On 27 June 2023, the Australian Treasury released a further consultation paper (consultation period open until 21 July 2023) on the introduction of a mandatory climate disclosure framework in Australia.
Under a phased-in approach, by 2027-28, all entities required to lodge financial reports will be subject to the disclosure framework. Larger entities fulfilling two of three criteria (consolidated revenue of AUD $500 million or more, consolidated gross assets of AUD $1 billion or more and 500 or more employees) will be required to lodge reports first, from 2024-25 with smaller entities which satisfy two of three criteria (consolidated revenue of AUD $50 million or more, consolidated gross assets of AUD $25 million or more, and 100 or more employees) having an extra two years to comply.
Under Treasury's proposed model, disclosure will be aligned with the ISSB climate standards released on 26 June 2023. These include requirements to disclose:
- material climate risks and opportunities in their annual reports, using qualitative and eventually quantitative analysis;
- climate resilience assessments against at least two possible future states, including the Paris Agreement goal to limit temperature increases to 1.5?C above pre-industrial levels and another state of the entity's choice (e.g. net zero emissions by 2050);
- climate transition plans and targets (if they have them); and
- scope 1 and 2 greenhouse gas emissions, with scope 3 emissions to follow after a 12 month grace period.
The AASB will now develop specific Australian standards aligned with the ISSB standards for consultation later in 2023. The Australian Government will also issue further guidance on scenario analysis, stress testing and transition planning to assist entities in quantifying and disclosing their climate risks.
Overall, the proposed new framework provides much needed clarity, transparency and standardisation on climate risk disclosure.
However it must be acknowledged that compliance costs will increase for investors financial product providers and investees and the requirements will require investment in appropriate human and technical resources to capture, analyse and disclose the data.
There will be an inevitable period of adjustment, as industry develops the required expertise and in that regard Government has proposed a three year moratorium on non-regulator actions for misleading and deceptive conduct concerning scope 3 emissions and forward-looking statements is sensible during this significant transition period. Industry needs to think whether such a limited moratorium is sufficient in the circumstances and use the opportunity provided by the consultation period to put forward its thoughts.
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