Mandatory climate-related financial disclosures for Australian companies, explained

Many Australian companies now need to disclose climate-related information as part of their general financial reporting.

Australian Security and Investments Commission chair Joe Longo described this shift as the ‘biggest change to corporate reporting in a generation’.

The impact of mandatory climate-related financial disclosures will be felt beyond just the companies required to report.

Companies that respond proactively can reap the benefits of the shift to a global net zero economy. 

Why does Australia need mandatory climate-related financial disclosures?

The world is not on track to reach the Paris Agreement goals of limiting global warming to 1.5 degrees Celsius. 

The Australian Government has committed to reduce greenhouse gas emissions by 43 per cent below 2005 levels by 2030 and achieve net zero emissions by 2050. 

Major investments are required across the Australian economy to achieve these commitments. 

A comprehensive sustainable finance system that provides the appropriate structure, tools and information to the market can mobilise, scale-up and channel investment to drive the transition.

The mandatory disclosure of transparent and comparable climate-related data is a critical first step in this transition.

Why does transparent climate-related financial data matter?

Transparent and comparable climate-related data is crucial for both companies and their stakeholders to identify, assess and manage climate-related risks. 

It also gives stakeholders, including financial institutions, insight into opportunities arising from the transition to a low-carbon economy. 

Increased transparency of climate-related data can also:

• Reduce the risk of greenwashing, supporting regulators and stakeholders in holding companies accountable for their claims around climate commitments.
• Support policy-makers and regulators in better understanding broader systemic risks to the financial system associated with climate change.
• Enable consumers to make informed decisions about where they want to spend, invest, or even work.
• Foster an environment of collaboration around climate change and sustainability across value chains, including management of scope 3 emissions.

What do the Australian mandatory climate-related financial disclosure requirements mean for companies?

Rather than reporting from a compliance-based mindset, companies can use the disclosures as an opportunity to better understand their climate risks and opportunities and build long-term value.

Companies that already report using the Taskforce on Climate-related Financial Disclosures (TCFD) framework are well placed to meet new requirements. However, the new disclosure requirements will require more detailed and quantitative information. 

Companies new to climate-related reporting will have an opportunity to bring climate to the forefront of their core business strategy. 

The disclosures also help companies demonstrate their value to investors and consumers in order to attract investment as the economy transitions to net zero.

Additionally, disclosures assist in developing credible transition plans, which can enhance confidence from investors and provide better access to capital. 

Large companies and financial institutions covered by the mandatory disclosures may begin to request information from suppliers and partners. 

This creates an opportunity for smaller businesses to align with emerging expectations as they work to understand their own exposure to climate risks.

Are there international standards for climate-related financial disclosures?

The International Sustainability Standards Board (ISSB) issued two new standards in June 2023. 

The standards are designed to form a baseline for sustainability (IFRS S1) and climate-related (IFRS S2) financial disclosures around the world. 

They consolidate numerous reporting frameworks and are structured around the TCFD’s elements of governance, strategy, risk management and metrics and targets.

Jurisdictions are able to adapt the standards to their local needs whilst maintaining interoperability with international financial markets. 

Australia has followed many other jurisdictions in introducing mandatory climate-related disclosures closely aligned with the ISSB’s climate-related standard (IFRS S2).

What are Australia’s climate-related financial reporting requirements?

Impacted companies will have to disclose their current and anticipated climate-related risks over the short, medium and long term. This represents a significant change from previous financial reporting by requiring substantial forward-looking information. 

Disclosure requirements include: 

• Greenhouse gas emissions from all sources – scope 1 (direct emissions generated by operations), scope 2 (indirect emissions from energy purchased and used) and scope 3 (indirect emissions along the wider value-chain).
• Climate resilience of strategy and business models, informed by scenario analysis.
• Responses to anticipated material climate-related physical and transition risks and opportunities.
• Any climate-related targets, use of carbon credits and transition plans.

Companies will also be required to obtain assurance by a third party. 

Implementation is staged, starting with large companies and financial institutions and expanding to cover all other proposed groups by the 2027/28 financial year. 

What comes next?

Mandatory climate-related disclosures represent a critical first step towards a wider sustainable finance system. 

The disclosures provide a wealth of new data to the market that decision-makers throughout the economy can use to support company, sector and national transitions to net zero in line with Paris Agreement goals. 

Now is the time for companies to act to integrate climate and other sustainability considerations into their overall strategy to better prepare for further developments.

Companies that do this successfully will demonstrate a competitive advantage and value to investors and customers.

We can help

The Net Zero Academy offers courses designed to help you facilitate your organisation’s response to mandatory climate-related disclosures. 

Delivered jointly by Monash Sustainable Development Institute and Climateworks Centre, the Net Zero Academy suite of courses are designed to upskill you to navigate the net zero transition with confidence.

Read more on climate solutions: