Australia is stepping up its game in sustainability with the introduction of the Australian Sustainability Reporting Standards (ASRS) developed by the Australian Accounting Standards Board (AASB). Much like New Zealand’s climate-related disclosures, these new standards are designed to reshape the way businesses report on their sustainability initiatives, bringing transparency, accountability, and uniformity to the disclosure of environmental impacts.
The ultimate intention of climate reporting standards is to drive tangible change, whether that be in relation to emissions reduction, or quantifying costs and risks from climate change and the transition to a low-carbon future.
The success in New Zealand and Australia will ultimately be measured by how we respond to climate change, and mandatory reporting is an important step.
These climate-related financial disclosure rules for large businesses and financial institutions go beyond being a set of voluntary guidelines. They represent a major shift in corporate reporting, one that will soon affect a broad swath of businesses across industries.
According to the AASB, more than 6,000 companies will be phased into the new disclosure requirements over the next three years, with the first group starting to report on financial years beginning after January 1, 2025.
The ASRS mandates companies operating in Australia to gather and report their sustainability data in a standardised and verifiable format. This approach streamlines the process for investors and stakeholders to assess a company’s Environmental, Social, and Governance (ESG) risks and opportunities with greater accuracy and transparency.
This article will guide you through the key elements of the ASRS when it takes effect, and how it will impact businesses across Australia—helping you stay ahead and fully prepared for what's coming.
Acronyms you need to know.
Sustainability comes with its fair share of acronyms, and when it comes to the regulatory landscape in Australia, it’s no different. Understanding these acronyms will help you navigate the complex reporting requirements:
- AASB (Australian Accounting Standards Board): The advisory board that developed the ASRS. They play a pivotal role in shaping sustainability disclosure regulations in Australia.
- IFRS (International Financial Reporting Standards): A not-for-profit organisation responsible for developing global accounting and sustainability disclosure standards.
- ISSB (International Sustainability Standards Board): An independent standard-setting body within the IFRS Foundation focused on creating comprehensive sustainability disclosure standards.
- AUASB (Auditing and Assurance Standards Board): The board that develops audit and assurance standards to ensure the quality and accuracy of sustainability reports.
With these organisations at the helm, businesses can expect the ASRS to be closely aligned with international sustainability reporting frameworks, ensuring Australia remains competitive on a global scale.
What are the mandatory and voluntary requirements under the ASRS?
The ASRS is an integral component of Australia's Sustainable Finance Roadmap, a plan to mobilise investment and create momentum toward a net-zero economy. By ensuring that markets have access to high-quality sustainability information, Australia is gearing up to meet the growing demand for transparency in how companies address environmental risks and opportunities.
The ASRS was released by the AASB and currently includes general sustainability disclosures (AASB S1) and climate-related financial disclosures (AASB S2). Let’s take a closer look into these two standards and understand their differences:
- AASB S1 (Voluntary standard): Outlines general requirements for disclosing climate-related financial information, aligned with the four pillars of IFRS S1: governance, strategy, risk management, and metrics & targets. According to the ASSB, “This is a voluntary standard. Entities may choose to apply it, which would require disclosing information on all sustainability-related risks and opportunities that could reasonably impact an entity's cash flow, access to finance, or cost of capital over the short, medium, or long term.”
- AASB S2 (Mandatory standard): Climate-related financial disclosures under the ASRS integrate IFRS S1 and S2, offering detailed insights into climate risks, opportunities, and transition strategies.
With these standards in place, the ASRS is set to reshape the business landscape, compelling companies to become more transparent in their sustainability efforts.
Australian business leaders are prioritising AASB S2 due to its mandatory status, but many are also turning their attention to AASB S1.
By adopting AASB S1, these companies aim to strengthen their broader sustainability disclosures and position themselves ahead of future mandatory standards that may cover areas like nature and other emerging sustainability topics.
Key timeline and dates for ASRS implementation.
The road to ASRS implementation is well underway. The Australian House of Representatives passed the Treasury Laws Amendment Bill on September 9, 2024, marking a significant milestone in establishing the ASRS as law.
Reporting entities have obligations under Chapter 2M of the Corporations Act and meet specific thresholds for reporting.
This includes large proprietary companies, listed companies that meet specific size thresholds, NGER reporters, and Responsible Superannuation Entities or Managed Investment Schemes with assets under management of $5 billion or more.
Reporting obligations are being phased in based on various criteria related to entity size and emissions. To understand whether your organisation falls under Group 1, 2, or 3, refer to the criteria outlined below:
Limited disclosure for Group 3 entities if they have no material financial risks or opportunities relating to climate. NGER Reporter meeting Group 1 thresholds will be in Group 1 even if the emission is below the NGER publication threshold.
This staggered approach ensures that large entities lead the way, setting the example for smaller businesses and financial institutions.
The ASRS will require companies to report annually on their sustainability metrics, providing much-needed transparency in a fast-changing economic and environmental landscape.
Who will be impacted by ASRS?
At its core, the ASRS is designed to apply initially to Australia’s largest companies, major emitters, and financial institutions. However, the implications of this new standard will not stop there.
In particular, the ASRS mandates disclosure of Scope 1, 2, and 3 emissions, meaning companies will need to assess and report not only their direct emissions (Scope 1) and purchased electricity (Scope 2) but also the emissions from their supply chains and product lifecycles (Scope 3).
If you’re a business that supplies goods or services to larger entities, you’re likely to feel the ripple effect of the ASRS. Whether you operate in manufacturing, retail, agriculture, or any other sector, meeting the new standards could become a requirement for maintaining contracts and ensuring competitiveness in the market.
As supply chains face pressure to meet sustainability requirements, smaller businesses will also need to comply with sustainability reporting. The ability to track and manage these emissions will become increasingly important for businesses of all sizes.
What challenges will companies face under the ASRS framework?
Nearly 75% of ASX200 companies are already voluntarily reporting climate-related information, primarily using the Task Force on Climate-related Financial Disclosures (TCFD) framework. As the ISSB framework takes over from TCFD, transitioning to the ASRS should be relatively smooth for companies already engaged in climate reporting.
However, the ASRS does introduce some notable requirements that go beyond what companies may be accustomed to:
- Climate Transition Plans: Companies must now disclose their plans for transitioning to a low-carbon economy, including strategies for mitigating risks associated with climate change.
- Scope 3 Emissions Reporting: A key component of the ASRS is the requirement to report Scope 3 emissions, which can be challenging for businesses with complex supply chains. However, there is a 1-year relief for reporting Scope 3 emissions which means it will be mandatory from your second reporting period.
- Scenario Analysis: Companies must provide a detailed analysis of how climate scenarios, including 1.5-degree and higher-warming scenarios, could impact their operations. This goes beyond the "commensurate with circumstances" approach required under IFRS S2.
These new standards are designed to provide investors, regulators, and other stakeholders with a more holistic view of a company’s climate-related risks and opportunities.
In doing so, they help to promote transparency and accountability, both critical components of sustainable business practices.
What are the assurance and liability implications?
To ensure the integrity of sustainability disclosures, the Auditing and Assurance Standards Board (AUASB) will finalise assurance requirements by December 2024.
This will likely involve a phased approach, starting with limited assurance on new topics such as strategy and risk management for the first three reporting years. By the fourth reporting year, companies will be required to provide reasonable assurance on all disclosures.
In terms of liability, failing to report or provide misleading information under the ASRS could lead to significant financial and reputational consequences. Directors face personal liability risks under the Corporations Act and the Australian Securities and Investments Commission (ASIC) Act 2001, although limited immunity for "protected statements" will be in place during the first three years of reporting.
Protected statements include forward-looking climate-related disclosures, scope 3 emissions, scenario analysis, and transition plans, providing businesses with breathing room as they adjust to the new requirements.
The ASRS is coming—Is your business ready?
The ASRS marks a crucial turning point in how businesses approach sustainability reporting, and time is of the essence for companies to establish their reporting systems.
Whether you’re a major corporation or a smaller supplier to one, the ASRS will significantly impact how you manage and disclose your climate-related risks and opportunities.
With the first reporting cohort scheduled to start their disclosures on or after January 1st, 2025, it’s essential to begin preparations now. Take stock of your emissions, shape your transition plans, and ensure your supply chain aligns with the new reporting requirements.
The ASRS offers more than just a compliance checklist; it presents an exciting opportunity for businesses to take the lead in fostering a more sustainable and transparent future.
Ready to tackle the ASRS? Reach out to our BraveGen Australian team of experts today and be ready for this vital transition!
