Australia is moving closer to implementing a mandatory climate risk disclosure framework, with the Senate recently passing the Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill 2024. This legislation provides standardised reporting requirements for businesses to disclose climate related financial issues and opportunities. The bill, which is a crucial step towards enhancing climate transparency, will be returned to the House of Representatives in September for further consideration.
Key Amendments and Implications
The Senate passed the bill on Thursday, with minor but significant amendments. These changes particularly affect scenario analysis disclosures, requiring businesses to assess and report on the potential impact of two distinct climate scenarios:
- Low Warming Scenario: Aligns with the most ambitious goals of the Paris agreement, where global temperatures increase by only 1.5 degree Celsius above pre-industrial levels.
- High Warming Scenario: Represents a more severe outcome, where temperatures exceed 2 degrees Celsius above pre-industrial levels, indicating a future with more severe climate impacts.
These amendments are based on advocacy from such as the Greens and Senator David Pocock, who emphasised the need for transparency in higher temperature scenarios. This means that businesses must now align these mandated scenarios with their current climate risk assessments, which could involve revisiting.
While the Senate made these specific changes, no further amendments were passed, leaving other aspects of the bill — such as the modified liability regime, phased implementation, and reporting thresholds — intact. This means that the original timelines and requirements for businesses remain unchanged.
The mandatory climate reporting regime is set to commence on 1 January 2025. Initially, it will apply to Australia’s largest listed and unlisted companies, financial institutions, and other major businesses, with a phased introduction for additional entities over the course of time.
Government and Regulatory Guidance
Jim Chalmers emphasised the importance of these reforms, highlighting that they will provide much-needed clarity for businesses and investors as they navigate the transition to a net-zero economy. This move will enhance Australia’s position as a preferred destination for international capital.
The Australian Accounting Standard Board (AASB) is preparing to issue new, international standards to guide businesses in their compliance. Meanwhile, ASIC Chair Joe Longo has advised businesses to start preparing now, despite the official start date being over a year away. Companies should focus on organising the necessary data, support structures, and governance frameworks to ensure that they comply with the new reporting regulations.
If you have any questions or need assistance with preparing for the new climate reporting requirements, please do not hesitate to reach out and contact us.
*Correct as of 10 September 2024
*Disclaimer – Kreston Stanley Williamson has produced this article to serve its clients and associates. The information contained in the article is of general comment only and is not intended to be advice on any particular matter. Before acting on any areas in this article, you must seek advice about your circumstances. Liability is limited by a scheme approved under professional standards legislation.
