Climate disclosure and corporate accountability: What's changing?

For Australian corporations, climate change is often an issue that is front of mind.

Consider the effect that increased weather volatility will have on supply chains - no matter whether you consider the impact from a profitability or personnel perspective, it's tough to argue that climate change won't have a significant impact.

No matter where you fit within an organisation, whether you're a recent MBA online graduate or an experienced business executive, understanding disclosure requirements is often an essential part of day-to-day operations.

They can help investors understand what value a business has, what opportunities exist for growth, operational risks, and other issues that may be present within a corporate structure.

Recently, new legislation has been introduced by the Federal Government that will see changes to financial disclosure requirements.

Looking to improve corporate transparency on a vital issue, these mandatory requirements look set to bring Australia's corporate disclosure in line with other major players such as the European Union.

Climate change is an issue that affects every Australian - for some, in vastly different ways.

We've seen in recent years the havoc that extreme weather can have on the lives and livelihoods of ordinary Aussies - it's hard to believe that catastrophic events like the floods in Lismore were only a few short years ago.

As individuals, there's a lot that we can do to effect change in our communities.

Admittedly, a lot of the strategy discussed when talking about climate change is the role of personal responsibility - and while data shows that taking individual steps can make a difference, it's evident that corporations contribute heavily to climate change.

Many Australians invest significant amounts of money into the share market - Australia invests heavily within the share market, with the multi-trillion dollar superannuation industry ranking the fourth largest in the world, behind the United States, United Kingdom, and Canada.

As a result, it's reasonable to expect that companies can provide enough information for investors to make informed decisions.

There is interest in investment options that track sustainability metrics, with companies such as Australian Ethical and Future Super being two significant players in the space.

It's also clear that companies are not necessarily willing to share their current efforts to tackle climate change under the current reporting regime or are willing to greenwash initiatives.

Standardised disclosure is important because it puts entities on a level playing field. Think of it like having an electric car charger - with so many manufacturers and different designs, it can be a challenge to find a charger that works for your particular vehicle.

By enforcing a common standard, manufacturers (or in this case, organisations) have a common set of rules to follow, making it easier for even the simplest of investors to discern the differences between the values of two different groups.

Changes to climate-related financial reporting requirements don't impact every business - however, these changes will impact many larger businesses that may have existing reporting obligations under the Corporations Act or participate in the National Greenhouse Energy Reporting Scheme (NGER).

Overall, businesses that meet two of the following three criteria:

Will be required to comply with the new legislative requirements. Overall, it appears that more than five thousand entities will be required to comply with the new disclosure rules.

Fortunately, this isn't all happening at once - and there will be a transition period to allow for entities to make changes to comply with the new rules.

A multi-year transitional period is structured into the legislation, allowing organisations to transition to the new reporting regime.

Initial drafts of the legislation had this transition period set to come into effect in July 2024, however, this has been postponed to January 2025 due to delays to the introduction of the legislative changes.

Depending on the size of the respective entity, at least two of three thresholds must be met.

These cover common reporting parameters, including revenue, gross assets, and employee headcount. Organisations currently required to report under the NGER, but don't meet the entity thresholds, may be required to complete reporting under the new regime even sooner.

The first group of businesses set to be affected by the new reporting requirements include companies that:

Group 1 (first financial year commencing after 01/01/2025)

Group 1 organisations are typically large businesses - think along the lines of listed companies like Wesfarmers and Woolworths, or banks, like the Commonwealth Bank.

In subsequent financial years, more corporations will be required to comply with the new reporting regime.

When the transitional period is complete (expected to be the first financial year on or after 01/07/2027), it's projected that the new climate change reporting will impact more than 6,000 entities around Australia.

While this new legislation may not have garnered royal assent at the time of writing, it's important to note that these disclosure requirements are coming sooner than you think.

The Australian Securities and Investments Commission (ASIC) Chair, Joe Longo, certainly thinks it's time for businesses to get organised.

Commenting on the upcoming changes to climate change disclosure rules at a recent presentation he Deakin Law School International Sustainability Reporting Forum, Joe remarked that growing interest in environmental, social, and governance (ESG) issues looks set to drive the biggest change in reporting standards in a generation.

With both the broader Australian public, as well as regulators such as ASIC recognising their importance, upcoming changes to the climate-related financial disclosure requirements look set to transform the way that corporations around Australia report on sustainability goals.

While it's clear that much more needs to be done to tackle climate change, Australia's efforts to tackle reporting disclosure highlight how it takes more than just an individual to enact change.