As the Australian business community prepares for the introduction of new mandatory climate reporting standards and the revised Global Reporting Initiative (GRI) standards, it's an opportune moment to understand the upcoming changes and initiate planning. While these standards are still in the relatively early stages and are currently in the exposure draft phase, we'll provide a brief overview of immediate actions you should consider.
Emerging climate change reporting requirements
Mandatory: IFRS Climate-related Disclosures as adopted in the Exposure Draft released in October 2023 by the Australian Accounting Standards Board.
Voluntary: The draft GRI Standards for Climate Change.
What you need to do
For both seasoned reporters and newcomers to climate reporting, we recommend
the following essential steps:
Familiarisation with frameworks: Gain a comprehensive understanding of the frameworks and standards relating to Climate Change and your organisation, and conduct a gap analysis to determine any differences between your current reporting practices and the new requirements. Map out a feasible plan to meet the minimum reporting requirements for your company within the required timeframes, and the resources and expertise you’re going to need to call on.
The IFRS Climate-related disclosures and the GRI Standard for Climate Change frameworks comprehensively cover the financial and non-financial assessments and reporting requirements respectively. A comprehensive review of both reveals their complementarity, especially given the GRI Standard's detailed guidance on non-financial impacts by urging the review of the broader interconnectedness of Climate Change and sustainability. Both frameworks also outline the necessary links to other relevant and existing frameworks (e.g. TCFD) and the latest international agreements and Australian commitments. If you don’t already utilise the GRI Standards for your sustainability reporting, we still recommend you consider reviewing the draft GRI Standard for Climate Change. An overview of the key features for both frameworks is provided below.
Strategic governance and competency: Implement strong governance structures to supervise and improve reporting systems and processes. Evaluate the current state of climate governance, disclosure practices, and the competency of company management. This may necessitate the establishment of a dedicated climate change committee to support the board in fulfilling its responsibilities. For competency, educate the board, management and all other internal stakeholders involved in company financial or sustainability disclosures about the new requirements to disclose material information about significant sustainability-related risks and opportunities across the organisation. For further guidance, refer to the Climate Governance Initiative Australia, an organisation aimed at equipping members with the skills and knowledge needed to make climate a boardroom priority.
Assemble your reporting team: When compiling Climate Change disclosures, it is crucial to maintain a cohesive narrative across all levels of an organisation. This involves fostering close collaboration among various departments, including finance, legal, risk, marketing, and sustainability teams. Avoiding isolation ensures consistent and integrated reporting that aligns with financial statements. Assemble your team early and map out the reporting requirements and key accountabilities.
Preparation of data and information: Review the existing or proposed data management plan required to meet the reporting requirements, noting the requirements extend well beyond Scope 1 and 2 emissions, and will likely require a dedicated data analyst across numerous datasets across the organisation. Data management will need to consider the tracking of progress against transition plans and targets, and detailed financial impacts and considerations. Importantly, factor in the third-party assurance requirements, availability and timing within the plan.
Furthermore, with the requirements extending to include Scope 3, engage with stakeholders in the value chain to understand their emissions, particularly in relation to your organisation and determine how data can be captured for the material emissions. Focus on the material emissions and seek guidance from your industry, peers and seek out external report to facilitate initial assessments. With the difficulties in collating datasets from multiple parties in the value chain, it is essential that you look at Scope 3 as soon as practicable. For complicated value chains, initial assessments and assembling Scope 3 datasets can take up to 6 months.
Continuous improvement: View climate reporting as a continual journey of enhancement. Identify and rectify gaps by investing in upskilling, leveraging technological advancements, and seeking external support. Acknowledge the evolving nature of climate reporting quality over time, emphasising the importance of starting early and recognising that reporting depth and quality will improve progressively.
Australian Sustainability Reporting Standards: Disclosure of Climate-related Financial Information
From 2024, Australian businesses will face a new paradigm in climate reporting. This move is aimed at enhancing transparency and aligning with global standards. Large businesses are the first in line, with smaller entities to be phased in over the next few years.
The Exposure Draft released in October 2023 by the Australian Accounting Standards Board (AASB) sets out the reporting requirements, adopted from the International Financial Reporting Standards (IFRS) released in June 2023:
The IFRS disclosures aim to create a single international language for reporting sustainability-related financial disclosures for opportunities and risks across an organisation’s value chain. The good news is, that companies that already report using the TCFD should be well-placed to meet the new mandatory reporting standards. However, the mandated disclosures will necessitate a heightened level of precision and quantitative data, inevitably introducing an augmented strategic and reporting workload during the initial reporting cycle(s). Despite these challenges, the amalgamation of TCFD and other reporting frameworks into the newly prescribed reporting standards imparts a measure of clarity to the requisites and anticipations, establishing a more equitable operational landscape for Australian companies.
Who needs to report?
The current proposal for mandatory climate reporting would be for a phased approach that would initially apply to large companies and financial institutions and those companies already reporting under the NGER Act. The disclosures are required to be made within the organisation’s Annual Financial Reports and issued at the same time as the publication of financial statements, covering the same reporting period as the financial statements. For further information refer to The Treasury’s Consultation paper – Climate-related financial disclosure, released June 2023.
Organisations that are not subject to compulsory climate reporting may opt to voluntarily disclose information by the requirements. This decision is often driven by the desire to attract capital, especially during a period when investors are prioritising the management of climate risk within their investment portfolios.
The Global Reporting Initiative (GRI): Climate Change Standard
The GRI is also adapting, proposing the new GRI Topic Standard for Climate Change, as well as an updated GRI Energy Standard. As part of the revision of GRI climate change related Standards, the content of GRI 302: Energy 2016, GRI 305: Emissions 2016 (Disclosures 305-1 to 305-5) has been updated, while GRI 201: Economic Performance 2016 (Disclosure 201-2: Financial implications and other risks and opportunities due to climate change) has now been integrated into the new draft Climate Change Standard. The new draft Standard and revisions come with extensive guidance and represent internationally agreed best practices by aligning with the recent developments and the relevant authoritative intergovernmental instruments in the field of climate change, GHG emissions and energy consumption.
Who needs to report?
The GRI Standards offer a framework for voluntarily reporting on a wide range of sustainability topics and are widely recognised as a leading tool for sustainability reporting globally. When it comes to climate change reporting within the GRI Standards, organisations are encouraged to identify and report on climate-related issues that are material to their business and that have a substantial impact on their economic, environmental, and social performance.
Where to get help
Our specialists are well versed in regulatory requirements, disclosure frameworks and climate change management - including scenario planning and risk management. We provide both capacity building advisory and hands on support.
References
Climate-related financial disclosure. Consultation paper. June 2023
IFRS S2 Sustainability Disclosure Standard - Climate-related Disclosures. Issued by the International Sustainability Standards Board (ISSB). June 2023
Exposure Draft ED SR1 Australian Sustainability Reporting Standards – Disclosure of Climate-related Financial Information. October 2023.
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