New Legislation Requires Large Businesses to Disclose Climate-Related Financial Information

Large businesses are facing new legislation that will require them to publicly disclose detailed information about their efforts to reduce carbon emissions and other climate-related financial information. This legislation, currently before federal parliament, will mandate companies to include a separate sustainability report in their annual report, which will be formally adopted by the company’s board.

The push for mandatory climate-related financial disclosure stems from the UN Climate Change Conference in Glasgow in 2021 (COP26), which emphasized the importance of transparency in combating climate change. By making a company’s climate-related risks, opportunities, metrics, and targets transparent to investors and stakeholders, disclosure enables monitoring of progress towards internationally agreed net-zero targets.

The new laws do not change the actions companies must take in response to climate change but allow for monitoring of their progress. The disclosures produced will be closely scrutinized, as they provide insight into a company’s environmental impact and efforts to mitigate it.

The legislation outlines specific content requirements for the sustainability report, which are being developed by the Australian Accounting Standards Board in alignment with global sustainability reporting standards post-COP26. Companies will need to disclose information about their scope 1, 2, and 3 greenhouse gas emissions, with scope 3 emissions encompassing those from their supply chains.

While Australia already has the National Greenhouse and Energy Reporting Scheme for reporting emissions, the new sustainability reporting requirement will apply more broadly. It will cover companies under the NGER scheme, investment trusts, funds with assets over $5 billion, and other companies meeting certain size thresholds.

Initially focusing on climate-related issues, the legislation hints at the possibility of adding other environmental disclosures in the future. Enforcement of the disclosure laws will be overseen by the Australian Securities and Investments Commission (ASIC), with potential civil penalties for misleading disclosure.

Directors will play a crucial role in ensuring compliance with the new reporting requirements. They will need to declare whether the sustainability report aligns with legal standards and accurately includes all necessary disclosures. Failure to do so could result in personal liability and significant civil penalties.

The legislation is expected to impact sustainability governance within companies, elevating climate-related issues in boardroom discussions and increasing directors’ awareness of their company’s climate impact. By holding directors personally responsible for the company’s climate-related disclosures, the laws aim to drive greater accountability and transparency in corporate sustainability efforts.

Overall, the new disclosure laws represent a significant step towards addressing climate change and promoting sustainable business practices. As companies prepare to navigate these requirements, stakeholders will be watching closely to see how they respond to the growing imperative for climate action.