Mandatory climate-related disclosures – an overview
As you may be aware, on 1 January 2025 the Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill (Bill) came into effect. The Bill amended the Corporations Act 2001 (Cth) (Act) to incorporate new disclosure provisions into Chapter 2M of the Act requiring certain entities (Disclosing Entities) to keep sustainability records, prepare sustainability reports and to have those sustainability reports released annually (or, in the case of quoted entities, released with half-yearly reports). These disclosure requirements are in addition to the existing financial disclosure requirements contained in Chapter 2M of the Act.
Who must prepare an annual sustainability report?
The sustainability reporting requirements are being phased in over three years, across three groups of reporting entities in accordance with the table below:
| First annual report period starts on or after | Entities required to prepare a financial report under Chapter 2M of the Act who meet at least two out of these three criteria | Entities required to prepare a financial report under Chapter 2M of the Act who meet one of these two criteria | |||
| Consolidated revenue | End of financial year consolidated gross assets | End of financial year employees[1] | Entities registered or required to be registered under the National Greenhouse and Energy Reporting Act 2007 (Cth) (NGER) | Asset owners | |
| 1 January 2025 | $500 million or more | $1 billion or more | 500 or more | Above NGER publication threshold[2] | N/A |
| 1 July 2026 | $200 million or more | $500 million or more | 250 or more | All other NGER reporters | $5 billion assets under management or more |
| 1 July 2027 | $50 million or more | $25 million or more | 100 or more | N/A | N/A |
What should the sustainability report include?
Under section 296A of the Act, the sustainability report for a financial year must consist of:
- the Disclosing Entity’s climate statements for the year;
- the notes to the climate statements; and
- the directors’ declaration about the statements and notes.
Climate statements must comply with the Act and relevant accounting standards. Section 296D of the Act requires, amongst other things, that climate statements for a financial year must disclose:
- the Disclosing Entity’s material financial risks and opportunities relating to climate-related matters;
- the Disclosing Entity’s metrics and targets for the financial year relating to climate-related matters which are required to be disclosed by relevant accounting standards, including in relation to Scope 1, 2 and 3 greenhouse gas emissions (see below); and
- any information about the Disclosing Entity’s governance, strategy, or risk management in relation to these risks, opportunities, metrics and targets.
Understanding “Scope 1, 2 and 3”
Scope 1 greenhouse emissions relate to direct emissions from buildings, facilities and vehicles that a Disclosing Entity owns.
Scope 2 greenhouse gas emissions relate to indirect emissions, such as emissions from purchased electricity, heat, steam and cooling that comes from an electrical utility or municipal source.
Scope 3 greenhouse gas emissions are all other indirect emissions that come from a Disclosing Entity’s value or supply chain, such as waste, shipping products or product usage by customers.
The implications of Scope 3 reporting
The requirement for Disclosing Entities to disclose Scope 3 greenhouse gas emissions means that Disclosing Entities will be looking to suppliers (who may be entities which do not meet the relevant criteria or thresholds to be a Disclosing Entity under Chapter 2M of the Act) to obtain information in connection with those entities’ greenhouse gas emissions. This may, indirectly, result in those entities being required to ensure that they themselves maintain accurate records in connection with their greenhouse gas emissions (and, potentially, those of their own suppliers).
This obligation may be increased for foreign suppliers who may find themselves in a position of needing to comply with Australian requirements notwithstanding those suppliers have no physical presence within Australia. Such compliance would be in addition to any compliance requirements those suppliers may have in their home jurisdiction. While several jurisdictions are aligned in the reporting requirements and standards for climate-related matters, foreign suppliers, in particular, should ensure that information provided for the purposes of compliance with Australian disclosure requirements is in accordance with the relevant Australian accounting standards.
In that regard, we expect that contractual arrangements between Disclosing Entities and their respective suppliers will include provisions which require suppliers to:
- set sustainability targets to be achieved;
- record sustainability metrics against those targets;
- maintain and keep records;
- provide information to the Disclosing Entity in connection with those sustainability targets; and
- indemnify the Disclosing Entity in respect of any liability incurred by the Disclosing Entity if such information is inaccurate or misleading.
It is imperative that suppliers are aware of their obligations in connection with sustainability reporting and, notwithstanding they may not meet the relevant disclosure thresholds, that entities take steps to record and audit their climate metrics to ensure that they are capable of complying with requests from Disclosing Entities and understand any obligations imposed on them through contractual arrangements with Disclosing Entities.
If you think you may be affected by the reporting requirements of Chapter 2M of the Act, please contact Mark Burchnall or Taila Childs on (08) 9221 0033 or at legal@mphlawyers.com.au to further discuss these requirements.
[1] Includes part-time employees at a relevant fraction of the full-time equivalents
[2] The NGER Program will publish information about registered corporations if their total greenhouse gas emissions are 50 kilotonnes of carbon dioxide equivalence or more.