Introduction

Following the passage of the legislation by the Australian Parliament, the AASB approved two inaugural sustainability reporting standards modelled after international guidelines and incorporate local legislation.

Climate first approach

Unlike the International Sustainability Standards Board standards, Australian sustainability standards have adopted a climate-first approach by making AASB S2 Climate-related Disclosures mandatory. Companies with reporting obligations must disclose key climate-related areas, including:

• governance and strategies
• risks and opportunities
• metrics and targets concerning emissions, covering direct emissions (Scope 1), energy consumption (Scope 2), and value chain emissions (Scope 3).

Additionally, AASB S2 incorporates changes mandated by legislation, including enhanced scenario analysis. Entities must disclose scenario analysis using at least both of the following scenarios:

• low warming scenario: global average temperature increase is limited to no more than 1.5 degrees
• high warming scenario: global average temperature increase exceeds 2.5 degrees.

Voluntary sustainability disclosure for other topics

AASB S1 General Requirements for Disclosure of Sustainability-related Financial Information covers various sustainability topics including biodiversity and human capital and remains a voluntary standard. This approach contrasts from the ISSB standards which phase  in additional issues from the second year after climate disclosures.

To assist companies in adopting the ISSB-based sustainability standards voluntarily, the IFRS Foundation has published guidance for preparers.

Audit requirements

With the publication of the accounting standards, we are one step closer to implementation. The first group of companies must start reporting for the financial year ending 31 December 2025. However, one key missing piece is the auditing standards, as the company’s financial auditor will audit the sustainability report. The Auditing Assurance Standards Board (AUASB) is currently consulting with stakeholders to determine the assurance rollout for climate-related disclosures. By 2030, all sustainability reports will be subject to audit.

Based on the most recent exposure draft, the proposed audit requirements will be phased in. In the first year of reporting, different content will be subject to varying assurance requirements:

• limited assurance over Scope 1 and 2 emissions for the first year, moving to reasonable assurance thereafter
• other areas of disclosure will gradually be subject to review or audit from the second year onwards.

How SW can help

To make sure you are prepared, SW can conduct a gap analysis and create a road map to guide you on your sustainability journey.

Our audit and advisory experts are well-versed in sustainability accounting standards and will guide your business through any Australian reporting developments.  

Keep an eye out for our alerts on the finalisation of the sustainability reporting assurance standard. 

Contributors

Jimmy Cao

The post From legislation to action: Australia’s sustainability reporting standards finalised appeared first on SW Accountants & Advisors.

Introduction

To enhance the transparency and accountability of climate-related matters, on 9 September 2024, the Australian Parliament passed Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill 2024.  

This highly anticipated bill mandates that large entities adhere to the new sustainability reporting standards issued by the AASB, which align with international standards. The first group of entities will be required to submit their sustainability reports from annual reporting periods beginning 1 January 2025, with smaller entities being phased in over the following years.  

New reporting requirements

A new sustainability reporting requirement has been introduced for disclosing information on climate-related matters. When applicable, the sustainability report must be prepared alongside the annual report. This report will adhere to sustainability reporting standards issued by the Australian Accounting Standards Board, which are closely aligned with international standards.

This alignment will ensure much-needed comparability across companies. The Australian equivalent standards propose making climate reporting mandatory, while other sustainability topics, such as biodiversity and human capital, remain optional.

Additionally, the final bill mandates further scenario analysis based on feedback from Parliament. Entities must disclose scenario analysis using at least both of the following scenarios:

• Low warming scenario: global average temperature increase is limited to no more than 1.5 degrees and
• High warming scenario: global average temperature increase exceeds 2.5 degrees

Who has to prepare annual sustainability reports and when

The government proposes a phased approach based on the size of the entities. The table below sets out the details of the threshold and date for the implementation.

The above Table is summarised from Explanatory memorandum of the bill

Group 3 entities are required to make climate disclosure if they have material risks or opportunities.

What happens to the sustainability standards?

Following the consultation feedback, the AASB has decided to revise the titles and numbering of the sustainability standards to align with IFRS S1 and S2. The new titles will be AASB S1 General Requirements for Disclosure of Sustainability-related Financial Information and AASB S2 Climate-related Disclosures. AASB S1, which covers broader sustainability topics, will be a voluntary standard, while AASB S2, focusing on climate, will be mandatory. The standards are expected to be issued in the coming weeks.

What do companies need to report?

The disclosures will need to follow the stainability standards issued by the AASB. The key areas of disclosure include: 

• governance and strategies for climate-related matters
• risks and opportunities associated with climate change
• metrics and targets associated with emissions. This includes direct emissions by the company and from energy consumption (Scope 1 and 2 emissions) and emissions in the value chain (known as Scope 3 emission).

In addition to a qualitative description of the risks and opportunities, the company is also required to disclose quantitative scenario analysis. There are several reliefs proposed by the government in relation to more complex disclosure of Scope 3 emission and quantitative analysis.

The above disclosure will need to be included in a new annual sustainability report. The structure and content of the sustainability report consists:

• the climate statements for the year
• any notes to the climate statements
• any statements required by other legislative instruments to include matters concerning environmental sustainability.
• the directors’ declaration about the statements and the notes.

The annual sustainability report will be presented together with the financial report.

Audit requirements

The company’s financial auditor will audit the sustainability report. The auditing standards setter, AuASB, is currently consulting with stakeholders to determine the required level of assurance for climate-related disclosures.

Based on the most recent exposure draft, we understand the proposed audit requirement will also be phased in. We expect that in the first year of reporting, different content will be subject to different assurance requirements as below:

• limited assurance over scope 1 and 2 emissions for the first year and moving to reasonable assurance thereafter
• Other area’s disclosures will be gradually subject to review or audit from the second year onwards. 

What are the next steps?

• Start preparing now!
• Familiarise yourself with the content of the proposed standards and how it affects you
• Perform a gap analysis to identify data/capability requirements
• reach out to your SW contact to help you get started

How SW can help

We can conduct gap analysis and prepare a road map to guide you on your journey.

Our team of audit and advisory experts are fully informed of the requirements of the sustainability accounting standards and can assist with providing guidance for your business, as well as keeping you abreast of developments from an Australian reporting context.

Keep an eye out for further alerts from us in respect of the finalisation of the sustainability standards by the AASB which is expected in the next few weeks, the sustainability reporting assurance standard under development by the AuASB and any announcements from ASIC on this new area.

Contributors

Jimmy Cao

The post Australian Parliament passes mandatory climate reporting legislation appeared first on SW Accountants & Advisors.

We collaborate with seasoned scientists and subject matter experts to deliver a wide spectrum of sustainability-focused solutions tailored to our clients’ specific needs.

We have an accredited auditor who is registered under the Australian Government Clean Energy Regulator, Greenhouse and Energy Auditor (Category 2) under 75A of the National Greenhouse and Energy Reporting Act 2007. He has been providing assurance services as a Category 2 auditor since 2012.

Proven clean energy assurance experience

Our comprehensive range of audit and assurance services covers all schemes overseen by the Clean Energy Regulator and Climate Active including:

• National Greenhouse and Energy Reporting
• Emissions Reduction Fund
  • Soil carbon
  • Savanna fire management
  • Reforestation projects 
• Renewable Energy Target
• Safeguard mechanism
• Emissions intensive trade exposed
• Climate Active verification audits
• Carbon Disclosure Project (CDP) 

These assurance services focus on the following key aspects:

• Verification of reported emissions reductions data to ensure accuracy and completeness.
• Reviewing carbon abatement estimation tools, such as SavCAM, FullCam, GIS abilities
• Review interaction with the guarantee of origin (GO) scheme and offsets integrity standards
• Verification of project activities to ensure they meet the eligibility requirements under the ERF
• Identification and reporting of any potential non-compliance issues that may arise during the auditing process
• Providing guidance and support to help businesses navigate the reporting and auditing requirements under the ERF
• Our expertise in auditing for the clean energy sector allows us to help businesses meet their compliance obligations under the ERF and contribute to Australia’s emissions reduction goals.

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In a business context, it’s about understanding your competitive edge, driving innovation, examining your productivity and efficiency for gains in energy, waste and water. It is rejuvenating how and why companies do business, and who they do it with.

Our team offer specialised options considering how to develop and implement integrated renewable energy solutions for businesses that operate across several sites. We are working with leading edge technology and market players to unlock opportunities for business owners, their employees and communities.

Key issues facing Boards & Executive:

• rising expectations of investors, customers, stakeholders
• Boards expected to provide ESG oversight & governance
• reducing energy costs and reducing your carbon footprint
• tell your sustainability story and control the narrative or someone else will
• increasing pressure for appropriate disclosures
• pressure to be able to measure and report on performance
• Director liabilities and penalties for poor governance of sustainability performance
• environmental matters e.g. climate risk disclosure
• multiple emerging sustainability risks and liability scenarios
• developing relevant sustainability policies and practices that align with your teams’ expectations.

Our sustainability services

Our experienced team can provide a range of assistance, depending on where you are on your sustainability journey including:

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