Legislation that has just passed the Australian Parliament will significantly increase and standardise reporting for Australia’s largest companies on their greenhouse gas emissions and the risks and opportunities they face from climate change.
Unsurprisingly, given the politically contested importance of climate change in Australia, responses to the legislation have been divergent.
The federal treasurer says the changes will “help Australia maximise the economic opportunities of cleaner, cheaper and more reliable energy, and better manage climate risks in our economy.” The opposition says the bill will “change our way of life. It’s going to cost more money to live.”
It is not surprising that there has been little discussion of this legislation in the general media. The provisions are in the soporifically titled Treasury Laws Amendment Bill (2024) and the bill actually deals with two different topics; powers for the Reserve Bank and ASIC to deal with a financial crisis, and climate-related financial disclosure by companies. This summary only deals with the second set of provisions.
The largest companies will be required to prepare “sustainability reports,” which include information on the climate-related financial risks and opportunities they face, as well as information on their greenhouse gas emissions and their related governance or risk management processes.
The obligation to produce a sustainability report will be phased in in three groups, starting with the largest corporations. Groups are required to report from the first financial year commencing in 2025, 2026 and 2027 respectively.
So, for the largest companies group whose financial year runs to 30 June, the first report will be for the 2025-2026 financial year. Exact numbers of companies affected is hard to quantify but assumptions in the policy impact assessment prepared by Treasury suggest that around 750 companies in each of the first two groups will be required to report.
The situation for the third group of companies is more complex. This group may extend to about 5,500 further companies, but they are not required to produce a full report if they state that they do not face “material risks” from climate change. This third group is companies that meet any two of three criteria: consolidated revenue of greater than $50m, assets of more than $25m or more than 100 employees.
It is important to note what the legislation doesn’t do. It does not directly require any organisation to reduce its greenhouse gas emissions or change its operations. It simply requires companies to report. The assumption is that with investors better informed on companies’ emissions and planning around climate change, companies will benefit if they prepare better.
The other caveat about the impact of the legislation is that it only applies to large companies, it does not require governments or other entities to report.
Several aspects of this extremely complex legislation have been contentious:
– The overall cost of compliance, particularly for smaller companies.
– A concern of flow-on costs to smaller entities because companies are required to report on the emission from the suppliers and customers (scope 3 emissions) as well as their own emissions.
– The limited indemnity provided to companies to protect them from legal action (other than by ASIC) for certain statements they make in their sustainability report for the first three years of the operation of the legislation.
Compliance costs are certainly significant, but need to be seen in the context of the overall costs of large companies, and the risks if climate impacts are ignored by companies and their investors and funders. Even the group 3 companies (not all of whom are required to prepare full reports) are substantial entities.
Many companies will have smaller suppliers, but the requirement for reports to include scope 3 emissions are not onerous. Companies are not required to report scope 3 emissions until their second year of reporting, are able to use supplier data from a year earlier and are not required to report data that their customers or suppliers “cannot provide easily.”
Lawyers engaged in climate related litigation have criticised the three-year limited indemnity period. Although it only applies to certain aspects of the required reporting, there is a concern that it will allow misleading statements to go unchallenged.
Overall the government is to be congratulated for introducing these reporting requirements, which are in line with international moves in this area over the last few years.
Those arguing that emergency action is required to reduce emissions as soon as possible will be disappointed that this legislation does not directly require any emissions reduction. But it will certainly raise the awareness of climate risks and opportunities, and has direct and enforceable requirements on companies, their senior management, professional advisors, and (from 2030) their auditors.
Will this disclosure regime lead to real action on climate impacts, or just to more detailed greenwashing? Only time (and independent evaluation of companies reports once they are released) will tell.
Jason Ketchall is the University of Tasmania Acting Discipline Leader for Accounting. Jack Gilding is a casual staff member who developed some of the content for the UTas Undergraduate Certificate in Climate Accounting.
