The Government has introduced into Parliament the Treasury Laws Amendment (Financial Markets Infrastructure and Other Measures) Bill 2024 which includes requirements for entities that lodge financial reports under the Corporations Act, and that meet minimum size thresholds, to make climate-related financial disclosures. Background.

If passed, Schedule 4 to the Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill 2024 (Cth) will amend the Corporations Act and the ASIC Act to establish a mandatory climate reporting regime in Australia based on Australian climate disclosure accounting standards, in line with the ISSB’s IFRS S2 Climate-related Disclosures standard.

The new requirements generally apply to reporting entities from financial years starting on or after 1 January 2025.

Transitional provisions phase in these new obligations, generally depending on the size and type of the reporting entity, over 4 years.

Climate-related financial disclosures will be subject to similar assurance requirements to those currently in the Corporations Act for financial reports and will require entities to obtain assurance from an auditor.

Relevant entities must disclose information about their exposure to material climate-related financial risks and opportunities, including their climate-related plans, greenhouse gas emissions and governance processes, in accordance with the relevant sustainability standards made by the AASB. The new requirements build on the existing annual financial reporting framework through inclusion of a new ‘sustainability report’.

The sustainability report for a financial year will consist of:
• the climate statement for the year;
• notes to the climate statement;
• any statements prescribed by the regulations for the year;
• notes to those prescribed statements (if any); and
• the directors’ declaration about the compliance of the statements and notes with the relevant sustainability standards.

The amendments will ensure that sustainability reports are considered as part of an AGM alongside the current requirements to provide the financial report, directors’ report and auditor’s report for a financial year to members .

Who must prepare an annual sustainability report?

Generally, an entity must prepare a sustainability report for a financial year if that entity prepares an annual financial report for that financial year under Chapter 2M, and if it meets at least two of the following three criteria:
o the consolidated revenue of the entity (and the entities it controls) is equal to or greater than $50 million;
o the value of the consolidated gross assets at the end of the financial year of the entity (and the entities it controls) is equal to or greater than $25 million;
o the entity (and the entities it controls) have at the end of the financial year, 100 or more employees.

Smaller entities and asset owners are not required to prepare sustainability reports unless they are significant greenhouse gas emitters or consume large amounts of energy (indicators of relatively high exposure to climate risk).

ACNC-registered charities are excluded from the reporting obligation.

To avoid doubt, the Explanatory Memorandum states that where an entity is not covered by the above criteria (e.g. not generally required to report under Chapter 2M, or does not meet the above tests), they are not required to prepare a sustainability report for a financial year.

Transition

The first transitional period is from 1 January 2025 to 30 June 2026.

Entities that are in Group 1 must prepare an annual sustainability report for the financial year that commences during the first transitional period.

A Group 1 entity meets at least two of the following three criteria:
o the consolidated revenue of the entity (and the entities it controls) is equal to or greater than $500 million;
o the value of the consolidated gross assets at the end of the financial year of the entity (and the entities it controls) is equal to or greater than $1 billion;
o the entity (and the entities it controls) have at the end of the financial year, 500 or more employees.

The second transitional period starts on 1 July 2026 and ends on 30 June 2027.

Entities that are in Group 2 must prepare annual sustainability reports for the financial year that commences during the second transitional period.

A Group 2 entity meets at least two of the following three criteria:
o the consolidated revenue of the entity (and the entities it controls) is equal to or greater than $200 million;
o the value of the consolidated gross assets at the end of the financial year of the entity (and the entities it controls) is equal to or greater than $500 million;
o the entity (and the entities it controls) have at the end of the financial year, 250 or more employees.

All other entities to which the new requirements apply (Group 3) must prepare an annual sustainability report for each financial year that commences on or after 1 July 2027.

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