• Commencement date

  First report for financial year commencing 1 July 2025

• Entities included

  Entities that are required to report under Chapter 2M of the Corporations Act and meet two of the following three thresholds:

  1. Consolidated revenue for the financial year of the entity (including any entities it controls) is $500 million or more;
  2. The value of consolidated gross assets at the end of the financial year for the entity (including any entities it controls) is $1 billion or more; and
  3. 500 or more employees.

  Entities that are required to report under Chapter 2M of the Corporations Act that are also registered (or required to be registered) under the National Greenhouse and Energy Reporting Act 2007 (Cth) (NGER Act) and meet the NGER Act publication threshold.

Group 2

• Commencement date

  First report for financial year commencing 1 July 2026

• Entities included

  Entities that are required to report under Chapter 2M of the Corporations Act and meet two of the following three thresholds:

  1. Consolidated revenue for the financial year of the entity (including any entities it controls) is $200 million or more;
  2. The value of consolidated gross assets at the end of the financial year for the entity (including any entities it controls) is $500 million or
  3. 250 or more employees.

  Entities that are required to report under Chapter 2M of the Corporations Act that are also registered (or required to be registered) under the NGER Act (i.e. all other NGER reporters than those included in Group 1).

  Asset owners that are required to report under Chapter 2M of the Corporations Act with $5 billion or more in assets under their management.

Group 3

• Commencement date

  First report for financial year commencing 1 July 2027

• Entities included

  Entities that are required to report under Chapter 2M of the Corporations Act and meet two of the following three thresholds:

  1. Consolidated revenue for the financial year of the entity (including any entities it controls) is $50 million or more;
  2. The value of consolidated gross assets at the end of the financial year for the entity (including any entities it controls) is $25 million or more; and
  3. 100 or more employees.

Exemptions for smaller entities

Small and medium entities below the relevant size thresholds, as well as entities that are exempt from reporting under Chapter 2M of the Corporations Act (for instance, entities with exemptions through ASIC class orders or individual relief or registered charities), will be exempted from the mandatory climate reporting requirements.

Group 3 entities would only be required to complete a full climate statement where they face material climate-related risks or opportunities for the financial year. Where they assess that they do not face such material risks or opportunities for a particular year, they would only be required to disclose a shorter statement in their Sustainability Report to that effect, together with an explanation of how they reached that conclusion.

What will need to be reported and how?

Climate-related disclosures will be required as part of a ‘Sustainability Report’ which will form part of an entity’s annual financial reporting obligations. The Corporations Act will set out the requirements on the type of information that must be included in a Sustainability Report.

Contents of Sustainability Report

The Sustainability Report must include the following information:

• a climate statement:
  • material climate-related risks and opportunities for the financial year;
  • any metrics and targets related to climate that are required to be disclosed by prescribed sustainability standards, including those related to:
    • Scope 1 emissions (emissions directly released from the entity’s activities);
    • Scope 2 emissions (emissions indirectly released by virtue of the entity’s energy consumption); and
    • Scope 3 emissions (emissions that are generated in the wider economy as a consequence of the entity’s activities, but not from sources used, owned or controlled by the entity)
  • information about governance of, strategy of or risk management by the entity in relation to these matters;
• notes to the climate statement; and
• a directors’ declaration, to the effect that the statements and notes comply with the Corporations Act including applicable sustainability standards.

It is proposed in the recent exposure draft of the sustainability standard (discussed below) that Scope 1 and 2 emissions are to be reported from the first year of reporting, whereas Scope 3 emissions would be required from the second year of reporting.

Sustainability Standards

The Australian Accounting Standards Board (AASB) has prepared climate related disclosure standards (Sustainability Standards) that set out the disclosure requirements on how an entity should communicate its climate related disclosures in its Sustainability Report. The proposed climate disclosure standards (ED SR1) have been prepared but have not yet been finalised by the AASB which released its exposure draft on 23 October 2023 with consultation having closed on 1 March 2024.

The AASB Sustainability Standards adopt much of the climate and sustainability reporting standards released by the International Sustainability Standards Board as set out in IFSR2 Climate-related Disclosures and IFRS1 General Requirements for Disclosure of Sustainability-related Financial Information, with some modifications proposed.

What other requirements apply to the Sustainability Report?

The Bill would amend the Corporations Act so that various existing requirements that apply to financial reporting under Chapter 2M of the Corporations Act will also apply to an entity’s Sustainability Report. The key requirements, are set out below:

• entities required to provide financial reports to members will also be required to provide a copy of the Sustainability Report to members. Entities not required to provide the Sustainability Report to members will be required to make the sustainability report publicly available on its website the day it is lodged with ASIC;

• entities will be required to obtain an assurance report from their financial auditors who will use technical climate and sustainability experts where required. The assurance requirements will be in accordance with the standards made by the AUASB and will be phased in so that initially, the Sustainability Report will only be required to be reviewed by an auditor with the requirement for an audit intended to be mandated for financial years commencing from 1 July 2030; and

• Directors of a public company required to hold an AGM will also be required to lay the Sustainability Report before the company’s Annual General Meeting.

What will the penalties be for failing to comply with the Sustainability Report requirements?

Climate related disclosures will be subject to existing liabilities under the Corporations Act, ASIC Act and Australian Consumer Law, including directors duties, general disclosure obligations and misleading and deceptive conduct provisions. However, modified liability will apply for the first three years of the Bill’s operation. In particular:

• The duty on a director to declare that the Sustainability Report accords with the Act will be amended for the first three years of the Bill’s operation, to be a duty to declare that the entity has taken reasonable steps to ensure the substantive provisions of the Sustainability Report are in accordance with the Act.

• Entities will be afforded immunity from private litigants with respect to certain statements made in a Sustainability Report or auditors report. This immunity would prevent private litigants from commencing civil proceedings alleging (for example) misleading and deceptive conduct in relation to a statement made in a Sustainability Report. However, it does not prevent criminal proceedings or proceedings commenced by ASIC. The statements covered by this liability are:
  • disclosures about Scope 3 emissions, scenario analysis and transition plans (for the first three years); and
  • forward-looking (or future) statements made in relation to the climate (for the first 12 months only).

The Bill also creates strict liability offences with respect to the auditing of Sustainability Reports, the keeping of sustainability records and the publication of Sustainability Reports.

Where to next?

The Bill has been referred to the Senate Economics Legislation Committee for review and report by 30 April 2024.

If the Bill is enacted, the regime will come into effect on or after 1 January 2025.

As noted above, the Sustainability Standards will also need to be finalised by AASB as these will set out the framework for climate reporting.

In the longer term, the Bill also opens up the possibility of additional reporting requirements being added in the future, as it would empower the Minister to prescribe additional statements to be included in the Sustainability Report relating to environmental sustainability. This leaves open the possibility of broader environmental sustainability financial disclosures also being mandated under the Corporations Act in the future.

Maddocks will be following this Bill closely, and will post further updates regarding its progress.