Australia’s New Mandatory Climate Reporting Requirements
Australia has recently introduced mandatory climate reporting requirements as part of its broader strategy to address climate change, enhance corporate transparency, and align with global sustainability standards.
The Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Act 2024 was passed by the Australian Parliament in September 2024. In October 2024, the Australian Sustainability Reporting Standards (AASB S2) were released, taking effect for company reporting periods beginning on or after January 1, 2025.
From January 1, 2025, many large Australian businesses and financial institutions must prepare annual sustainability reports with mandatory climate-related financial disclosures.
These changes represent a significant shift in how Australian businesses are expected to operate, report, and respond to climate-related risks and opportunities.
This article will explore the key aspects of these new regulations, their implications for businesses, and how organisations can prepare to comply.
The Context Behind the New Regulations
Climate change has emerged as one of the defining challenges of our time, with governments, investors, and the public increasingly calling for greater corporate accountability. In Australia, nearly 30% of all emissions come from industry, highlighting a need for climate-related industry regulations.
In line with international trends, such as the European Union’s Corporate Sustainability Reporting Directive (CSRD) and the Task Force on Climate-related Financial Disclosures (TCFD) recommendations, Australia has recognised the need for a consistent framework to assess and disclose climate-related risks.
The Australian government introduced the mandatory climate reporting requirements in 2024 as part of its broader climate policy agenda. The primary objectives are to:
- Encourage businesses to identify and manage climate risks;
- Provide investors and stakeholders with transparent and comparable climate-related information;
- Drive progress toward achieving Australia’s net-zero emissions target by 2050; and,
- Ensure Australia remains competitive in a global economy increasingly shaped by sustainability considerations.
Who Is Affected?
The new reporting requirements will initially apply to large listed companies, financial institutions, and other organisations deemed to have significant climate impacts. Over time, the regulations may extend to smaller businesses and non-listed entities.
Small and medium-sized enterprises (SMEs) are not yet subject to mandatory reporting but are encouraged to adopt voluntary frameworks to remain competitive and meet growing stakeholder expectations.
The table below sets out when entities must commence mandatory disclosure on the assumption they are required to prepare and lodge annual reports under Chapter 2M of the Corporations Act and fall within one (or more) of the following three categories.
Core Elements of the Reporting Framework
The mandatory reporting requirements closely align with TCFD recommendations offering a globally recognised framework for climate-related financial disclosures.
Entities required to report under the regime must submit ESG data and comprehensive financial disclosure across their entire supply chain. This includes a sustainability report, a climate statement and director declarations confirming the accuracy and completeness of the climate-related financial disclosures.
Reporting must cover four key pillars:
- Governance
- Describe the board’s oversight of climate-related risks and opportunities
- Outline management’s role in assessing and managing these risks
- Strategy
- Disclose how climate-related risks and opportunities impact the organisation’s business model, strategy, and financial planning
- Include scenario analysis to evaluate potential future impacts under different climate scenarios
- Risk Management
- Detail the processes for identifying, assessing, and managing climate-related risks
- Explain how these processes are integrated into the organisation’s risk management framework
- Metrics and Targets
- From the first year of reporting, report on information relating to ESG strategy including scope 1 and 2 emissions
- From the second year of reporting, scope 3 emissions
- Report on metrics to assess climate-related risks and opportunities, such as greenhouse gas (GHG) emissions
- Disclose climate-related targets and progress toward achieving them
The Legal and Regulatory Landscape
The Australian Securities and Investments Commission (ASIC) and the Australian Prudential Regulation Authority (APRA) will play key roles in enforcing the new requirements. Companies failing to comply may face significant penalties, including fines, reputational damage, and potential legal action from investors or other stakeholders.
Additionally, mandatory climate reporting will intersect with existing laws and regulations, such as:
- The Corporations Act 2001:
Companies must ensure their disclosures are truthful and not misleading - The National Greenhouse and Energy Reporting (NGER) Scheme:
Organisations already reporting emissions data under this scheme must align it with the new framework
Implications for Businesses
Mandatory climate reporting presents both challenges and opportunities for Australian businesses.
Key implications include:
- Increased Accountability
- Companies will need to establish robust governance structures to oversee climate-related issues
- Directors and executives may face greater scrutiny regarding managing climate risks
- Operational and Financial Impacts
- Collecting and reporting climate-related data will require investment in systems, processes, and expertise
- Businesses may need to reassess their strategies and operations to mitigate risks and seize opportunities
- Enhanced Stakeholder Trust
- Transparent reporting can strengthen relationships with investors, customers, and employees prioritising sustainability
- Demonstrating leadership on climate issues can enhance brand reputation and competitiveness
- Market Dynamics
- Organisations leading in climate reporting may gain a competitive edge in securing contracts and partnerships
Preparing for Compliance
Compliance with the new climate reporting requirements will require a proactive and comprehensive approach. Here are some steps businesses can take to prepare:
- Understand the Requirements
- Understand the TCFD framework and its application to your organisation
- Understand when reporting requirements will commence by determining which (if any) ‘Group’ your organisation falls into
- Engage with industry associations, legal advisors, and consultants to clarify obligations and best practices
- Conduct Gap Analysis and Relevant Audits and Assessments
- Evaluate your existing systems, processes, and data collection methods for climate-related information
- Baseline your carbon footprint (including scope 1, 2, and 3 emissions)
- Conduct an energy audit to understand opportunities
- Identify gaps and areas for improvement
- Engage Stakeholders
- Involve key stakeholders, including board members, executives, and employees in developing your climate strategy
- Communicate with investors, customers, and suppliers about your commitment to climate transparency
- Build Capability and Expertise
- Invest in training for staff and recruit specialists with expertise in climate risk management and reporting
- Consider partnering with external consultants or service providers to navigate complex requirements
- Identify where your organisation is reliant on third-party data for scope 3 emissions reporting, develop a scope 3 data collection plan, and consider making contractual arrangements with third parties regarding data collection
- Build out internal audit and risk capability
- Leverage Technology
- Adopt tools and platforms that streamline data collection, analysis, and reporting
- Ensure your systems are capable of managing large volumes of climate-related data
- Implement a Long-Term Strategy
- Develop a comprehensive climate action plan that aligns with your business goals and the new reporting requirements
- Set ambitious but achievable targets and monitor progress regularly
Lessons from Early Adopters
Several Australian companies have already begun adopting voluntary climate reporting practices in line with the TCFD framework. These early adopters provide valuable insights for businesses preparing to comply with the new mandatory requirements:
- Collaboration is Key: Successful organisations work closely with stakeholders, including industry groups, regulators, and NGOs, to stay informed and aligned
- Start Small, Scale Up: Begin with pilot projects to test reporting processes and refine them over time
- Focus on Quality over Quantity: Prioritise the accuracy and relevance of disclosures rather than overwhelming stakeholders with excessive data
- Embrace Continuous Improvement: Recognise that climate reporting is an ongoing journey. Regularly update strategies, processes, and targets to reflect new insights and developments
The Global Perspective
Australia’s move toward mandatory climate reporting aligns with global trends, reinforcing the importance of harmonising standards and practices. International initiatives, such as the International Sustainability Standards Board (ISSB) and the United Nations’ Sustainable Development Goals (SDGs), provide a broader context for understanding the significance of these changes.
By adopting mandatory reporting Australia can support the global effort to combat climate change. This alignment also ensures Australian businesses remain competitive in international markets and meet the expectations of global investors.
Resources
Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill 2024
Parliament of Australia
This legislation updates Australia’s financial market infrastructure, modernising regulatory frameworks and ensuring alignment with international standards.
A Director’s Guide to Mandatory Climate Reporting
Climate Governance Initiative Australia
A comprehensive guide for directors to navigate mandatory climate reporting obligations, with insights into governance, risk management, and compliance strategies.
Climate Change Legislation
West Australian Government
An informative portal on Western Australia’s climate change legislation, providing details on policies, programs, and frameworks supporting the state’s environmental goals.
Mandatory Climate-Related Financial Disclosures Policy
West Australian Treasury
This policy outlines financial disclosure requirements for organisations, emphasising transparency and accountability in managing climate-related risks.
Climate reporting and greenwashing: What small businesses need to know
Australian Securities and Investments Commission
A resource tailored to small businesses, highlighting key considerations for climate reporting and avoiding misleading environmental claims.
Emissions and Energy Types
Australian Government, Clean Energy Regulator
A detailed overview of emissions and energy types, supporting businesses in understanding data requirements under the National Greenhouse and Energy Reporting Scheme.
Commonwealth Climate Disclosure
Australian Government, Department of Finance
This policy outlines the Australian Government’s requirements for Commonwealth entities and companies to publicly report on exposure to climate risks and opportunities, aligning with the Australian Sustainability Reporting Standard AASB S2.
Task Force on Climate-related Financial Disclosures
TCFD
This is the primary source for understanding the TCFD framework, including examples of how businesses can approach voluntary and mandatory climate reporting.
Australian Climate Reporting Case Studies
Refer to reports by leading firms like BHP or Commonwealth Bank, which have been early adopters of climate disclosures. Their sustainability reports are available on their respective websites:
BHP Sustainability Report
CBA Sustainability Report
Conclusion
Australia’s new mandatory climate reporting requirements represent a pivotal moment for businesses and the broader economy. While compliance will undoubtedly pose challenges, it also offers a unique opportunity to drive meaningful action on climate change, enhance corporate transparency, and build resilience for the future.
Organisations that embrace these changes proactively will be better positioned to navigate the transition to a low-carbon economy, seize emerging opportunities, and meet the growing demands of investors, customers, and regulators.
QSM Group’s experience and software portfolio has streamlined climate-related compliance and reporting for many Australian businesses. Contact us today to discuss how we can help optimise your ESG strategy.