Proposed climate-related financial disclosure regime

The Regime is intended to implement standardised, internationally aligned reporting requirements via domestic standards and associated legislative amendments. The Consultation Paper proposes that climate-related disclosure requirements will be drafted as civil penalty provisions in the Corporations Act 2001 (Cth) (Corporations Act). In summary, the Government proposes:

Phased approach for implementation based on prescribed size thresholds:

Reporting requirements will be phased in over time, based on the size of the entity. A proposed three-stage approach would iteratively cover the groups of entities outlined in the below table. Additionally, entities reporting under the National Greenhouse and Energy Reporting Act 2007 (Cth) (NGER Act) would similarly be phased in.

AND

Detailed domestic standards will prescribe reporting requirements:

The domestic standards will be developed by the Australian Accounting Standards Board (AASB) and are expected to be released imminently for public consultation.

The standards are intended to be aligned, as far as practicable, with the International Sustainability Standards Board's standard IFRS S2 Climate-related Disclosures (ISSB Climate Standard). The ISSB Climate Standard follows the four-pillar core content framework across governance, strategy, risk and opportunities, and metrics and targets.

Phasing and scaling of assurance for disclosures:

Climate disclosure assurance means that reporting will be subject to external audit processes to enhance accuracy and credibility of disclosures. Providers of assurance for climate-related financial disclosures will be required to be independent from the entity being audited (in line with the requirements under Part 2M.4 and section 307C of the Corporations Act and auditing standards). The Consultation Paper sets out the following preferred policy parameters for climate disclosure assurance:

• a requirement for 'limited assurance', moving to 'reasonable assurance' over time;
• 'reasonable assurance' of scope 3 as a final step in scaling requirements;
• assurance would need to be provided against the Australian equivalent standards to the ISSB Climate Standard and Corporations Act, and associated regulations, in line with Australian Auditing and Assurance Standards Board standards; and
• assurance to be carried out by a qualified and experienced independent provider (conducted or led by the financial auditor).

Interim modified liability regime:

The Consultation Paper provides that certain reporting requirements (including disclosures of scope 3 emissions, and forward-looking statements such as those made as to scenario analysis and transition planning) will be afforded protection from misleading or deceptive conduct, false or misleading representations, and similar claims, for three years from the commencement of the Regime. However, the modified liability only applies to limit claims by private litigants — therefore, ASIC and other regulators will still be able to take action.

Step 1: Determine which (if any) reporting 'Group' your organisation falls into, and – when further detail is available – your organisation's reporting boundaries.

Step 2: Conduct a gap analysis to identify alignment and any differences between current climate governance and disclosure practices, and likely disclosures under the Regime (taking into account that a significant number of large, listed entities are already reporting in accordance with the TCFD Recommendations or a similar international framework). In so doing, take into account the more restrictive and codified nature of mandatory reporting, compared to voluntary TCFD reporting.

Step 3: Consider what climate governance changes the organisation ought to make in preparation for disclosures, having regard to the state of knowledge. For example, some organisations may be prompted by the Regime to update their risk management frameworks to better embed climate risk, or start to develop a transition plan if they don't already have one.

Step 4: Consider how the reporting framework will be operationalised within the organisation, particularly in relation to the more comprehensive requirements, such as disclosing scope 3 emissions. When operationalising the reporting framework, we recommend that entities review and potentially uplift certain internal policies, procedures and controls to ensure the relevant functions 'own' the relevant aspect of the Regime (eg ensuring there is a policy that sets out when and how the legal team will review and verify any disclosures made under the Regime — ie step 8 below).

Step 5: To ensure you have the appropriate data required to satisfy your reporting obligations, we recommend that entities review and potentially uplift existing contractual arrangements with counterparties in your value chain, to ensure they provide you with access to the data you are likely to need to satisfy your reporting obligations under the Regime (eg emissions data for scope 3 reporting).

Step 6: Consider whether the organisational structure supports streamlined reporting, and if not, whether any changes in the organisational structure may be justified.

Step 7: Conduct a legal review of how the Regime will impact your organisation's other legal requirements — eg liability for disclosures, directors' duties, continuous disclosure obligations and other obligations under the Corporations Act.

Step 8: Develop a strategy in conjunction with legal function to mitigate greenwashing risk – eg developing a verification and document management framework to make supporting documents and information readily available should any representations as to climate matters be scrutinised.

Step 9: Engage with external providers to understand and plan for assurance processes as required under the Regime.

Step 10: For data consumers (regardless of whether covered by the new Regime or not), consider how the organisation will access, analyse and utilise mandatorily disclosed data from third parties in the market.

Step 11: Ensure the board and senior/executive management are briefed on the Regime, and ensure that appropriate legal advice is made available for board members to understand the responsibility that they will assume when signing off on the mandatory disclosures (given that the Consultation Paper signals that disclosures will be required in directors' reports).