While changes will not be immediate, businesses will have to report on not just their own emissions but those across their entire value chain. Therefore, it will be important to monitor the implications for SMFEs, particularly in the manufacturing and service delivery supply chain. The Victorian Chamber is advocating for support and pragmatic policy change with limited impact on business.

Background

The International Financial Reporting Standards (IFRS) Foundation announced the creation of the International Sustainability Standards Board (ISSB) in 2021 to develop global standards for climate disclosure and sustainability reporting. These standards were released in June 2023 “to ensure that companies provide sustainability-related information alongside financial statements… in conjunction with any accounting requirements.”

With climate reporting on the horizon the Federal Government is consulting with stakeholders, including the Victorian Chamber, on how to implement climate-related financial disclosure in Australia. This will cover governance, strategy, risk management, targets and environmental metrics – including greenhouse gasses, which align with international standards.

Feedback will help shape the legislative changes, which will help determine the standards set by the regulatory bodies. This will provide businesses with a clear framework of how climate-related risks and opportunities should be disclosed, while affording companies time to build climate reporting capability and expertise.

Emission scopes

At the core of Australia’s reporting obligations are three ‘Scopes’ of emissions.

• Scope 1 covers direct greenhouse gas emissions from the company’s owned or controlled sources
• Scope 2 covers indirect greenhouse gas emissions from the generation of purchased electricity, steam, heating and cooling consumed by the reporting company
• Scope 3 includes all other greenhouse gas emissions that occur throughout a company’s supply chain.

Image: Environment Protection Agency USA

Proposal

Following a first round of consultation concluding in early 2023, proposed climate reporting will be phased in over a four-year period from 2024-25 to 2027-28 and involves:

• Mandatory reporting requirements starting on 1 July 2024 for Australia’s largest listed and unlisted companies and financial institutions, with other businesses subject to the requirements over time.
• A three-year transitional period, with regulator-only action against directors and reporting entities in relation to forward-looking statements and Scope 3 emissions possible during this time.
• Broad alignment with international climate disclosure standards.

The proposed phased approach would require ‘Group 1’ entities with more than 500 employees, revenues over $500 million and assets over $1 billion to start reporting in 2024-2025, Group 2 (more than 250 employees, $200 million revenue, $500 million assets) in 2026-27, and Group 3 (more than 100 employees, $50 million revenue, $25 million assets) in 2027-2028.

Image: Pitcher Partners

Even organisations too small to report are likely to be impacted by this disclosure system.

This is because entities that are subject to the mandatory reporting requirements will need to report Scope 2 emissions, and (from the second reporting year) estimate Scope 3 emissions upstream or downstream of product or service value chains. Therefore, they will be reviewing their supply chains and will seek input from their suppliers and/or clients to determine relevant emissions information.

Victorian Chamber advocacy

While consultations are ongoing before any legislation is implemented, current proposals regarding climate-related financial disclosures will impact the entire business community, particularly SMFEs implicated in Scope 3 requirements.

The Victorian Chamber is active in these consultations with the Federal Government and continues to advocate on behalf of business in Victoria.

The Victorian Chamber will highlight the importance of ensuring changes are easily managed by SMFEs and appropriate education and training is made available for Australian businesses to meet their reporting requirements.

Victorian Chamber Acting Chief Executive Scott Veenker said: “Actively reporting and reducing environmental impacts will equip businesses with the knowledge and tools to become more environmentally sustainable, improve Australia’s reputation as a trading partner and help businesses to attract and retain staff.

“However, businesses that are not currently reporting carbon emissions will experience increased initial costs to comply with these new reporting standards. Scope 3 emissions are particularly challenging to report and many businesses will need to modify their supply chains.

“Businesses will need support and training to meet these new reporting requirements, as well as any additional social and governance reporting requirements in the future.”

The second climate-related financial disclosure consultation paper can be found on the Treasury website and submissions will close 21 July 2023.

The proposed reporting regime will form part of Australia’s broader sustainable finance framework with further initiatives to tackle greenwashing and strengthen transparency of sustainability-related financial products and markets.

The Government has also committed to legislate a national Net Zero Authority, which aims to help key regions, industries, employers and others proactively manage the transformation to a clean energy economy.

More reading: Is your business ready for mandatory climate reporting?