Climate-related Disclosures Set to Increase
The demand for businesses to disclose information about their sustainability has increased over recent years. Stakeholder groups are seeking an understanding of organisations ESG issues when making decisions.
There are currently no mandatory requirements in Australia for companies to disclose ESG information, however many organisations are disclosing voluntarily. Most Australian organisations use a combination of frameworks, including disclosures created by the Task Force on Climate-Related Financial Disclosures (TCFD).
Task Force on Climate-related Financial Disclosures (TCFD)
The TCFD was established in December 2015 by the Financial Stability Board (FSB) to design a framework that promotes market transparency of climate-related financial risks. They identified the information needs of stakeholders such as investors, lenders, and insurance underwriters. Final recommendations were issued in June 2017. Businesses across the globe have used the TCFD framework for making climate-related disclosures, with numbers increasing each year.
In June 2023, the International Sustainability Development Standards Board (ISSB) issued two IFRS Sustainability Disclosure Standards, IFRS S1 regarding disclosures of sustainability-related financial information and IFRS S2 climate-related disclosures, which is based on the TCFD framework.
Mandatory climate-related disclosures in Australia
Treasury released a consultation paper in June 2023 detailing a timeline for mandatory climate-related financial disclosures to be implemented in Australia.
Depending on the number of employees in the company, its gross assets, and its revenue, the starting mandatory reporting date ranges from 2024–25 to 2027–28. These disclosures are modelled on the TCFD framework and IFRS S2.
The Australian Accounting Standards Board (AASB) is expected to issue an Australian equivalent of IFRS S1 and IFRS S2 by the end of 2023.
Initially, the mandatory disclosure requirements relate to companies required to lodge financial reports with ASIC. It is expected in future that this disclosure requirement will include other organisations including not for profits.
What disclosures are required?
Climate-related disclosures are separated into four pillars:
• Governenace: Information that enables users to understand the governance processes, controls and procedures the entity uses to monitor, manage and oversee climate-related risks and opportunities.
• Strategy: Information that enables investors to understand the entitiy’s strategy for monitoring climate-related risks and opportunities. This includes information about the resilience of the entity to climate-related changes, developments and uncertainties.
• Risk Management: Information that enables users to understand the processes the entity uses to identify, assess, prioritise and monitor climate-related risks and opportunities.
• Metrics & Targets: Information that enables investors to understand the entitiy’s performance in relation to its climate-related risks and opportunities. This includes information about the entity’s Scope 1, 2 and 3 greenhouse gas emissions.
Future disclosures
The FSB have also established the Task Force on Nature-related Financial Disclosures (TNFD), who released their final recommendations in September 2023. The ISSB are expected to add the development of a nature-related disclosure standard to their work program.
Currently, sustainability standards are focused on environmental issues as this is the most urgent, however additional standards covering social disclosures are expected in future years.
For more information on ESG reporting, HRIA members can contact HLB Mann Judd or go through the HRIA membership portal.
Kim Kelloway
Head of Clients & Markets
T: +61 (0)2 9020 4285
E: kkelloway@hlbnsw.com.au
