This week has been a monumental milestone in sustainability reporting in Australia. The International Sustainability Standards Board (ISSB) finalised the issuance of the first two global Sustainability Reporting standards and Treasury has released a consultation paper that clearly outlines their vision for sustainability Reporting in Australia.
ISSB Standards
The ISSB have issued the first two standards in what will be a new suite of standards on sustainability reporting:
- IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information
- IFRS S2 Climate-related Disclosures
These standards represent the start of globally standardised sustainability reporting that will sit alongside financial reporting to explain how organisations are dealing with environmental, social and governance (ESG) issues. Given the world’s current focus on climate change, the standard setter have gone with a climate first approach. That is climate risk is the first specific topic that they have addressed. However, the ISSB is already looking to broaden the scope of these requirements, and is considering topics such and biodiversity, human capital and human rights as their next focus areas.
IFRS S1, is a foundational standard that sets up the general framework for sustainability reporting including concepts such as materiality and will be the building block that all other future sustainability standards will be based on. IFRS S2 focuses on the requirements as they relate to climate change. It includes requirements to disclose information around:
- How climate risk is factored into your organisation’s governance and risk management practices
- What are the climate related risks and opportunities that arise for your organisation
- What are your strategies for responding to these risks and opportunities
- How resilient is your organisation to climate change including scenario analysis
- What are your Green House Gas (GHG) emissions including disclosure of scope 1,2 and 3 emissions
- Industry specific targets and metrics relevant to your organisation
Many of these matters require your organisation to think about your business risks through a new lens and collect and report new data that your systems are not currently configured to collect, and will require considerable efforts to implement.
Treasury Consultation
Treasury’s consultation paper outlines an expectation that the largest companies and those that are consider Controlling Corporations meeting the publication threshold under the NGERs regulations will commence sustainability reporting by 30 June 2025, with it scope gradually broadening to the next group of companies at 30 June 2027 and by 30 June 2028 all organisations with reporting obligations under Chapter 2M of the Corporations Act (2001) will be required to provide sustainability reporting. It also proposes to require the company’s financial auditor to sign off on the sustainability reporting, the level of assurance increases over time, such that only some data would need to have assurance in the first year a sustainability report is prepared through to full assurance (audit) of the entire report the fourth year an organisation prepares the sustainability report.
Next Steps
The Treasury consultation closes on 21 July 2023. Our current expectation is that they will proceed to drafting the legislation shortly after that, with legislation expected to pass parliament in the first half of 2024 in order for them to have the legislation in place by the time it will need to be effective on 1 July 2024 for the first phase of adopter. The Australian Accounting Standards Board (AASB) is expected to issue the ISSB standards as Exposure Drafts locally in the next month or two, including any proposed modifications that they think need to be made in an Australian context. Based on the desire for international comparability, it is not expected that there will be many changes proposed. Their current aim is to have finalised standards in the first half of 2024.
How Moore Australia can assist you
At Moore Australia we are excited about the opportunities that are arising from a new regime of sustainability reporting in Australia. We are currently developing tools and resources and are upskilling our staff to ensure that we are best placed to service you as these implement these new requirements. We want to bring you along on the journey. Accordingly, we will soon be commencing a series of webinars that build on the various requirements of the standards, to help you start to thinking about the impacts of climate change on your business, and consider the systems and process changes that you will need to undertake in order to be ready to create your sustainability report. Although there are still a number of years before this becomes mandatory for many organisations, we are aware that some smaller entities may be required to prepare disclosures ahead of the mandatory application dates to meet demands from large customers, suppliers, and financiers. We want to be there to support you.
Please look out for invitations to the webinars, or contact your Moore Australia contact if you need further information.