The move towards Australian mandatory sustainability reporting has support in reform legislations, such as the Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Act 2024. The Corporations Act 2001 has been amended to mandate climate-related financial disclosure, including risk strategy and environmental footprint disclosure, from large firms.

The Australian Accounting Standards Board (AASB) has issued the Australian Sustainability Reporting Standards (ASRS) to permit entities to report on information related to sustainability. ASRS follows very closely the framework of the International Sustainability Standards Board (ISSB), which allows for consistency with international best practice. The two primary standards of ASRS are AASB S1, where there is a set of rules that require entities to make disclosures about sustainability information, and AASB S2, where there is comprehensive climate reporting requirements under governance, strategy, risk management, and metrics.

Implementation Schedule and Entities Involved

Reporting requirements would be adopted with varying levels of entities, segmented by size and financial criteria.

Giant companies with revenues of over $500 million or assets of over $1 billion will be required to begin reporting financial years on or after January 1, 2025. Middle-market companies that have revenues of over $200 million will be required to begin being compliant from July 1, 2026. Small-sized companies that achieve a lower level of monetary capability will be required to begin reporting from July 1, 2027. The phased rollout is intended to provide companies sufficient time to prepare themselves and get aligned with the new requirements in the reporting processes.

Key Reporting Requirements

Companies that fall within the ambit of sustainability reporting are required to report full information about their environmental impact and climate change-related financial risk.

Climate risk management will be disclosed in detail, determining an organization’s exposure to environmental risk and how such a risk will be managed. The companies also have to disclose their Scope 1 (direct) greenhouse gas emissions, Scope 2 (indirect) greenhouse gas emissions that are the consequence of energy use, and Scope 3 (indirect) supply chain greenhouse gas emissions in reporting year two. Governance and control structures related to climate risks and how such are dealt with at the executive and board level have to be incorporated into disclosures. Apart from this, firms will publish their sustainability strategies along with underlying performance metrics, including instances of how ESG issues are integrated into business models. For it to be accurate and credible, sustainability reporting will be external audit, and incremental standalone audits will be performed until 2030.

The Business Impacts of Sustainability Reporting

The impacts will extend to Australian firms following new disclosure mandates.

Greater transparency will lead to greater stakeholder trust, as regulators, investors, and consumers will have a better understanding of corporate sustainability practices. Better risk management will allow companies to identify climate risks early on and implement more effective countermeasures to reduce financial and operational impacts. Companies that embrace sustainability reporting on a voluntary basis would also gain from being distinct and hence differentiate themselves in the market and gain green investors and green consumers. Companies would, however, also need to factor in compliance cost and resource utilization as mandatory reporting transition would involve investment in data collection, reporting systems, and external audits. In the longer term, greater efficiency and international standard compatibility can be traded off against cost.

Challenges and Issues Confronting Businesses

Apart from sustainability reporting, there are a number of issues confronting businesses.

Quality and reliability of data continue to be key issues, especially for companies attempting to account for and report Scope 3 emissions up supply chains. Compliance and knowledge are another barrier, where companies must be up to date with evolving report guidelines and legal compliance. The cost of deployment is also a barrier, as is that of smaller companies with less resources. Furthermore, incorporating sustainability into core business strategy and not an optional program will be the key to long-term success.

The Future of Sustainability Reporting in Australia

While Australia is still to be pulled closer to international levels of sustainability, the sustainability reporting landscape is set to transcend climate change reporting to other more holistic ESG measures such as human rights, biodiversity, and social contribution. Regulators such as the Australian Securities and Investments Commission (ASIC) and the Australian Prudential Regulation Authority (APRA) will be at the center of compliance and that the sustainability reports are not jargon-heavy but content-heavy.

Firms actively producing sustainability reports will be best placed to cope with evolving regulation, establish stakeholder trust, and enable Australia’s overall ambition of being net-zero by 2050.