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22 8月 2024
Insight
On 22 August 2024, the Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill 2024 (Cth) (Bill) was passed by the Senate with minimal amendments. The amended Bill will be remitted to House of Representative for consideration during their September sitting window but given the Government support in the Senate, this is effectively now the final version. The Bill is still expected to come into force on 1 January 2025.
We step through what has (and has not) changed during the Senate’s negotiations and set out the key elements of the legislation. Click here to read our previous article which details the ‘when, who, where, what and why?’ of the Bill as first tabled in the House of Representatives on 27 March 2024.
What’s new?
Scenario analysis
The Government has amended the legislation to incorporate requirements for scenario analysis disclosures. Assuming that the Australian Accounting Standards Board’s (AASB) final Australian Sustainability Reporting Standards (ASRS) will require disclosure of climate-related scenario analysis, the Bill now requires entities to use both of the following scenarios consistent with the global temperature goals set out in the Climate Change Act 2022 (Cth):
- A low warming scenario (1.5°C): where the increase in the global average temperature is limited to 1.5°C above pre-industrial levels.
- A high warming scenario (> or = 2.5°C): where the increase in the global average temperature ‘well exceeds’ 2°C above pre‑industrial levels. The Supplementary Explanatory Memorandum explains that an increase of 2.5°C or higher would be considered to ‘well exceed’ 2°C, as this is in line with the higher warming scenarios that are adopted in climate-related physical risk assessments (e.g. the National Climate Risk Assessment).
The amendments recognise the respective positions of the Greens and Senator Pocock, both previously advocating for mandatory disclosures against higher temperatures.
How does this compare?
The high warming scenario requires disclosure against a higher temperature scenario than the Paris Agreement, which aims to keep global temperatures to well below 2°C above pre-industrial levels, and preferably to limit the increase to 1.5°C. It also is a higher temperature than what is provided for in existing scenario analysis mandates including:
- Exposure Draft ED SR 1 Australian Sustainability Reporting Standards (draft ASRS) released in October 2023 initially mandated the disclosure of a company’s climate resilience against two future states, with one being the 1.5°C scenario, but entities able to choose their second scenario based on what best suited their business. The requirement in the Bill for a second future state that well exceeds 2°C above pre‑industrial levels is new. In its recent board meeting on 26 June 2024, the AASB Board agreed to remove the scenario selection requirements from the final ASRS, presumably to make way for the Government’s legislative amendments; and
- TCFD recommendations include a recommendation to describe an entity’s resilience taking into consideration a 2°C or lower scenario.
Reporting entities will need to compare how these mandated scenarios sit alongside their existing scenario analysis (including in terms of impairments) and should consider whether there is scope to streamline the multitude of different scenarios it could otherwise be preparing to disclose against.
What’s the same?
The rest of the Bill was passed unamended since its initial introduction, which notably means that the modified liability regime, phased implementation, thresholds for reporting, scope 3 emissions reporting and location and content of the report have remained unchanged.
The below table sets out the key positions in the Bill.
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Timing to prepare sustainability reports |
Entities who fall within one of the three reporting groups will need to report as follows:
For more detail on the exact criteria for the thresholds for each group, please see our previous article here. |
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Reporting entities |
Who is required to report?
Who is not required to report?
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| Location of sustainability reporting |
Climate-related financial disclosures must sit in an annual ‘sustainability report’, prepared under Chapter 2M of the Corporations Act. The Bill does not expressly state where this sustainability report should sit (e.g. within the Annual Report or as a standalone document) but Treasury has previously indicated that it will form the "fourth report" alongside the Annual Financial Report, Directors' Report and Auditor's Report under Chapter 2M reporting requirements. Both Treasury’s intention, and the requirement to lodge the report with ASIC under s 319 of the Corporations Act, suggest there is limited scope for a standalone document outside the Annual Report. Whether an entity can cross-reference to other disclosures outside of the ‘sustainability report’ remains unsettled, but the draft ASRS has outlined the expectation that disclosures are clearly identifiable and not obscured by additional information. We expect that any relief around cross-referencing would be a matter for ASIC. |
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Content of sustainability reporting (and the directors’ declaration) |
The sustainability report will include only climate-related financial disclosures, and will comprise:
For the first 3 years of the regime, directors will need to declare that the entity has taken reasonable steps to ensure the substantive provisions of its sustainability report comply with the Corporations Act. After that time, directors will need to declare whether the substantive provisions of the sustainability report are in accordance with the Corporations Act. |
| Records |
Entities required to prepare a sustainability report must keep records for 7 years that correctly explain and record its preparation of the substantive provisions in the sustainability report (including documents and working papers that explain methods, and any assumptions and evidence relied on). Failure to maintain adequate records is both a fault-based offence (with a maximum penalty of two years imprisonment) and a strict liability offence (with a maximum penalty of 60 penalty units). |
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Audit and assurance |
Before 1 July 2030, audit and assurance requirements for sustainability reports will be phased in, in accordance with the accounting standards developed by the Auditing and Assurance Standards Board (AUASB). The AUASB is expected to release its exposure draft for the phasing in of assurance in August 2024. In its report released on 3 May 2024, the Senate Standing Committees on Economics considered that the phased-in approach over the next four years would be an appropriate transition period. From 1 July 2030, the ‘enduring’ audit provisions set out in the Bill will apply, which require the preparation of an auditor’s report describing:
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Enforcement |
Disclosures in the sustainability report will be subject to the existing liability regime under the Corporations Act, including misleading and deceptive conduct, director’s duties, auditing and continuous disclosure obligations. The scope of the modified liability regime in the Corporations Act will broaden to apply for financial years commencing during the three years from the day after the Bill receives Royal Assent. It will seek to protect certain statements from private actions relating to misleading and deceptive conduct made within the sustainability report or required under a Commonwealth law. However, it will not extend to reproduced disclosures, such as statements reproduced on an entity’s website, investor presentations, or other voluntary disclosures. |
Where to from here?
While the legislative jigsaw piece is (almost!) in position, we’re still waiting for the final ASRS and assurance standards to sit alongside it and will continue to provide updates as the bigger picture forms.
Please don’t hesitate to reach out to your HSF contact for help with your preparations for your first year of reporting (with some now counting down the months, not years).
In the meantime, join us for HSF’s latest 'Reporting for Duties’ podcast series’ where we share bite-sized insights on key features of the new reporting regime, early learnings from our work with business, as well as predictions on what to expect over the next twelve months.
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