This seismic shift,which aims to increase transparency and accountability,is set to align corporate Australia with the country’s emissions reduction targets – and bring the nation into line with international sustainability targets.
New regulations will require companies to disclose extensive information on climate management,including governance,strategies,risk management,metrics and targets.iStock
In October 2023,ASIC chairman Joe Longo warned companies that the forthcoming regime will demand unprecedented levels of detail about their operations.
The new regulations will require companies to disclose extensive information on climate management,including governance,strategies,risk management,metrics and targets,signalling an end to the era of minimal reporting on climate impact.
“The forthcoming disclosure requirements mean organisations must progressively disclose greater levels of information about climate management,” says Michael Cox,APAC director of sustainability consulting at Schneider Electric.
“This upcoming regulation is a fantastic opportunity for companies to broaden the understanding of potential business disruptions (risks) and adaptations (opportunities).”
The mandate,rooted in the standards set by the International Sustainability Standards Board (ISSB),will ensure that company strategies are robust enough to withstand the scrutiny of investors,stakeholders,and the general public.
Michael Cox,APAC director of sustainability consulting at Schneider Electric.Supplied
These disclosures are not only about compliance;they aim to steer corporate action towards significant emissions reduction,aligning with the Australian government’s commitment to a 43 per cent decrease in greenhouse gas emissions by 2030 from 2005 levels and achieving net zero emissions by 2050.
David Thodey is co-chair of the Climate Leaders Coalition,made up of the CEOs of 50 leading companies supporting industry action to meet decarbonisation targets in line with the Paris Agreement on climate change. The CLC has highlighted that the new reporting requirements extend to Scope 3 emissions,the emissions created across a company’s entire value chain,including suppliers and distribution.
“We recognise that Scope 3 emissions are significant,accounting for as much as 65 to 95 per cent of most companies’ emissions,” says Thodey. “Companies,including our members,must accelerate their efforts.
“The Australian Treasury has released draft legislation on the adoption of Australia’s version of the ISSB standards from as early as 1 July 2024. If these proposals are adopted,reporting of Scope 3 emissions will become mandatory for many Australian entities as early as periods beginning 1 July 2025,being the second year of mandatory reporting. Companies will be expected to set and act on Scope 3 targets if they haven’t already.
“We have observed that capital markets and customer demand are leading the way ahead of regulation. Companies embracing scope 3 are not only aligning with these expectations but also building resilience and a competitive edge.”
With many public and private enterprises potentially unprepared for this obligation,Schneider Electric has positioned itself as a leader helping businesses navigate these uncharted waters,including across their value chains.
“We support Australian business with our local team of experts that can assess readiness,identify gaps in compliance and map out approaches to address those gaps,” says Schneider Electric’s Cox.
The challenges for businesses and the hurdles they must overcome are significant,he says.
“We are seeing barriers in the form of insufficient access to data,insufficient resources to and knowledge of climate risks and management strategies,” Cox says.
Schneider Electric’s consultancy services aim to bridge these gaps,equipping clients with the necessary tools to transition smoothly to compliance.
“We specialise in providing systems that centralise and manage all their sustainability data including digital platforms such as EcoStruxure Resource Advisor,” says Cox.
“Those platforms help companies to streamline data management and ensure accurate and consistent reporting while minimising the time spent with automated data collection.
“We also specialise in the development and deployment of solutions that deliver tangible improvements in climate and decarbonisation performance including,by example,renewable energy,operational and energy efficiency and circular business models.”
Non-compliance carries significant risks,including civil penalties and reputational damage.
“In addition to civil penalties,failure to comply or obtain the assurance statement could have a significant impact on investors and brand perception,” Cox says.
Tom Wainwright,sustainable corporates lead at Climateworks Centre,an independent not-for-profit within Monash University,says the reporting changes are a critical step.
“Climate-related financial disclosures are a critical step in the transition to a net zero economy because transparent,comparable data is crucial to identify,assess and manage climate-related risks,” says Wainwright.
The shift towards mandatory disclosures is not just about compliance;it’s a strategic opportunity for Australia to capitalise on its abundant natural resources and to position itself as a frontrunner in the global energy transition,he says.
“Australia is incredibly well positioned to benefit from the energy transition thanks to its wealth of natural resources,” says Wainwright.
“These new requirements are a signal to the world that Australia is now serious about aligning with global best practice and is setting up for success in a net zero future.”
As businesses gear up to meet these new standards,Climateworks is urging them to take a proactive approach to get ahead of the curve.
“To prepare for upcoming mandatory disclosures,companies need to invest in upskilling and capacity building now,” says Wainwright.
This preparation involves understanding and setting targets aligned with a 1.5-degree trajectory,as well as investing in technologies to reduce emissions.
However,the repercussions for businesses that fail to adequately disclose climate-related information could be significant,says Wainwright,sounding a sobering warning.
“Any company that fails to adequately identify and address its climate risks and opportunities leaves itself vulnerable to disruption,” he says.
This is compounded by the risk of greenwashing accusations,which can arise from a disconnect between a company’s statements and actions.
“Inadequate or misleading disclosure could lead to accusations of corporate greenwashing if there is misalignment between statements and actions,” says Wainwright.
Australian industries,particularly smaller organisations,may face challenges in adapting to the new reporting standards,particularly when it comes to the complex Scope 3 emissions,which include indirect emissions from a company’s value chain.
Tom Wainwright,sustainable corporates lead at Climateworks Centre.Supplied
Wainwright acknowledges the new rules are complex but suggests a collaborative solution.
“The best way to start addressing Scope 3 emissions is for companies to work with their value chain partners,” he says.
Despite the challenges,there are tangible benefits for companies that proactively address their climate risks and disclosures.
Wainwright says first movers can secure a competitive edge.
“Organisations that move the quickest stand to gain;from market share,reduced costs,talent retention and many other benefits,” he says.
The mandatory disclosures will also require companies to publicly share their transition plan,showcasing their strategies for prospering in a net zero economy.
This is crucial as it allows investors to align finance with climate solutions and enables consumers and regulators to make informed decisions.
The rewards for the nation and the world are significant,says Schneider’s Cox,and including effective preparation for the forthcoming disclosure and the establishment of the underpinning strategies,systems and processes will position businesses for:
And what does the future hold in this area?
“Great question,certainly the large proportion of stakeholders are awaiting the finalisation of the legislation and the resultant certainty in the disclosure requirements and the timing of them,” says Cox.
“Then we can expect to see varying interpretations of what and how to disclose as the first tranche of businesses commence reporting in the second half of 2025.
“In the longer term,we expect that the disclosures will lead to an increased transparency of current performance which is likely to lead to a clearer recognition that the current rate of change is not sufficient to avoid the most severe impacts of climate change.”
Cox says he hopes to see increases in the rate of change towards the end of this decade “as this understanding and expectation permeates through the market”.
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