Mandatory climate reporting draft legislation released for consultation

Thursday, 18 January 2024


    On 12 January 2024, the Australian Government released its exposure draft mandatory climate reporting legislation, which could see the largest emitters, corporations and financial institutions disclosing from 1 July 2024. With the commencement of Australia’s climate reporting regime now one step closer, we take a look at what directors need to know.

    Key takeaways:

    • The Australian Government has released its highly anticipated mandatory climate reporting exposure draft legislation for consultation (Exposure Draft) largely in accordance with Treasury’s June 2023 Proposal, with certain technical amendments.
    • Implementation will involve a three-tiered phased-in approach based on organisational size, commencing with disclosures from the largest emitters, financial institutions, and companies (roughly equivalent to the ASX 200 and their private equivalents) against International Sustainability Standards Board (ISSB)-aligned standards (as adapted to Australia by the AASB)- possibly as early as 1 July 2024.
    • The Government’s Exposure Draft has responded to liability concerns raised by the AICD and others in retaining its proposal for a fixed, three-year regulator-only enforcement period for claims relating to certain forward-looking climate statements, and provided relief from reporting requirements for smaller entities that do not face material climate-related risks or opportunities.   

    What is proposed in the Exposure Draft?

    • WHO must report and WHEN: The Exposure Draft retains Treasury’s June 2023 Proposal (June Proposal) for a three-tiered phased approach to implementation based on organisational size. These include:

    Table 1: Source: Treasury's Climate-related Financial Disclosures Policy Statement (Jan, 2024)

    Although the Exposure Draft proposes a 1 July 2024 commencement date for Group 1 entities, the Government is seeking views as to whether a 1 January 2025 start date would improve the quality of reporting in the intervening period.

    Also, in a change to the June Proposal, only those Group 3 entities which face material climate-related risk or opportunities will be required to disclose under the regime. Whether an entity faces material climate risks or opportunities will be determined by the Australian Sustainability Standards (currently open for consultation with the Australian Accounting Standards Board (AASB)). Where Group 3 entities assess that they do not have material risks or opportunities, they will need to disclose a statement to that effect. The rationale for this ‘comply or explain’ approach is to reduce regulatory burden for smaller and less resourced entities.

    While the size thresholds and commencing dates have remained broadly unchanged[1] from the June Proposal, the Exposure Draft has included a new Assets Under Management (AUM) threshold, with those with $5 billion or more in AUM being required to disclose from 1 July 2026.

    The Draft Bill has also clarified that reporting is only required at the consolidated group level, by the consolidated group head.

    Importantly, charities registered with the Australian Charities and Not-for-Profits Commission (ACNC) are not required to report. However, Not-for-Profits (NFPs) who are not registered with the ACNC and which meet the above size thresholds are covered by the regime. Of course, those NFPs that do not face material climate-related risks or opportunities may benefit from the reporting exemption where they meet the Group 3 criteria.

    • WHERE will the disclosures be set out? Disclosures are to be made annually in a separate Sustainability Report which sits within the Annual Report (the other ‘parts’ of the Annual Report being the Financial Report, Directors’ Report and Audit Report).
    • WHAT DISCLOURES will be required: Entities must disclose under the Australian Sustainability Standards, which are an Australian adaptation of the ISSB Standards (these are being developed by the AASB and subject to a consultation). This includes governance, strategy, risk management, and metrics/targets disclosures – with scope 1 and scope 2 greenhouse gas emissions from the first reporting year onwards, and scope 3 emissions from the second reporting year onwards.

    Directors will be required to declare their opinion on whether climate statements and notes comply with the Australian Sustainability Standards and the content requirements under the Corporations Act. This directors' declaration will be narrowly confined to the Sustainability Report, separate to the Financial Report and Directors' Report declarations.

    • WHAT ASSURANCE will be required: Assurance is mandatory but will be phased in starting with limited assurance over Scope 1 and 2 emissions for those disclosing from 1 July 2024, with the aim of having all climate disclosures subject to assurance from 1 July 2030. The audit of the Sustainability Report is to be done by the financial report auditor, but can be supported by technical climate and sustainability experts where appropriate.
    • WHAT are the consequences for not complying/poor compliance? The Exposure Draft introduces a number of new civil penalties, including the failure to keep sustainability and sustainability audit records; failure to prepare a Sustainability Report when mandated to do so; and failure to conduct a Sustainability Report audit in accordance with the auditing standards. Importantly, the Exposure Draft provides that a fixed three-year regulator-only enforcement period will apply to scope 3 emissions and certain climate-related forward-looking statements, including scenario analysis(Transitional Relief). This means that, during the Transitional Relief period of 1 July 2024 to 30 June 2027, only ASIC (and not private litigants) can bring actions under misleading and deceptive conduct provisions in relation to scope 3 emissions or scenario analysis where the claim alleges a breach of a Commonwealth law with a fault element, or where the remedy sought is limited to a declaration or injunction. The Transitional Relief also does not apply to criminal proceedings.

    AICD’s view

    The scale of change for entities ahead cannot be overstated. Reporting under the detailed and granular ISSB standards is complex and requires entities to make projections over long-time horizons, often on the basis of limited data and inherently uncertain estimates or assumptions. The nature of forward-looking climate statements heightens liability risks faced by Australian directors providing sign-off on corporate disclosures, given unique aspects of Australian law.

    The AICD is therefore pleased to see the Government’s Exposure Draft retain the Transitional Relief mechanism – for which we were a strong proponent. It is a sensible measure that provides the opportunity for reporting practices to evolve and incentivises organisations to make high quality, comparable disclosures, without the undue risk of private litigation.

    Directors will be required to issue and sign a director’s declaration that, in the directors’ opinion, the Sustainability Report is in accordance with the Sustainability Standards and Corporations Act requirements. The requirement for scope 1 and 2 emissions to be audited from the outset can provide some additional comfort to directors (with companies free to voluntarily obtain audit over all other disclosures). However, there are a range of disclosures over which assurance may not be readily available (such as scope 3 emissions) for some time. Rigorous due diligence processes will be required and directors should be prepared to constructively challenge management in relation to the veracity of disclosures, paying particular attention to the uncertainties, assumptions and judgments underpinning disclosures.

    [1] The only exception is the requirement that all NGERS registered corporations report from 1 July – the June Proposal had only required they disclose from 1 July 2027.

    For more practical steps that directors can take, including key questions to ask of management, see the Climate Governance Imitative (CGI) Australia’s Director’s Guide to Mandatory Climate Reporting. We note that as a result of the release of the Exposure Draft legislation, the AICD is currently updating the Guide for key technical amendments proposed to the reporting framework and related policy developments.

    Next Steps

    Consultation on the Exposure Draft will close on 9 February 2023. The AASB’s consultation on the draft Sustainability Standards is also due to close on 1 March 2023 (see AICD article on the draft Standards here). The AASB is hosting a number of outreach events to ensure a broad consultation process. If you are interested, we would encourage you to register for one of these events here.

    The AICD will be providing submissions to both consultations. We welcome member views on release of the Exposure Draft, at

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