Climate disclosures are rapidly becoming a cornerstone of corporate responsibility as businesses worldwide face increasing pressure to address their environmental impact. In Australia, new laws are pushing companies to not only report on their sustainability efforts but also to actively manage climate-related risks. This shift is transforming the way businesses operate, influencing their strategies and long-term growth. As the country moves towards a net-zero emissions target by 2050, the importance of transparent climate reporting has never been more crucial.
This article explores the evolving landscape of climate disclosures, the implications for Australian businesses, and the broader role they play in shaping a sustainable future.
Climate Disclosures and Corporate Responsibility
Climate disclosures refer to the reporting of information regarding an organisation’s environmental impacts, climate risks, and sustainability initiatives. This practice is becoming a cornerstone of corporate responsibility, especially as companies are increasingly expected to contribute to environmental, social, and governance (ESG) goals. Climate disclosure reports provide insights into how a business’s operations affect the environment, and more importantly, how it plans to mitigate those impacts.
Climate reporting is more than just ticking a box; it reflects a company’s commitment to sustainability and its awareness of climate-related risks. These reports typically cover greenhouse gas (GHG) emissions, energy usage, and other factors influencing the company’s carbon footprint. Public release of the data allows businesses to not only demonstrate their adherence to regulatory frameworks but also show investors and consumers their dedication to fighting climate change.
Why Mandatory Climate Disclosures Matter
The concept of mandatory climate disclosures is driven by the need for greater transparency. Voluntary climate reporting, while valuable, often lacks consistency and thoroughness. Some businesses may only highlight their green initiatives while glossing over their actual environmental impact. Without uniform standards, comparing climate performance across industries can be difficult, if not impossible.
Mandatory disclosures ensure that businesses adhere to a consistent reporting framework, allowing for more accurate assessments of corporate environmental responsibility. These regulations aim to hold businesses accountable for their actions and provide stakeholders with reliable information to make informed decisions. As consumers and investors increasingly seek companies that align with their values, mandatory climate disclosures can help distinguish responsible businesses from those lagging in sustainability efforts.
Australia’s Latest Climate Disclosure Laws
On 9 September 2024, the House of Representatives passed the Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill 2024 (Cth) following the Senate’s approval in mid-August. This legislation was introduced as part of Australia’s commitment to the net-zero roadmap, which aims to reduce the nation’s carbon emissions to net-zero by 2050, under the auspices of the new Net-Zero Economy Authority.
Proposed earlier this year by Federal Treasurer Jim Chalmers as an addition to the Corporations Act 2001, the new law will require companies to submit and maintain annual sustainability reports starting 1 January 2025. Those reports, which are to be submitted to ASIC, will cover a company’s climate risks, greenhouse gas emissions, and sustainability strategies, based on two specific scenarios as delineated in the Climate Change Act 2022:
- Low-Warming: accounting for increase in global average temperatures not more than 1.5 degrees Celsius above pre-industrial conditions
- High-Warming: accounting for increase in global average temperatures at least 2.5C over pre-industrial conditions
The reporting requirements are eyed to sync with new parameters established by the IFRS Foundation’s International Sustainability Standards Board. The Australian Accounting Standards Board and the Australian Auditing and Assurance Board are also developing their own standards to be linked to the new regulations.
The initial coverage of the new law will oversee large companies, defined as having at least 500 employees, generating over $500 million in annual revenue, or having over $1 billion in assets; asset owners whose portfolio is worth at least $5 billion are covered too. Medium-sized firms, having 250 to 499 employees, over $250m annual revenues, and $500m in assets, are expected to start submissions in July 2026. Small firms, or those having no less than 100 staff, at least $50m revenues, and +$25m in assets, will begin reporting in July 2027. Superfunds handling at least $5 billion will be required to report as well. As some of those companies originated in New Zealand or are Australian firms with established operations across the Tasman, their directors will be mandated to ensure compliance. The team at MinterEllisson’s New Zealand office stated that Wellington’s Climate Related Disclosure regime may also apply for ensuring ANZ firms abide by Australia’s climate-disclosure regime.
Climate Disclosures and ESG Responsibility
The new climate disclosure law is closely tied to broader ESG (Environmental, Social, and Governance) responsibility in Australia. Over the past decade, businesses have faced increasing scrutiny from stakeholders demanding greater transparency in their ESG practices. Investors, in particular, are seeking to place their funds in companies that are environmentally and socially responsible. Failing to meet ESG expectations can damage a company’s reputation, reduce access to capital, and hinder long-term growth prospects.
The mandatory climate disclosures are a critical element of ESG responsibility. By openly reporting their climate risks and efforts, businesses can better integrate sustainability into their corporate governance. They also help foster accountability and ensure that corporate leaders are taking the necessary steps to mitigate the environmental risks that threaten their long-term viability.
Benefits of Climate Reporting for Businesses
While mandated climate reporting may be seen as an additional workload in a business, there are numerous plus points to consider.
Risk Management
Climate change poses significant financial risks, from the physical impacts of extreme weather to the transition risks associated with shifting regulations and technologies. Climate reporting helps businesses identify and manage these risks proactively.
Investor Confidence
Companies with strong ESG practices are building more equity with investors looking for “green opportunities.” Transparent climate disclosures can boost investor confidence by demonstrating a company’s commitment to sustainability and responsible management.
Reputation Building
Consumers have been learning about the environmental impact of their purchases and are endeavouring to seek accountability from the businesses they patronise. By providing clear, credible climate reports, businesses can build a positive reputation for their sustainability efforts, which can drive brand loyalty and market share.
Alignment with National and Global Goals
Mandatory climate reporting helps businesses align their operations with national targets like Australia’s net-zero roadmap, as well as global initiatives such as the Paris Agreement. This alignment is crucial for long-term competitiveness as governments and markets increasingly penalise high-emission industries.
Climate Reporting and Industry Sustainability
As more businesses are required to disclose their environmental impact, industries are likely to shift towards more sustainable practices. Sustainable industries in Australia—such as renewable energy, clean technologies, and green building—are expected to thrive under the new reporting requirements. Businesses within these sectors will benefit from increased demand as others seek to improve their environmental footprint. Moreover, innovation in sustainable practices will be accelerated as companies look for cost-effective ways to reduce their emissions.
For traditional industries, the law presents both a challenge and an opportunity. Companies in sectors such as mining, manufacturing, and transportation will need to reassess their business models to minimise environmental damage and adapt to climate reporting requirements. However, those that invest in cleaner technologies and innovative solutions will find themselves better positioned to meet market demands and remain competitive in a low-carbon economy.
Preparing for Climate Disclosure Regulations in Australia
In the coming years, businesses in Australia must be prepared to adapt to the new climate disclosure regulations. It’s crucial for companies to stay informed about reporting requirements and to establish robust systems for collecting and analysing climate-related data. Those that embrace transparency and make sustainability a core part of their strategy will be better equipped to navigate the shifting regulatory landscape and build long-term resilience.
The passage of the new law generated some mixed responses.
ASIC chairman Joe Longo said the law is a major generational change in corporate accountability, especially since at least 6,000 companies will be compelled to report. Financial Services Council CEO Blake Briggs added that the reporting is a chance to educate investors on which green companies are good picks. The Australian Council of Superannuation Investors lauded the measure, as disclosures help super investors learn more concrete data on how the companies they have a stake in deal with climate change.
Schneider Electric principal and senior sustainability consultancy director Lisa Zembrodt, however, said that while the new law helps Australia’s net-zero push, many Aussie firms do not have the skills and reporting guidelines needed to ensure compliance. As such, the businesses’ management should be extensively briefed and trained on those new responsibilities.
Conclusion
Australia’s new mandatory climate disclosure law represents a critical step in the country’s commitment to achieving net-zero emissions by 2050. As businesses across the nation begin to report on their climate risks and sustainability initiatives, this transparency will drive more accountable corporate behaviour and support the growth of sustainable industries. Businesses that embrace climate reporting as an integral part of their strategy will not only meet regulatory demands but also enhance their resilience, reputation, and competitiveness in a rapidly changing world.
DISCLAIMER: This article is for informational purposes only and does not replace official business advice. AVANTE PARTNERS is not affiliated with the federal government and is not a stakeholder in any legislation.
