities in Australia can already actively take part in sustainable development by voluntarily reporting their sustainability performance and align their reports with the ASRS in preparation for the new norm.
References:
[1] Australian Sustainability Reporting Standards – Disclosure of Climate-related Financial Information
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