Our first blog in this series explored new climate-related financial disclosure reporting requirements, including which entities are in scope and when reporting will phase in. In this blog, we look at the new climate-related disclosure standard in more detail, and the key focus areas for reporting entities. We also provide information to help support your preparation, including a check and challenge list of questions to help kick-start your thinking and planning.

It’s important to note that climate-related financial disclosures are only for specific public sector entities at this stage. Large public sector companies are required to obtain independent assurance on their climate-related financial disclosures from their auditors. For Queensland public sector companies, the Auditor-General will provide the audit report on these new disclosures. 

Meeting the new requirements will involve considerable preparation and effort. That’s why we encourage you to engage with the requirements and information needs early to build your readiness. 

What is the new standard, and how is it different? 

There are some key differences between the climate-related financial disclosure standard and traditional accounting standards. 

Traditional accounting standards focus on the recognition, measurement, and reporting of financial transactions and positions using historical data. Their aim is to present a true and fair view of financial position and performance at a past date.

The climate-related financial disclosure standard emphasises forward-looking, narrative, and qualitative information, alongside relevant metrics and targets. Its aim is to have entities disclose information about how climate change may affect the entity’s future performance and prospects.

These new requirements mean an in-scope company’s annual reporting obligations have expanded to include this new report (called a sustainability report) and its associated audit report. As per the Corporations Act 2001 and AASB S2, the sustainability report must include climate-related financial information.

What information goes into a sustainability report?

In the first year, all disclosures required by AASB S2 must be included in the sustainability report. However, entities may elect to defer the reporting of scope 3 greenhouse gas emissions by a year. Not all disclosures will be subject to audit (limited assurance), but the directors will need to make a declaration about the full report.  

The sustainability report includes:

1. The climate statement which discloses:

• material climate-related risks and opportunities
• climate-related metrics and targets, including scope 1, 2 and 3 emissions
• governance, strategy and risk management in relation to these
• climate resilience, assessed under at least 2 scenarios which are increases in global temperatures of 1.5 degrees Celsius; and increases well exceeding 2 degrees Celsius.

2. Directors’ declaration

There are 2 key relaxations available to directors over the initial few years of reporting.

Firstly, directors can access transition relief in their declaration for the first 3 years from the standard’s effective date of 1 January 2025. This means directors can simply declare that the entity has taken reasonable steps to ensure that the sustainability report is in accordance with the Corporations Act and AASB S2.

Secondly, the modified liability regime gives directors and companies temporary protection from most legal claims about certain ‘protected statements’ in sustainability reports. During this period, only regulators can take enforcement action or bring criminal cases. The table below sets out the types of protected statements and their modified liability periods.

Source: QAO amended from ASIC Regulatory Guidance 280: Sustainability Reporting

How to use what you know to support your sustainability reporting

Of the 19 public sector companies impacted by these new requirements, 9 entities already report under the National Greenhouse and Energy Reporting Act 2007. Entities can build upon their existing National Greenhouse and Energy Reporting (NGER) systems and controls to support the more robust reporting requirements of AASB S2. This reduces duplication of effort, enabling entities to focus on enhancing their existing processes. 

Build on your existing governance, strategy and risk foundations

We’ve developed a check and challenge list of questions to help you build on your existing governance, strategy and risk foundations. By answering a few questions, you can reflect on the maturity of your current systems and processes and identify any gaps.

The questions cover 4 key areas – governance, climate strategy, risk management, and climate metrics and targets.

Understand the differences between key reporting requirements

Both the National Greenhouse and Energy Reporting (NGER) scheme and AASB S2 Climate-related disclosures focus on greenhouse gas emissions. They are mandated in Australia for entities that meet certain thresholds and are aimed at achieving better transparency and accountability. 
However, there are differences between these requirements that are important to understand.

Source: QAO from various sources.

Next steps for entities

1. Understand the phased reporting and assurance implementation timeline.
2. Engage with us to understand assurance requirements.
3. Assess gaps between existing systems and reporting requirements in AASB S2.
4. Establish a project plan to ensure a value adding and compliant sustainability report.
5. Implement robust governance and recordkeeping processes.
6. Leverage the resources and guidance of ASIC, CPA Australia and CA ANZ.
7. Anticipate ASIC’s proportional and pragmatic approach.

Resources

• Blog: Does your entity need to prepare for climate reporting?
• Checklist: Climate reporting checklist
• ASIC final guidance on Sustainability Reporting