ARTICLE
18 January 2024

Australian Government Publishes Proposed Climate Disclosure Legislation

RG
Ropes & Gray LLP

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On Friday, the Australian government released an Exposure Draft proposing amendments to the Australian Securities and Investment Commission Act...
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On Friday, the Australian government released an Exposure Draft proposing amendments to the Australian Securities and Investment Commission Act and the Corporations Act that would require specified large businesses and financial institutions to make climate-related disclosures. Previous discovery and design consultations were held in December 2022 and June 2023, respectively. The comment period on the Exposure Draft is open until February 9.

Key aspects of the Exposure Draft are summarized below:

Reporting entities: Subject to the phase-ins described below, an entity generally would be required to prepare a sustainability report for a financial year if it has a financial reporting requirement under Chapter 2M of the Corporations Act (which includes among others public companies and large proprietary companies) and for the financial year it:

  • Meets at least two of the following three criteria: (1) consolidated revenue of at least A$50 million, (2) consolidated gross assets of at least A$25 million and (3) 100 or more employees.
  • Reports under the National Greenhouse and Energy Reporting scheme (emitters required to report because they exceed specified greenhouse gas emissions, energy production or energy consumption thresholds); or
  • Is an asset owner with assets valued at A$5 billion or more.

Sustainability report: Subject entities would be required to prepare an annual sustainability report. The sustainability report would consist of (1) a climate statement (see below), (2) notes to the climate statement, (3) any statements required by regulation and (4) a directors' declaration that the statements comply with the prescribed climate-related sustainability standards.

Climate statement: The climate statement would be required to include the following for the financial year: (1) the material climate-related financial risks and opportunities the entity faces; (2) any climate-related metrics and targets of the entity, including Scope 1, 2 and 3 greenhouse gas emissions; and (3) any governance or risk management processes, controls and procedures of the entity related to these matters.

If a smaller entity that is required to prepare a climate statement does not have material climate risks or opportunities for the financial year, its climate statement only would be required to include a statement to that effect. This exception only could be used by an entity to which none of the following apply: (1) it meets at least two of the following three criteria: consolidated revenue of at least A$200 million, consolidated gross assets of at least A$500 million and 250 or more employees; (2) it is subject to NGER reporting; or (3) it is an asset owner of assets valued at A$5 billion or more.

Alignment with other standards: Australian climate reporting generally is intended to align with the International Sustainability Standards Board standards, with modifications determined to be necessary to apply ISSB standards in the Australian context. For example, the Australian standards would incorporate Australia's national greenhouse gas emissions estimation methodologies and international climate change commitments.

Phase-in: Reporting requirements would phase-in over a four-year period – starting with financial reporting years commencing on or after July 1, 2024 – as follows:

  • Group 1: beginning with the financial year that commences on or after July 1, 2024. Consists of entities (1) meeting at least two of the following three criteria: consolidated revenue of at least A$500 million, consolidated gross assets of at least A$1 billion and 500 or more employees; or (2) subject to NGER reporting and meeting the Clean Energy Regulator publication threshold.
  • Group 2: beginning with the financial year that commences on or after July 1, 2026. Consists of entities (1) meeting at least two of the following three criteria: consolidated revenue of at least A$200 million, consolidated gross assets of at least A$500 million and 250 or more employees; (2) that are subject to NGER reporting more generally; or (3) that are asset owners with assets valued at A$5 billion or more.
  • All other entities: beginning with the financial year that commences on or after July 1, 2027.

Scope 3 emissions disclosures would not be required for the first year an entity is required to prepare a climate statement.

Assurance: Climate disclosures would be subject to assurance requirements similar to those currently applicable to financial reports. Entities would be required to obtain assurance from their financial auditor. The extent and level of assurance required will be set out in Australian assurance standards for climate disclosures to be developed by the Auditing and Assurance Standards Board in line with the International Auditing and Assurance Standards Board final standard. Audit requirements would phase-in over time, commencing with assurance of Scope 1 and 2 emissions disclosures beginning with the first reporting year. All climate disclosures would be required to be assured starting with 2030.

Safe harbor: There would be a partial safe harbor from liability for statements relating to Scope 3 emissions and scenario analysis for financial years commencing between July 1, 2024 and June 30, 2027.

Record-keeping: Reporting entities would be required to maintain relevant records for seven years. Consistent with existing rules regarding record-keeping for financial reports, failing to maintain records would be subject to both fault-based and strict liability.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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