New mandatory climate reporting regime in Australia: Long-awaited Climate Disclosure Bill passes House of Representatives

On 6 June 2024 the Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill 2024 (Cth) (Bill) was passed by the House of Representatives without amendment, and was introduced to the Senate for consultation on 24 June. The Bill sees Australia finally aligning with other jurisdictions by implementing disclosure standards that reflect the International Sustainability Standards Board (ISSB) requirements.

The Bill amends the Corporations Act 2001 (Cth) (Corporations Act) to establish Australia’s new mandatory climate-related financial disclosure regime (Disclosure Regime), carrying with it significant implications for entities operating in the Australian market.

In this article we outline which entities will be subject to the incoming Disclosure Regime, when the obligations the subject of the Disclosure Regime will commence if the Bill passes the Senate; and what these obligations will mean for your business.

a. Which entities are subject to the Disclosure Regime?

Subject to the Bill being passed, for an entity to be subject to the Disclosure Regime it (including any entity that it “controls”) must satisfy at least two of the following three criteria (ie, (a) – (c)):

In accordance with the Corporations Act, an entity “controls a second entity if the first entity has the capacity to determine the outcome of decisions about the second entity's financial and operating policies”. By way of example when applied to the table above, if “Example Co Pty Ltd” has revenue of $45 million and 75 employees, and its wholly owned subsidiary “Subsidiary Co Limited” has revenue of $15 million and 50 employees, Example Co will fall into tier 3 and be subject to the Disclosure Regime.

The Bill also provides for the Minister to, in certain circumstances, establish alternative thresholds for each criterion, in each of the above tiers.                                                                                   

b. When will obligations under the Disclosure Regime commence?

It is proposed that there will be a phased implementation of the Disclosure Regime.

Reporting obligations for each of the tiers will commence in relation to a financial year which commences during the following dates:

For example, “Climate Co Pty Ltd”, a tier 3 entity, has a financial year that starts on 1 July. Climate Co will have to prepare climate related financial disclosures in respect of its financial year commencing 1 July 2027 (however, such disclosures may not occur until the end of that financial year).

c. What are the obligations of the Disclosure Regime?

The climate related financial disclosures must be included in an annual “sustainability report” (Sustainability Report). The Sustainability Report will be incorporated into an entity’s Chapter 2M annual financial reports, lodged with ASIC, and made publicly available. Entities which are exempt from lodging such financial reports (ie, pursuant to deeds of cross-guarantee relief and other class order relief instruments) will be exempt from preparing a Sustainability Report.

Parent entities which prepare financial reports on a consolidated basis may elect to prepare a Sustainability Report for their subsidiaries. However, Australian subsidiaries are unable to rely on ISSB-compliant reports of foreign parent companies to satisfy the reporting requirements under the Disclosure Regime.

For tier 3 entities, the obligation to prepare a Sustainability Report arises only when they are subject to material climate-related financial risks or benefits. Should a tier 3 entity assess that it is not materially affected by such risk, it may issue a declaration to that effect and elect not to prepare a Sustainability Report. Nonetheless, the requirements for a directors' declarations remains in effect (see subparagraph d) iii) below).

Entities subject to the Disclosure Regime are also exempt from disclosing information in the Sustainability Report that is commercially sensitive or imposes undue cost or effort.

Lastly, there is a requirement for the Sustainability Report to be audited. However, this requirement under the Bill does not commence until 1 July 2030.

d. Contents of the Sustainability Report?

The Sustainability Report will have the following components:

1. Climate Statements – The Bill does not specify the full contents of the climate statements, given that the document which will prescribe that information is still forthcoming. However, it is apparent that entities will be required to disclose information in relation to climate-related material financial risks and opportunities, targets, and governance processes.
2. Statements prescribed by the Minister – The Bill gives the Minister the power to make legislative instruments which require the disclosure of additional statements in relation to specific topics in the Sustainability Report. There has been no indication what these may be.
3. A directors’ declaration – The Sustainability Report must also contain a signed and dated resolution by the directors of the reporting entity. In the first 3 years of the Disclosure Regime, directors may simply declare that the entity has taken reasonable steps to ensure that the substantive provisions of the Sustainability Report comply with the Corporations Act. After that time however, directors must declare that the substantive provisions of the Sustainability Report are in accordance with the Corporations Act.

e. Enforcement?

Entities that are required by the Disclosure Regime to prepare a Sustainability Report must keep records for 7 years which detail the Report’s preparation. Failing to do so is both a fault-based offence and a strict liability one.

As would be expected, any disclosures contained in the Sustainability Report will be subject to the Corporations Act's current liability structure (eg, director duties, ongoing disclosure requirements, etc).

The Bill also grants ASIC the power to direct entities to explain, amend or confirm any statement in a Disclosure Report, which the regulator considers to be incorrect, including by requesting supporting documents.

f. Next steps?

Businesses are already under considerable pressure to disclose how they are managing their climate-related financial risks and broader sustainability-related risks. With the incoming Disclosure Regime, ASIC has given entities time to prepare for these proposed new obligations. We are already assisting companies in preparing governance and reporting processes to ensure compliance and peace of mind in 2025. If you wish to further discuss how you and your business can prepare for these upcoming changes, please reach out to Shane Barber and Lachlan Holmes at Bird & Bird. 

The authors acknowledge Annabelle Lee for her contributions to this article.