Mandatory sustainability reporting regime: An update – Second reading debate completed

In the March 2024 edition of Gadens’ FMCG Express, we discussed the exposure draft of the Treasury Laws Amendment Bill 2024: Climate-related financial disclosure (Draft Legislation), which outlined a proposal for the implementation of a mandatory climate-related financial disclosure regime based on existing international frameworks and standards.

On 27 March 2024, the Treasury Laws Amendment (financial market infrastructure and other measures) Bill 2024 (Bill) was introduced to Parliament introducing a slightly altered mandatory reporting regime than what was originally envisioned in the Draft Legislation. On 15 May 2024, the Second Reading debate occurred, and the Bill was referred to the Federation Chamber.

Threshold requirements

The sustainability reporting thresholds for each group or phase are set out below:

Key changes

Start Date

It is proposed that the mandatory sustainability reporting regime will now begin to operate from 1 January 2025, as opposed to 1 July 2024.

Directors declarations

Under the proposed sustainability reporting regime, a sustainability report is to include a directors’ declaration that the substantive provisions of the sustainability report have been complied with.

The Bill, however, provides that for the first three years of the sustainability reporting regime, a director is only required to provide their opinion on whether the reporting entity has taken reasonable steps to ensure that the substantive provisions of the sustainability report have been complied with.

Extension of immunity to protected statements

The Draft Legislation initially envisioned that there would be limited immunity for statements made in sustainability reports for a financial year commencing between 1 July 2024 and 30 June 2027 regarding scope 3 emissions and scenario analysis. The Bill extends the limited immunity and introduces the concept of a protected statement.

Expanding on the Draft Legislation, a protected statement is a statement made in a sustainability report or an auditor’s report about scope 3 greenhouse gas emissions, scenario analysis or transition plans. These three concepts are generally seen to be the most difficult and speculative portions of a sustainability report, and the extension of the limited immunity should allay fears of litigation I for the initial period.

We note, however, that proceedings commenced by ASIC remain exempt from the limited immunity and the Bill extends this exemption to proceedings that are criminal in nature.

AASB alignment

The definition of scope 1 emission, scope 2 emission, and scope 3 emission has been amended to align with the sustainability standards, which are currently being prepared by the Australian Accounting Standards Board, rather than having the same meaning as in the NGER Act.

General refinement

The Bill has also clarified, qualified, and simplified certain concepts, criteria and processes introduced in the Draft Legislation. For example, the Bill has clarified that only entities that are registered schemes, registrable superannuation entities or retail corporate collective investment vehicles with a total asset value $5 billion or more at the end of each financial year are subject to the reporting regime, rather than any entity which met those criteria as proposed in the Draft Legislation.

Key takeaways

Mandatory climate-related reporting is on its way to being enacted into Australian law, and entities that will be required to comply with the mandatory reporting regime should be aware of their potential additional reporting obligations and be prepared to comply.

Although limited immunity provides comfort from the fear of unwanted litigation for an initial period, the Bill confirms that ASIC prosecutions remain exempt from the limited immunity and therefore, reporting entities must ensure their full compliance with the incoming reporting regime.

If you would like further information, please do not hesitate to contact our team.

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Authored by:

Susan Goodman, Partner
Jack Tipple, Special Counsel
Ahmed El-jaam, Lawyer