The mandatory climate reporting bill — Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill 2024 (Cth) – became law in September.
The landmark legislation will require certain organisations to make detailed disclosures about their climate-related risks and opportunities, commencing with the largest emitters and corporations from 1 January 2025. From there, the government will step down the size thresholds, capturing a far broader group of organisations by 2027–28.
For those businesses new to reporting, the suggestion is to start preparing now to understand what will be required and how to take advantage of the strategic and commercial opportunities that reporting will present.
Sarah Lalor, CommBank’s General Manager for ESG and Sustainable Finance, says many of the requirements – both data and qualitative information – required for the new climate-related disclosures can align to the information needed for sustainable finance transactions.
“It's about customers understanding what the climate-related risks and opportunities are in their business,” Lalor explains. “What their transition plan should look like, the data that they need to baseline and then report on their progress against the transition plan.
“Forming a view on the environmental outcomes that align to the values and strategic goals of an organisation will help companies differentiate and achieve enhanced commercial outcomes. This all aligns to the kind of information that goes towards accessing sustainable finance.”
Much of the information that will be required as part of the mandatory climate reporting measures will help customers articulate their climate story, risk management measures and targets to their finance providers and other stakeholders, Lalor says.
“The process will help companies to articulate in a more data-driven way and in a more strategic way, how they're thinking about climate, transition and physical risks and their sustainability strategy.
“Ultimately, whoever your finance provider is - everybody is trying to get an understanding of whether your organisation understands what their sustainability risks are, and are they managing them effectively?”
How companies can approach mandatory climate reporting
Aletta Boshoff, BDO Partner and National Leader IFRS and Corporate Reporting, says the first step is for companies to obtain clarity on what is required of their organisation. “A lot of people are not 100 per cent sure what’s required, because there have been a lot of developments in a short space of time and keeping up with all of that is difficult,” she explains. “It’s really important for entities to clearly understand exactly what’s required.”
Once companies know what they must do, they can develop a roadmap outlining the steps required to meet the disclosure requirements within the defined timeframes.
“The third thing is allocating the appropriate people to the different parts of the road map, because a lot of our clients are struggling to figure out who is responsible for what,” says Boshoff.
“My three very practical tips would be get the knowledge, get a road map, and get the right people in the room.” - Aletta Boshoff, BDO Partner and National Leader IFRS and Corporate Reporting
Businesses need to understand their ecosystem, says Boshoff. “Who are our investors, who are the people providing financing to us, who are our suppliers, who are our customers, what government agencies might be interested in information? Who are our landlords, or if we own property, who are our tenants?
“After you know who is in that business world, then you have to ask yourself what information they might need in order to comply with the mandatory reporting obligations.”
For compliance, a company will need information from suppliers. “If you are not ready to provide that, then you are putting your relationships at risk,” says Boshoff.
Different stakeholders are likely to have different information needs. “But that's why it's important to identify who are those stakeholders that are incredibly important to your business. You must have an understanding of what they would potentially expect of you.”
“Companies who are early adopters and are providing higher quality disclosures in relation to sustainability, may have a competitive advantage in market.” - Sarah Lalor, CommBank General Manager ESG and Sustainable Finance
Potential benefits for early adopters
Lalor believes there might be potential future benefits for businesses that take the initiative to move quickly to prepare for mandatory climate reporting.
One reason is that some businesses may need time to identify, collect and prepare data to a level of quality appropriate for external disclosure. Getting started on data collection now allows businesses to test the quality of its data and reporting processes ahead of when it is required for disclosure and assurance, enabling any issues to be addressed ahead of regulated deadlines.
“In terms of the quality of the report in itself, from a compliance perspective, that's really important,” says Lalor. “But I think what's actually equally, if not more, important is the strategic context here. Companies who are early adopters and are providing higher quality disclosures in relation to sustainability, may differentiate themselves in the market.
“Whether that's to the customers they provide products and services to, who are expecting sustainability credentials and the sustainability story as well, or whether that's to suppliers who are now looking to partner only with other companies with really good sustainability plans, delivering positive environment outcomes. They may also be able to access capital more easily and potentially cheaper than their peers. Talent retention and attraction might improve and there are positive brand and trust implications also.”
