key takeaways
- Mandatory Reporting Requirements: Australian entities required to prepare annual financial reports under Chapter 2M of the Corporations Act 2001 (Cth) (Corporations Act) are required to produce annual sustainability reports detailing climate-related financial disclosures, aligning with new standards set out in Schedule 4 of the Treasury Amendment (Financial Market Infrastructure and Other Measures) Act 2024 (Cth) (Act). Group 1 reporting commences 1 January 2025, Group 2 on 1 July 2026, and Group 3 on 1 July 2027.
- Content and Structure of Reports: Sustainability reports must include climate statements that disclose material climate-related risks, metrics targets and governance information for the financial year, alongside notes and a directors’ declaration confirming compliance with relevant standards within its annual financial report.
- Preparation and Compliance: Reporting entities (including companies) must implement robust governance and record-keeping processes to meet the new requirements. Directors are encouraged to assess their current climate policies and data systems to enhance transparency and build trust with stakeholders. In-house counsel have a critical role to play to support businesses preparing for mandatory climate reporting, including considering reporting boundaries, assisting with compliance roadmaps, implementing any required uplift in governance and verification practices and considering implications for contractual arrangements.
Mandatory climate related reporting for companies starting from 2025
From 1 January 2025, large entities (including both listed and unlisted companies) and financial institutions (being those entities which fall with Group 1) will be required to prepare annual sustainability reports containing mandatory climate-related financial disclosures.
These entities must establish appropriate governance arrangements structures and sustainability record keeping processes ahead of the mandatory climate reporting requirements taking effect.
The new mandatory reporting aims to maintain and promote confidence and integrity in Australia’s capital markets and help users of the information to make well-informed decisions.
What is required?
Reporting entities (including companies) will be required to disclose their current and anticipated material climate-related risks in a separate sustainability report alongside their other annual reporting obligations.
Over time the Australian Parliament may introduce additional mandatory sustainability reporting requirements for subjects beyond climate.
What is required?
The sustainability report must consist of:
1. Climate statements for the year
Climate statements must comply with the relevant sustainability standards made by the Australian Accounting Standards Board (AASB) under section 336A of the Corporations Act and disclose:
- the entity’s material climate -related financial risks and opportunities;
- the entity’s metrics and targets for the financial year relating to climate that are required to be disclosed by the sustainability standards; and
- any information about the entity’s governance, strategy or risk management in relation to these risk, opportunities, metrics and targets.
Note: the AASB is still in the process of developing these mandatory sustainability standards
2. Notes to the climate statements
These notes must include required disclosures as directed by the Minister, any additional information per sustainability standards, and other requirements set out in section 296 of the Corporations Act.
3. Directors’ declaration
The report must include a director’s declaration that in the director’s opinion the sustainability report complies with Corporations Act and sustainability statements.
Note: for the first three years (1 January 2025 – 1 January 2028), this declaration will be limited to compliance with the Corporations Act including AASB implements the sustainability standards.
Who is required to report?
Under section 292A of the Corporations Act, entities required to prepare financial reports for a financial year must also prepare a sustainability report if they meet certain thresholds:
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Large entities and their controlled entities meeting at least 2 of the 3 below criteria | | National Greenhouse and Energy Reporting (NGER) Reporters (Entities with emissions reporting obligations under the National Greenhouse and Energy Reporting Act 2007 (Cth) (NGER Act)) | | Asset Owners (Asset owners with assets of $5 billion or more (including the entities they control). |
Group 1 – first annual reporting period starting on or after 1 January 2025 |
Consolidated revenue: $500 million or more EOFY consolidated gross assets: $1 billion or more EOFY employees: 500 or more | | Entities must report if they: are a registered corporation under the NGER Act at the end of the financial year; or are required to apply to be registered under the NGER Act in relation to the financial year; - and meet the publication threshold in s13(1)(a) of the NGER Act, i.e., total greenhouse gases (GHGs) emitted from the operation of facilities under the operational control of the registered corporation or its relevant subsidiaries under s8(3) of the NGER Act (the corporate group) has a carbon dioxide equivalence (CO2-e) of 50 kilotonnes or more (scope 1 and scope 2 emissions).
| Cell | |
Group 2 -– first annual reporting period starting on or after 1 July 2026 |
Consolidated revenue: $200 million or more EOFY consolidated gross assets: $500 million or more EOFY employees: 250 or more | | All other NGER reporters which are a registered corporation under the NGER Act and are required to apply to be registered under the NGER Act in relation to a financial year. | | Asset owners must report if: - the value of their EOFY assets is $5 billion or more; or
- they meet at least two of the following three criteria:
- consolidated revenue of $200 million or more;
- EOFY consolidated gross assets of $500 million or more;
- EOFY employees of 250 or more.
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Group 3 – first annual reporting period starting on or after 1 July -2027 |
Consolidated revenue: $50 million or more
EOFY consolidated gross assets: $25 million or more
EOFY employees: 100 or more | Cell | | Cell | |
When must sustainability reports to be lodged?
Entities required to prepare a sustainability report must lodge the report with the Australian Securities & Investments Commission (ASIC) as part of their annual reporting.
For entities with financial years ending:
- 30 June 2025: the first sustainability reports are required to be lodged by 30 September 2026 (disclosing entities) and 31 October 2026 (all other reporting entities).
- 31 December 2025: the first sustainability reports are required to be lodged by 31 March 2026 (disclosing entities) and 30 April 2026 (all other reporting entities).
3 year modified liability regime
The modified liability regime will provide reporting entities with immunity from civil claims by private litigants regarding specific disclosures made in sustainability reports, and auditors' reports for financial years commencing during the period from 1 January 2025 to 31 December 2027, including:
- scope 3 GHG emissions (including financed emissions);
- scenario analysis (within the meaning given by the ASRS); and
- transition plans (within the meaning given by the ASRS).
Additionally, the modified liability protection extends to representations as to future matters generally made in sustainability reports or auditors' reports for financial years commencing during the period from 1 January 2025 to 31 December 2025.
These are collectively described as 'protected statements' in the Act.
In addition, the immunity also applies to statements made by the entity under Commonwealth law that are identical to a protected statement or differ only so far as to make an update or a correction to a protected statement.
Immunity under the modified liability settings will not extend to any action, suit or proceeding brought against a person or entity that is either a criminal action, or brought by ASIC.
Who is exempt from mandatory reporting?
Certain entities are exempt from mandatory reporting, including:
- small and medium entities below the relevant size thresholds (set out above);
- entities that are not an NGER reporter;
- entities that are registered with Australian Charities and Not-for-profits Commission (ACNC); and
- entities that are exempt from lodging financial reports under Chapter 2M of the Corporations Act, including where exemptions have been made through an ASIC class order. ASIC is currently reviewing existing class orders, and other forms of relief relevant to financial reporting, to determine applicability to climate-related financial reporting and whether any updates are required.
What should companies and directors do to prepare?
The transition towards compulsory climate-related reporting marks a significant shift in corporate reporting, posing challenges for businesses.
Successfully navigating these changes will demand considerable investment from businesses. Directors and boards play a vital role in managing the risks linked to climate change instead of looking at the requirements as a mere ticking of the box exercise. Mandatory reporting presents a strategic opportunity to demonstrate the organisation’s values and strengthen trust with employees, shareholders, investors and communities in which they operate.
Directors should consider their:
- current climate and Environmental, Social and Governance (ESG) policies;
- existing climate disclosures and representations in reporting, marketing material and other communications including social media and on their website;
- board and management’s level of climate and ESG competency; and
- current data systems and what is required for climate reporting.
how can mcw help?
McInnes Wilson Lawyers can help you with your reporting obligations and disclosures.
Failure to meet these reporting requirements could lead to heightened scrutiny from the market and regulators as well as potential legal liability.
We can also assist with reviewing undertaking a compliance review of your corporate governance framework, reporting, recording keeping and policies including identify gaps in governance policies, developing governance policies and risk management and reporting framework.
Get in touch with us today if you would like more information regarding your climate reporting obligations or assistance with your corporate governance practices.
