This article is from multiple insights by Melbourne Chamber member Pitcher Partners and reflects the author’s views.

Every business is already impacted by climate change and the national and global move to a more decarbonised economy. As we respond to climate change, even small to medium size businesses will feel the effects on their business models, supply chains, risk management and attitudes of customers and staff. This is particularly the case for businesses whose customers include larger businesses or emission generating businesses, who will have to understand and report on the emissions of their suppliers.

What are the climate reporting changes?

On Monday 26 June 2023, the International Sustainability Standards Board (ISSB) released its inaugural sustainability standards, designed to provide a global baseline of sustainability- and climate- related disclosures for the capital markets.

Further, on Tuesday 27 June 2023, the Australian Treasury released its second consultation on climate-related financial disclosures.

Both internationally and in Australia the matters of climate change and more broadly sustainability are moving at a rapid pace due to stakeholder expectations of transparency in this area. New Zealand are already into their first year of mandatory climate related disclosure reporting.

The newly released international sustainability standards, issued by the ISSB, are:

• IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information; and
• IFRS S2 Climate-related Disclosures.

IFRS S1 requires companies to report the broader sustainability risks and opportunities they face over the short, medium and long term, for access to resources for example.

IFRS S2 is more specifically about climate, setting out specific climate-related disclosures based on recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).

The ISSB Standards are designed to ensure that companies provide sustainability-related information alongside financial statements – in the same reporting package. The Standards have been developed to be used in conjunction with any accounting requirements, built on concepts underpinning the IFRS Accounting Standards. IFRS S1 also contains general requirements as well as the conceptual foundations on which the standards are based, which includes the concept of materiality.

The core content of the requirements of the ISSB Standards are set out under the same four categories used by the TCFD framework:

• Governance
• Strategy
• Risk Management
• Metrics and Targets

What’s next?

We anticipate the following steps will likely need to occur before any Australian equivalent ISSB standards are applicable in Australia:

• Legislation is amended to give power to the Australian Accounting Standards Board (AASB) to issue such standards (currently in Parliament);
• The ISSB Standards along with any Australian modifications are subject to due process in Australia (i.e. through an exposure draft(s));
• The Corporations Act 2001 is amended (after being passed by Parliament) to require reporting for certain types of entities – this is the subject of the current Treasury consultation; and
• The Australian equivalents to the ISSB Standards are issued as legislation with future application dates.

It is important to note that Federal and State Governments are also issuing internal TCFD-style reporting guidelines for departments and agencies, which will also trickle down to bidders and suppliers.

Given the Government’s position to manage and deliver polices and programs to help Australia respond to climate change we would anticipate the above steps will progress rapidly.

How will mandatory reporting impact my business?

For every business, there will be far greater scrutiny on climate reporting and far less tolerance of greenwashing by regulators, financial institutions, other business lenders and by customers.

Don’t be fooled into thinking mandatory climate reporting will only impact larger businesses or those with high emissions. The new climate reporting measures will mean these businesses will have to report on not just their own emissions but emissions across their entire value chain – upstream and downstream. They will need data on their suppliers’ and customers’ emissions and may well require them to lower their emissions to be able to continue to do business with them.

There is also a potential upside for businesses who act early to meet mandatory climate reporting. You could open opportunities for new customers, products or services.

What should I do to be ready for climate reporting changes?

Start by asking these questions.

• Do you understand your business’ climate risks and opportunities?
• Do you have the competency and capability at a governance and managerial level to navigate the impacts of climate change, including mandatory climate reporting?
• What are your business’ major sustainability risks and opportunities?
• Are your systems, work processes, staff and data up to the task of responding to a lower carbon business environment and changes in climate reporting?

For most businesses, the answer to some of these questions will be ‘no’. Every business will need to enhance their capability in this area.

Start preparing for climate reporting and a lower carbon business environment NOW!

Internationally and nationally, many businesses that have started looking at this issue are saying they had wished they had done so earlier. That’s the experience of the local clients that our advisors are helping too.

Responding to these changes will be challenging. Here are three steps your business should take to be ready for greater scrutiny of their climate reporting and their approach to sustainable development and climate change.

Step 1. Review your governance in relation to climate change. Do you understand and are you staying up to date with the ISSB Standards and Treasury proposals on mandatory reporting?

Step 2: Identify your business’ gaps in relation to data and disclosure. Is your current data accurate and reliable, do managers and staff have sufficient skills in this area and do your systems need improving? Prepare an action plan to get where you need to be.

Step 3: Have a well-defined strategy for sustainable development and respond to all impacts of climate change, including climate reporting.

This sounds daunting but is essential risk management planning. The future of your business could depend on getting this right. The good news is there are business advisors with expertise in sustainability that can guide you through the process.

More reading: Business faces climate reporting deadline in Australia