Australia's federal government is preparing to introduce new mandatory climate risk accounting regulations to address climate change concerns and align with global standards.
The Australian Accounting Standards Board (AASB) has responded to the increasing demand for transparent and consistent reporting of climate-related financial information. This led to the development of the Exposure Draft, ED SR1, proposing Australian climate-related financial disclosure requirements. This initiative aligns with global trends and the Australian Government's commitment to internationally-aligned mandatory climate-related financial reporting for large businesses and financial institutions.
Traditionally, general purpose financial statements (GPFS) under Australian Accounting Standards did not explicitly address climate-related matters. However, the material impact of such matters on businesses necessitated the inclusion of climate-related financial information. The International Sustainability Standards Board (ISSB) of the IFRS Foundation laid the groundwork with the publication of Exposure Drafts on IFRS S1 and IFRS S2, focusing on sustainability and climate-related disclosures.
Australian Government's Approach
The Australian Government's approach is multi-faceted:
- Sustainable Finance Framework: Led by the Treasury, this framework encompasses climate-related financial disclosures as a key component.
- Standardised Reporting Requirements: Aligning with the TCFD Recommendations, this requires disclosures on governance, strategy, risk management, and metrics and targets.
- Alignment with ISSB Standards: The government aims to closely align with IFRS S2 Climate-related Disclosures.
- Legislative Amendments: Changes to the Australian Securities and Investments Commission Act 2001 will empower the AASB to deliver Australian Sustainability Reporting Standards.
The AASB decided to:
- Develop a separate suite of Australian sustainability-related reporting requirements.
- Base these standards on ISSB's work, with modifications to suit Australian contexts,
- Initially focus on climate-related financial disclosures, allowing time to expand into broader sustainability reporting areas.
The New Standards
The AASB has proposed three draft Australian Sustainability Reporting Standards (ASRS Standards):
- ASRS 1: General Requirements for Disclosure of Climate-related Financial Information, based on IFRS S1.
- ASRS 2: Climate-related Financial Disclosures, based on IFRS S2.
- ASRS 101: References in Australian Sustainability Reporting Standards, a periodically updated service standard.
These standards were developed considering feedback from various stakeholders, including Treasury and the Department of Climate Change, Energy, the Environment and Water (DCCEEW).
The proposed application dates for these standards are staggered:
- Group 1 (2024-25 onwards): Entities meeting specific criteria regarding employees, asset value, and revenue.
- Group 2 (2026-27 onwards): Entities meeting a slightly lower threshold than Group 1.
- Group 3 (2027-28 onwards): Entities meeting further reduced criteria.
'It's important to note that these standards, although primarily focused on climate-related data, will eventually require businesses to provide other general Environmental, Social, and Governance (ESG) data"
Preparing for the ASRS mandate requires a strategic approach. Companies should view this as an opportunity to enhance their sustainability practices and transparency, ultimately contributing to a more sustainable and resilient economy. By starting early and focusing on building internal expertise, improving systems, and engaging with stakeholders, companies can ensure they are well-prepared for the upcoming mandate.
The below tips are a good starting point for organisations to start positioning themselves to navigate the changing landscape of ESG reporting effectively while contributing to a more sustainable future.
Stay informed of regulatory changes and updates related to climate risk accounting and ESG reporting. This includes understanding the specific requirements and timelines applicable to your business.
- Familiarise yourself with the draft standards, these are based in IFRS S1 and IFRS S2 with more guidance being released by the IFRS and other ESG standard setters.
Assess your eligibility to determine whether your business falls under the criteria for mandatory reporting. Understand when you might become subject to these regulations based on your company's size, revenue, and assets.
- Review current reporting practices and compare them to the draft standards to identify development opportunities, look at how the standards can be integrated into the business and what the processes and resources are to support ongoing reporting.
Engage with stakeholders and start discussions with your larger business partners, especially if they are subject to the reporting framework. Understand their expectations and how you can collaborate on data sharing and reporting.
Internal data collection, begin collecting data related to your emissions (Scope 1 and Scope 2) and other ESG factors within your operations and maintain data accuracy and consider third-party verification for your emissions and ESG data. Reliable data is essential for compliance and credibility.
Explore ESG reporting software solutions to streamline ESG reporting, provide guidance, data collection, analysis, and reporting. Tools such as ESG Metrix can help you manage emissions and other ESG data efficiently.
Set your ESG baseline and assess your ESG risks comprehensively, including climate-related risks and emissions. This can help you identify areas where you need to take action and improve transparency.
Set ESG goals and targets by establishing clear emission reduction goals and a plan for achieving them. Use your ESG baseline to create a roadmap for continuous improvement. Participate in voluntary ESG reporting.
ESG education for your business can help ensure that your employees are aware of the reporting requirements, how collaboration is key and and how your business is working towards creating a sustainable future.
Ongoing ESG reporting, share your emissions and ESG data through ESG reporting with stakeholders, showcasing your commitment to sustainability. Recognise that embracing sustainability can be a competitive advantage. Being proactive in your reporting and reduction efforts can attract environmentally-conscious customers and partnerships.
Continuous Improvement, treat emissions and ESG reporting as an ongoing process for improvement. Regularly review your data collection methods and sustainability initiatives.
At Executive ESG we utilise ESG Metrix to help organisations align with upcoming mandate requirements and to get started on their ESG reporting journeys, contact us today to learn more about how the solution can tailor-fit your business's needs and pave the way for a greener, more prosperous tomorrow.