Changes to Australia’s sustainability reporting regime: what you need to know

Last week’s budget sparked widespread commentary, including opinion pieces, podcasts and social media debate as commentators analysed the “most ambitious attempt this century to rebalance Australia’s tax system”, according to economist Saul Eslake.

Tax reform is having its moment. But the Budget also proposes changes to improve Australia’s mandatory sustainability reporting regime.

Those changes matter for current and future climate reporters, particularly those in Group 2 and Group 3 of the phased reporting timeline.

 

Summary of Federal Budget Changes

The Budget Papers outline amendments to the mandatory sustainability reporting regime. These proposals remain subject to consultation, legislative drafting and parliamentary approval, with timing yet to be confirmed. Reporting entities, however, should consider these proposals as they prepare their first and second reports.

 

Broadly, the proposed changes include:

Lifting the reporting threshold

The changes will reduce the number of entities required to report in Group 3. The thresholds determining whether a proprietary company is “large” under the Corporations Act will double: with the revenue threshold increasing from AUD50 million to AUD100 million, and gross assets from AUD25 million to AUD50 million. The 100 employee threshold is unchanged. If Parliament passes these changes, around 1,500 companies will fall out of Chapter 2M lodgement scope, removing both the financial and sustainability reporting obligations for those entities.

While these entities will no longer have direct reporting obligations, they will likely remain in the value chain of larger reporting entities and be asked to provide sustainability information.

Streamlining supplier information requests

Reporting entities require information from their supply chains to meet their obligations. This has a ripple effect across the economy and helps lift sustainability performance. But managing multiple, overlapping information requests can create a burden for smaller entities.

The Government will introduce clearer boundaries on what reporters can reasonably ask of their suppliers, with small business specifically identified. The likely effect will be guidance on both the scope and form of those requests including possible templating of requests, although the substantive Scope 3 reporting obligation remains.

Clarifying “undue cost or effort”

The reporting regime includes proportionality mechanisms that recognise the different circumstances of reporting entities. For instance, in identifying relevant climate related risks and opportunities, an entity must use all reasonable and supportable information available “without undue cost or effort”. Early reporting shows that entities are taking varied approaches to defining “undue cost or effort”.

Treasury will issue guidance clarifying this threshold, which will likely be analogous to the way that the IASB has provided guidance on materiality.

Adjusting assurance settings

Treasury considers the current assurance roadmap too one size fits all. The Government plans to recalibrate the regime so it is “proportionate and practical”, flagging adjustments to either scope, timing, or both.

For Group 2 and Group 3 reporters, this change will provide welcome relief, as the existing roadmap was focused on Group 1 entities. The resourcing demands on smaller, less mature reporters continue to create challenges, and many entities struggle to meet assurance requirements.

A new external reporting body

Separately, the Budget allocated AUD4.8 million over four years to finalise the establishment of External Reporting Australia, the new body that will replace the AASB, AUASB and Financial Reporting Council. The substantive standards will not change as a result of this structural reform, but ongoing interpretation, guidance and any future amendments will be managed by the new body. The legislation establishing External Reporting Australia remains before Parliament.

 

How we can help

Over the past two years we have supported Australian clients in preparing and producing their first mandatory sustainability reports. We bring together a team of management consultants and legal experts to provide a single, coordinated response, combining legal analysis with practical operational implementation within one engagement and under one accountable team.

Our clients value our ability to deliver clear, pragmatic advice on the sustainability reporting regime, including its intersection with directors’ duties, greenwashing risk and governance.

They also benefit from our international experience across comparable sustainability reporting regimes in the UK, European Union, New Zealand and the broader APAC region.

We support clients with:

• Understanding applicability and director obligations
• Setting a clear reporting ambition, whether compliance focused or performance driven
• Converting existing voluntary reporting into compliant Australian disclosures
• Co-ordinating sustainability reporting across multiple jurisdictions
• Designing and implementing governance and risk management improvements
• Drafting AASB S2 aligned disclosures, providing comfort to directors signing off sustainability reporting

If the Budget announcements prompt you to reassess your position, please get in touch.