New Mandatory Climate Disclosure Laws in Australia

This is a sponsored article from SustainabilityTracker.com member Sustainability Tracker.

What are they and where did they come from?

So, here’s the deal: When companies create their general financial statements (we call them GPFS), they generally only need to think about climate-related risk if it’s a big deal for their investors. The rules we have for accounting right now don’t really talk much about climate, that’s a problem because globally, we’re seeing regulators push for rules to make sure companies tell us what’s going on with their climate-related money. See the CSRD and the developments happening over in the EU. 

Australian industry leaders banded together to say, “Hey, we need to fix this so we don’t fall behind.” They stressed this as a top priority, and wanted international alignment.

Then, in March 2022, the International Sustainability Standards Board (ISSB) got into action and created some drafts called IFRS S1 and IFRS S2. These drafts included ideas from a group called the Task Force on Climate-related Financial Disclosures (TCFD) – a highly respected group created by the The Financial Stability Board (FSB) to develop recommendations on the types of information that companies should disclose to support investors and lenders in appropriately assessing and pricing a specific set of risks — risks related to climate change.

The Australian government joined in and said, “We want everyone, including big businesses and financial institutions, to tell us what they’re doing about climate in a standard way.” They even mentioned things like how they manage risks, set goals, and measure their climate impacts. They wanted it to match the TCFD’s proposed standards.

As a result, the Australian Accounting Standards Board (AASB) began work

• Creating new rules for reporting on sustainability.
• Using what the ISSB did but make some changes to suit Australia.
• First, focusing on climate reporting before they dig into other sustainability topics.

As of August 22nd 2024, a bill introducing mandatory climate reporting for large and medium-sized companies passed the Australian Senate, marking a major step towards the establishment of a new climate risk disclosure framework in the country.

Under the initial AASB draft, the new proposed legislation would apply to all public companies and large proprietary companies required to provide audited annual financial reports to the Australian Securities and Investments Commission (ASIC) in 2025 with companies with over 500 employees, revenues over $500 million or assets over $1 billion.

In 2027 this expands to medium-sized companies (250+ employees, $200 million+ revenue, $500 million assets),  and 2028 for smaller companies (100+ employees, $50 million+ revenue, $25 million+ assets). 

The AASB framework is still in development, but we are a significant step closer to more transparency and accountability in Australian business.