Mandatory climate reporting is here
As of 1 January 2025, many large Australian businesses are now required to comply with mandatory climate-related financial disclosure requirements. These changes, driven by global regulatory trends and Australia’s commitment to sustainability, mark a significant shift in corporate reporting. Under the sustainability reporting regime, large Australian businesses and financial institutions must prepare a sustainability report. This report serves as the fourth component of their annual reporting obligations, alongside the financial report, directors’ report, and auditor’s report. For businesses, preparation remains key to meeting these obligations and demonstrating a proactive stance.
The Regulatory Context
The Australian Securities and Investments Commission (ASIC) highlights the ongoing need for businesses to adhere to these new climate reporting requirements. The reporting framework aligns with the International Sustainability Standards Board (ISSB) standards, ensuring consistency and comparability with international practices. Businesses must disclose:
- Governance processes related to climate risks.
- Material climate-related risks and opportunities.
- Strategies for addressing these risks.
- Metrics and targets for assessing and managing climate impact.
These requirements apply to many large businesses and publicly listed entities, following the passage of major legislation through Parliament.
ASIC continues to urge businesses to ensure full compliance to avoid potential penalties
Entities | Group 1 First annual reporting periods starting on or after 1 Jan 2025 | Group 2 First annual reporting periods starting on or after 1 Jul 2026 | Group 3 First annual reporting periods starting on or after 1 Jul 2027 |
Large entities and their controlled entities meeting at least two of three criteria |
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National Greenhouse and Energy Reporting (NGER) Reporters | Above NGER publication threshold in s 13(1)(a) of the NGER Act 2007 | All other NGER reporters | N/A |
Asset Owners (registered schemes, RSEs and retail CCIVs) | N/A | $5 billion assets under management or more | N/A |
Exempt entities
In general, entities that are not required to prepare annual financial reports under Ch 2M are also not required to prepare a sustainability report.
Entities are also exempt if:
- they are a small or medium sized entity which falls below the relevant size thresholds in s292A of the Corporations Act and are not an NGER reporter; or
- they are a Charity registered with the Australian Charities and Not-for-profits Commission (ACNC).
What should your sustainability report contain?
Section 296D of the Corporations Act requires that the climate statements and notes for a financial year must together disclose:
- the entity’s material climate-related financial risks and opportunities
- the entity’s metrics and targets for the financial year relating to climate that are required to be disclosed by the sustainability standards, including in relation to scope 1, 2 and 3 emissions of greenhouse gas; and
- any information about the entity’s governance, strategy, or risk management in relation to these risks, opportunities, metrics and targets.
An entity must disclose information about its climate resilience, as assessed under at least two possible future states (called ‘scenario analysis’). The Corporations Act requires scenario analysis to be carried out using at least two scenarios referable to temperature increases set out in subparagraphs 3(a)(i) and 3(a)(ii) of the Climate Change Act 2022. The two mandated scenarios are currently:
- increase in global average temperature of 1.5°C above pre-industrial levels; and
- increase in global average temperature well exceeding 2°C above pre-industrial levels (meaning an increase of 2.5°C or higher).
Source: What should your sustainability report contain? | ASIC
Notes to the climate statements
The legislation also requires that the sustainability report include notes to the climate statements, which must contain:
- Any disclosures mandated by the Minister regarding the preparation of or content within the climate statements;
- Any information required by the sustainability standards; and
- Any additional details necessary to ensure the climate statements and accompanying notes collectively meet the content requirements outlined in section 296D of the Corporations Act.
Currently, the Minister has not mandated any notes to the climate statements, nor has the AASB proposed any under its sustainability standards.
Directors’ declaration
A sustainability report must include a directors’ declaration, in which the directors state their opinion on whether the report’s contents comply with the Corporations Act, including adherence to sustainability standards (once established).
However, during the initial three years of the sustainability reporting regime (from 1 January 2025 to 1 January 2028), this requirement is modified. During this period, directors are only required to confirm whether the entity has taken reasonable steps to ensure the report aligns with the Corporations Act.
Climate statements for entities with no material climate risks or opportunities
For smaller entities, if there are no material climate-related financial risks or opportunities, the climate statements included in the sustainability report may comprise:
- a statement that there are no material financial risks or opportunities relating to climate for the entity; and
- a statement explaining why this is the case.
This type of climate statement may only be made by entities that:
- are not NGER reporters; and
- fall below the relevant thresholds
The Business Implications
Mandatory climate reporting is not just about regulatory compliance; it is a strategic opportunity for businesses to enhance transparency, build trust with stakeholders, identify areas for improvement in sustainability practices, and realise cost savings (such as through energy efficiency and staff retention).
Don’t be fooled into thinking mandatory climate reporting will only impact larger businesses or those with high emissions. The new climate reporting measures will mean these businesses will have to report on not just their own emissions but emissions across their entire value chain – upstream and downstream. They will need data on their suppliers’ and customers’ emissions and may well require them to lower their emissions to be able to continue to do business with them.
There is potential upside for businesses who act early to climate reporting, even if your business will not be subject to the mandatory reporting regime directly. With sustainability becoming a key priority for a growing number of businesses, you could open opportunities for new customers, products or services.
How Pitcher Partners Newcastle & Hunter Helps
Navigating the complexities of mandatory climate reporting is challenging. Pitcher Partners Newcastle & Hunter offers tailored services to help businesses:
- Assess Readiness: Conduct a gap analysis to identify areas needing improvement.
- Develop Governance Frameworks: Establish processes to manage and report climate-related risks effectively.
- Integrate Reporting Practices: Align existing financial reporting with new sustainability standards.
- Train Key Stakeholders: Build internal capability to manage ongoing reporting requirements.
Mandatory climate reporting is not only a legal requirement but also a critical step toward sustainable business practices. With expert guidance and a commitment to transparency, businesses can turn this regulatory shift into an opportunity. For more information or to discuss how we assist, contact the team at Pitcher Partners Newcastle & Hunter today.
