Australia Releases Proposed IFRS-based Climate-related Reporting Standards

Australia is making significant progress in its commitment to climate-related financial disclosure, as the Australian Accounting Standards Board (AASB) introduces a new exposure draft outlining proposed standards for reporting climate-related information. These standards align with the sustainability disclosure standards introduced by the IFRS Foundation's International Sustainability Standards Board (ISSB).

Earlier this year, the Australian government unveiled plans to enforce mandatory climate-related financial disclosure requirements for companies and financial institutions. Large businesses will face these reporting requirements as soon as 2024, with smaller entities phased in over the following three years. The AASB, as a government agency responsible for accounting standards, was tasked with developing these sustainability reporting standards to meet the government's commitment. Australia's Treasury had previously highlighted the importance of aligning reporting requirements with international frameworks, particularly the new ISSB standards.

The ISSB and Global Sustainability Reporting

The ISSB was established in November 2021 at the COP26 climate conference hosted in the UK. Its mission was to develop IFRS Sustainability Disclosure Standards, responding to the demand from investors, companies, governments, and regulators for a global baseline of disclosure requirements. This initiative aims to provide a consistent understanding of how sustainability risks and opportunities affect companies' prospects.

The IFRS released the inaugural general sustainability (IFRS S1) and climate (IFRS S2) reporting standards in June 2023. Subsequently, IOSCO, the leading international policy forum and standards setter for securities regulators, called on regulators to incorporate these standards into their sustainability reporting regulatory frameworks.

While the AASB's exposure draft draws on the ISSB standards, it includes several proposed modifications. Notably, it specifies that the climate-related disclosure requirements are limited to climate-related risks and opportunities related to climate change, excluding non-greenhouse gas emissions, such as ozone-depleting emissions. The AASB's proposal also offers relief regarding Scope 3 value chain emissions, allowing companies to use immediate prior period data if current period reporting data is not reasonably and supportably available. Additionally, the draft includes the 15 Scope 3 categories specified by the GHG Protocol Standards as examples for entities to consider, rather than requiring disclosure of Scope 3 sources by these 15 categories, as outlined in the ISSB's standard.

Consideration of Material Climate-related Risks

A notable aspect of the AASB's draft is the requirement for entities to disclose when they determine that they are not exposed to material climate-related risks or opportunities. They must also explain how they reached this conclusion.

The AASB is actively seeking feedback on this exposure draft and has opened a comment period on the proposed standards, accepting input until March 1, 2024.

AASB Chair Dr. Keith Kendall expressed the significance of these standardized reporting requirements, emphasizing that they provide Australians and investors with greater consistency, transparency, and accountability. The release of the exposure draft marks an essential milestone in the development of these new standards, with all stakeholders encouraged to provide feedback.