Resource: HR’s guide to new mandatory climate reporting standards

Certain businesses will be required to include climate disclosures in their financial reporting, as early as January 1, 2025. Here’s what HR leaders need to know.

In the race towards net zero, the Australian government has adopted a new mandatory climate reporting regime – with new legislation propelling corporations to play their part. 

Under amendments to the Corporations Act 2001, businesses that meet specific thresholds will be required to disclose information about their climate-related risks and opportunities in an annual sustainability report, or risk facing non-compliance penalties. The new laws will be phased in from January 1, 2025 (details below).

“This is probably the most significant corporate reporting change I’ve seen in my whole career [spanning 15 years],” says Anna Coroneo, executive counsel at Herbert Smith Freehills. “It’s quite new for a lot of companies that haven’t been thinking about climate risks and opportunities in a very sophisticated way, and don’t have existing reporting structures. Some haven’t been thinking about these issues at all.”

However, the new obligations may not be a huge change for some organisations, says Coroneo, as many are likely already undertaking risk management at this level, if climate is integral to their operations. 

A portion of Australian business already engage in voluntary reporting, in response to mounting pressure from investors. Last year, nearly half of ASX200 companies (49 per cent) submitted a sustainability report, according to research from PwC. 

“Our clients have traditionally tended to be ASX-listed companies that are used to regulation. The clients who are now reaching out to us [for climate disclosure training and implementation support] operate in a broad spectrum of industries: from investment managers and impact investors, to smaller financial institutions and retailers,” says Coroneo. “They represent a different size and scale of operations to the types of organisations we’ve traditionally given support to. That recognises how widespread the impact will be.”

At this stage, the new sustainability reports will need to align with the Australian Accounting Standards Board (AASB) ‘AASB S2 Climate-related disclosures’ standards. These standards are on par with internationally recognised sustainability frameworks and have been drafted based on the International Sustainability Standards Board’s IFRS S2 Climate-related Disclosures standards. 

Some businesses with overseas operations may also be captured by other international climate and sustainability regulations. For example, the European Sustainability Reporting Standards may apply to businesses operating in the EU. These frameworks are quite similar to the Australian requirements, but also hold key differences. 

Organisations that are further into their climate journey may also elect to follow the AASB’s voluntary standards, AASB S1 General Requirements for Disclosure of Sustainability-related Financial Information [voluntary], which covers sustainability more broadly.

Below is a useful explainer to the new climate reporting regime, outlining the core components of a sustainability report and what organisations can do to meet the new requirements and contribute to a sustainable future.

What will mandatory climate reporting look like?

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Laying out the groundwork

The next one to three years will be the most critical time for impacted organisations to establish, or strengthen, their sustainability strategies, and determine what areas and skills are in need of uplift.

“To be able to report, you need to have an understanding of what your climate-related risks and opportunities are, and how they fit into things more broadly,” says Coroneo. “Some of the requirements involve questions such as, ‘How is your board or management overseeing climate?’ and ‘Do you have a transition plan to reduce the emissions in your business?’ Those aspects are quite complex to unpack.”

Leaders will not only need to navigate the tricky exercise of aligning an organisation’s business strategy to climate, but also implement practical steps for activities such as setting and reporting on targets.

“One of the big areas that we’re having conversations around is data. A part of the reporting requirements relate to an entity’s scope one, two and three emissions.

“To be able to report [your emissions], you need to have the data, either within your business or be able to get it from your suppliers or customers. In some cases, the measuring tools may not be very sophisticated. So, you need to put arrangements in place to facilitate acquiring that information.”

While a segment of the market has realised a piecemeal approach to articulating complex climate issues won’t cut it, many may be playing catch-up, says Coroneo.

In recognition of the challenging changes ahead, organisations have been granted a grace period for ‘protected’ statements made in the sustainability report (specifically detailed in the resource above). During that period of time, businesses cannot be held liable by third parties in relation to the protected statements. However, ASIC can still pursue legal action.

However, Coroneo notes statements made in an organisation’s external communications, such as in marketing materials, are not protected and can still be subject to legal action. 

“There is going to be a big cultural shift in corporate Australia and globally around [sustainability], where it does eventually become business-as-usual,” says Coroneo. “But, for the time being, I think it’s very difficult to meaningfully think about the risks and opportunities of climate, or other sustainability and human rights topics, unless they’re part of your everyday way of thinking… in the same way that a business is managing any other types of risks and opportunities.”

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