Authored by Michaela Aspell
Key takeaways
Climate-related financial reporting will be mandatory from 1 January 2025 and will increase transparency in how entities are assessing and managing climate risk.
The Australian Accounting Standards Board (AASB) has now released final sustainability standards based on the international standards.
Disaggregation of financed emission disclosure for certain entities is required.
The Australian Auditing and Assurance Standards Board (AUASB) has released a proposed Australian Standard on Sustainability Assurance for consultation.
Entities should work to understand their reporting requirements and how climate and sustainability related risks and opportunities might impact their operation and finances.
Climate-related financial reporting will be mandatory from 1 January 2025
The Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Act 2024 received royal assent on 17 September 2024 and mandates climate-related financial reporting for certain entities from 1 January 2025. There are no changes to the required entities who fall under the reporting regime as summarised by the KWM Insight Team.
Mandatory climate-related reporting means investors, shareholders and consumers will have information available to them to understand the risks an entity is facing from climate change, and how they are managing them, including steps to transition away from carbon intensive activities.
Australian Sustainability Reporting Standards finalised and adopt international standards as a baseline
The final Australian Sustainability Reporting Standards have been published by the Australian Accounting Standards Board (AASB). The final standards comprise a voluntary sustainability-related financial reporting standard (AASB S1) and a mandatory climate-related financial reporting standard (AASB S2).
Since the release of the exposure drafts (AASB Exposure Drafts ED1), the AASB have adopted the International Sustainability Standards Board (ISSB) sustainability and climate disclosure standards (IFRS S1 and S2) as a baseline. This decision was influenced by feedback on the exposure drafts requesting that the standards more closely align with IFRS S1 and S2.
Australian Sustainability Reporting Standard General requirements for Disclosure of Sustainability-related Financial Information (AASB S1)
Entities’ voluntarily electing to apply this standard will disclose information about how sustainability-related risks and opportunities could be reasonably expected to impact on cash flows, access to finance and cost of capital.
This standard adopts IFRS S1, with the only substantial difference being that AASB S1 is voluntary.
The Basis of Conclusions accompanies AASB S1 and sets out considerations made in developing AASB S1.
Australian Sustainability Reporting Standard Climate-related Disclosures (AASB S2)
Entities’ which are required to apply this standard will need to disclose information about how climate-related risks and opportunities could be reasonably expected to impact on cash flows, access to finance and cost of capital.
This standard adopts IFRS S2 with some changes and is mandatory
An ‘Appendix D’ is included in this standard which includes aspects of AASB S1 deemed necessary for AASB S2 to be a standalone standard.
Unlike IFRS S2, there is no requirement to consider or disclose industry-based metrics or the Sustainability Accounting Standards Board (SASB) Standards in AASB S2.
Finalised standards require disaggregation of financed emission disclosure for certain entities
According to the AASB the most likely significant impact on reporting entities between the exposure drafts and finalised standards is the alignment to the IFRS baseline on financed emission disclosures. The finalised standards require disclosure the disaggregation of financed emission disclosures for entities involved in asset management, commercial banking or insurance activities.
Proposed Australian Standard on Sustainability Assurance
The AUASB has released a proposed exposure draft standard for sustainability assurance (ASSA 5010) for consultation. This standard would be in effect for financial years commencing before 30 June 2030, after which time reporting must be audited. The exposure draft proposes a staggered approach to reasonable assurance, as follows:
Limited assurance required from the first year: for governance, strategy and Scope 1 and 2 emissions.
Reasonable assurance required from the second year: scope 1 and 2 emissions.
Reasonable assurance required from the fourth year: all aspects of disclosures.
Get ready for reporting – understand your requirements and impacts from climate change
For entities yet to begin their climate-related reporting, we recommend starting with the following:
Determine which reporting group your entity falls under, taking into consideration planned business growth that might mean changing the reporting group.
Start with governance – ensure the Board and its committees have appropriate oversight of climate-related reporting and risks, and management responsibilities for reporting, climate change strategy and risk management are clear and documented.
If you haven’t already, understand how climate change might impact your entity, starting with a qualitative climate change risk assessment, and determining material risks and opportunities.
For entities who have already been voluntarily reporting in alignment with the Task Force on Climate-Related Financial Disclosures, a gap analysis will assist you to understand what additional information is required to be disclosed under AASB S2.
Previous information by Owl Advisory on how Australian entities are getting ready for reporting can be found here.
Owl Advisory by KWM can support you in your climate reporting journey including understanding legislative obligations, undertaking climate change risk assessments and risk management, upskilling board and management teams and reviewing or preparing a gap analysis of existing climate and sustainability-related reports against the mandatory requirements.
This publication is a joint publication from King & Wood Mallesons, and KWM Compliance Pty Ltd (ACN 672 547 027) trading as Owl Advisory by KWM. KWM Compliance Pty Ltd is a company wholly owned by the King & Wood Mallesons Australian partnership. KWM Compliance Pty Ltd provides non-legal compliance and governance risk advisory services for businesses. KWM Compliance Pty Ltd is not an incorporated legal practice and does not provide legal services. Laws concerning the provision of legal services do not apply to KWM Compliance Pty Ltd.
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