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Get ready and get ahead: preparing for mandatory climate-related financial reporting

Mandatory climate-related financial disclosures will likely be rolled out for many large organisations from January 2025, eventually extending to medium-sized businesses. Business customers would do well to move early and consider whether sustainable finance can support reporting readiness.

6 May 2024

As businesses across the world continue to lift their investment in sustainability initiatives, there have been escalating market and stakeholder expectations for higher-quality, uniform climate and sustainability reporting. This has led to the emergence of a range of new international climate-related financial reporting standards.

Following other jurisdictions such as the UK and Singapore, the Australian Government has now set out its proposed rollout of mandatory climate-related financial reporting. These changes are expected to be passed into law in the coming months.

To help businesses of all sizes navigate what’s coming, we look at the requirements of the proposed reporting framework and pathways to prepare.

A view of what’s coming

The climate-related financial disclosures Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill 2024, was introduced to Parliament and referred to the Senate Economics Legislation Committee in March 20241. The Bill proposes to make climate-related financial reporting an obligation for the first group of the largest entities for financial years commencing from 1 January 2025. From there, the Government will step down the size thresholds, capturing a far broader group of organisations by 2027-28. A different size threshold applies for superannuation entities and other investment vehicles and other criteria apply to ‘registered corporations' reporting under the National Greenhouse and Energy Reporting Act 2007.

Large entities and their controlled entities meeting at least two of the following three criteria

Annual reporting periods  starting on or after

Consolidated revenue

 

EOFY consolidated gross assets

 

EOFY employees

 
 1 January 2025
 Group 1

 $500 million or more

 $1 billion or more

 500 or more
 1 July 2026
 Group 2

 $200 million or more

 $500 million or
 more

 250 or more
 1 July 2027
 Group 3

 $50 million or more

 $25 million or more

 100 or more


What needs to be reported?

Businesses will be required to make detailed disclosures regarding their governance, strategy, risk management, metrics and targets related to climate change.

  • Scope 1 and 2 emissions, expanding to Scope 3 (supply chain) from the second year of reporting.
  • The current and anticipated effects of climate-related risks and opportunities on the entity’s financial position, financial performance, and cash flows.
  • Scenario analysis for the reporting entity, which is used to inform an assessment of the resilience of the entity’s strategy and business model to climate-related changes.
  • Assurance requirements will be phased in over time, starting with limited assurance and eventually requiring all climate-related disclosures to be subject to reasonable assurance.

Where will it be reported?

  • Companies will need to include a sustainability report together with their financial report and both will need to be lodged with ASIC at the same time.
  • Depending on the type of entity, the sustainability report may also need to be publicly available on an entity’s website.

According to Nicky Landsbergen (Co-lead of the EY Sustainability Disclosure Hub) the proposed regulatory changes will extend to a significant number of Australian businesses across the economy. Nicky says that while many are already implementing environmental, social and governance initiatives, far fewer have the reporting capabilities the mandatory regime will require.

“Australian businesses have been focussed on developing and implementing sustainability actions, but many lack the governance, risk management and reporting capabilities to support the reporting and assurance to comply with the upcoming requirements,” Nicky says.

“An important first step for many businesses will be to conduct a gap assessment against the upcoming requirements in both internal processes and external disclosures across governance, strategy, risk management and metrics and targets. They will then need to develop an action plan to address gaps, which considers responsibilities and time horizons for reporting.”

Setting strong foundations

A key driver behind the introduction of the new reporting requirements is the need for markets to efficiently allocate capital and invest in initiatives that support climate-related goals, according to Chris Williams, Executive General Manager Major Client Group at Commonwealth Bank.

He says CommBank has a range of sustainable finance products to support businesses, including the recently launched Business Green Loan, the Green Building Tool for commercial property, and more structured sustainable finance products such as Sustainability-Linked Loans (SLL), which link the cost of borrowing to the client’s performance against predefined sustainability targets.

“The way an SLL works means it’s essential that a client has access to sustainability data and is in a position to set targets and gain assurance around reporting.

“Customers see there is alignment between sustainable finance requirements and the basic foundations of the upcoming reporting requirements. We are working with clients on sustainable finance structures that support their business case for developing reporting capability early,” Williams says.

Learn more

How can CommBank help your business achieve its sustainability goals and prepare for mandatory reporting? Visit the website

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  • 1 https://www.aph.gov.au/Parliamentary_Business/Bills_Legislation/Bills_Search_Results/Result?bId=r7176

    This article is intended to provide general information of an educational nature only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice. You should consider seeking independent financial advice before making any decision based on this information. The information in this article and any opinions, conclusions or recommendations are reasonably held or made, based on the information available at the time of its publication but no representation or warranty, either expressed or implied, is made or provided as to the accuracy, reliability or completeness of any statement made in this article.

    This is not an exhaustive outline of the requirements under the Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill 2024, and there are also exemptions. The requirements may change before being passed into law. The information above does not constitute advice in any form and may be subject to change. You should seek professional, independent advice on how these requirements impact your business.

    Credit provided by the Commonwealth Bank of Australia. Sustainability Linked Loans are only available to approved business customers and for business purposes only. Applications for finance are subject to the Bank’s eligibility and suitability criteria and normal credit approval processes. Full terms and conditions, interest rates and fees are included in the loan offer. Bank fees and charges may apply. Rates and fees are subject to change.

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