Australia’s Climate Disclosure Mandate: Paving the Way for Global Sustainability Leadership

“This achievement is the result of over two years of effort and collaboration, bringing Australia in line with global reporting standards. A good first step. The next step? Australia needs to catch up with much of the rest of the world. XBRL reporting mandates now cover 84% of the world measured in terms of global market capitalisation.”
— John Turner, CEO of XBRL International. 

 

In a landmark move, Australia has passed legislation that mandates climate-related financial disclosures for large entities, setting the stage for greater transparency and alignment with global standards. This new law, effective from January 1, 2025, will fundamentally change how companies report on their climate risks, opportunities, and greenhouse gas emissions. The legislation aligns Australia’s climate reporting requirements with the International Sustainability Standards Board (ISSB), specifically mandating IFRS S2 for climate-related disclosures and encouraging voluntary compliance with IFRS S1, which covers general sustainability disclosures. 

This comprehensive legislation not only signals Australia’s commitment to tackling climate change but also highlights its broader ambition to integrate sustainability into corporate governance and financial reporting frameworks. From the comprehensive consultation process that shaped this legislation to the phased rollout of reporting requirements for smaller companies, Australia’s approach sets a global example.  

This blog delves into the key aspects of the new law, the broader implications for businesses and investors, and the pathway forward for a greener, more transparent economy. 

Australia’s journey towards mandatory climate reporting has been a long and collaborative one. The legislation was shaped by an extensive consultation process spearheaded by the Australian Accounting Standards Board (AASB), which began in October 2023. Over 1,000 stakeholders participated, and the process received 117 formal comment letters. The majority strongly advocated for Australia to align its climate-related financial disclosures with global standards, particularly those established by the ISSB. The feedback received not only shaped the final legislation but also demonstrated the urgency and need for standardized reporting in a world increasingly focused on sustainability. 

The AASB’s decision to make IFRS S2 mandatory while keeping IFRS S1 voluntary for now reflects the balance struck between ensuring compliance and allowing companies the flexibility to gradually integrate broader sustainability reporting. One notable outcome of the consultation was the decision to omit industry-specific disclosures for now, with a new project being launched to assess their relevance for the Australian context. 

1. Scope and Applicability

The legislation targets large entities with more than 500 employees, $500 million in revenue, or $1 billion in assets. For such companies, reporting under IFRS S2 will be mandatory starting in 2025. However, the government has introduced a phased approach for medium and smaller companies, with reporting obligations gradually increasing over the next few years. Medium-sized companies (250+ employees, $200 million+ revenue, or $500 million in assets) will start reporting from July 2026, while smaller companies (100+ employees, $50 million+ revenue, or $25 million+ in assets) will follow suit from July 2027. 

2. Scope 3 Emissions Reporting

In addition to mandatory reporting on Scope 1 and 2 emissions (direct and indirect emissions from energy use), the law introduces a phased approach for Scope 3 emissions reporting (value chain emissions). Large companies will have an extra year to fully comply with this requirement. Moreover, there is a provision for three years of protection from litigation related to Scope 3 disclosures, offering companies the necessary time to adjust their systems and reporting processes. 

3. Focus on Global Alignment

By mandating climate-related financial disclosures in alignment with ISSB standards, Australia joins the global push for consistent and comparable sustainability reporting. This alignment not only promotes transparency but also positions Australian companies to attract global investment by meeting international standards. Investors and other stakeholders can make more informed decisions based on standardized data, enhancing corporate accountability and long-term risk assessment. 

4. Phased Rollout for Medium and Smaller Entities

While large corporations must comply with the new reporting requirements by 2025, the law acknowledges that medium-sized and smaller companies may need more time. As such, the reporting obligations will apply to medium-sized companies from 2026 and smaller ones from 2027, ensuring a gradual adoption of the standards across the corporate landscape. 

Alongside the climate disclosure mandate, the Australian government has established the Net Zero Economy Authority, an initiative aimed at guiding the country’s transition to a low-carbon economy. This Authority will play a critical role in reskilling workers for the energy transition, coordinating transformation opportunities with industry and investors, and supporting regions and communities as they attract new clean energy industries. 

The Authority’s establishment underscores the government’s commitment to achieving its net-zero emissions target by 2050 and reducing greenhouse gas emissions by 43% by 2030 (compared to 2005 levels). MP Patrick Gorman, Assistant Minister to the Prime Minister, described the Authority as a vital tool for ensuring that “communities across Australia are supported during the transition to a net zero emissions economy.” 

For businesses, especially those that fall within the scope of the legislation, this new law represents a significant shift in financial reporting obligations. Companies will now need to invest in developing or enhancing their internal systems for gathering, managing, and reporting climate-related data. This could involve: 

• Upgrading data management systems to track Scope 1, 2, and 3 emissions. 

• Collaborating with third-party auditors to ensure that disclosures meet the forthcoming assurance standards set by the Australian Auditing and Assurance Board (AUASB). 

• Implementing processes for continuous monitoring of climate-related risks and opportunities. 

While the initial costs and challenges of compliance may be significant, the long-term benefits, particularly in terms of improved investor confidence and access to sustainable financing, are likely to outweigh the short-term hurdles. 

Investor groups have largely welcomed the passage of the new climate reporting legislation. The Australian Council of Superannuation Investors (ACSI), representing a broad spectrum of institutional investors, praised the law, stating that the disclosures will provide clearer information about companies’ exposure to both physical and transitional climate risks. This information is expected to be a critical component of investors’ risk assessments and stewardship activities moving forward. 

Moreover, the alignment with ISSB standards ensures that Australian companies will be able to present climate data that is comparable with their global peers, providing investors with a more holistic view of corporate sustainability efforts. By embracing these new requirements, businesses can enhance their ESG profiles, attract more capital from sustainability-focused funds, and reduce potential exposure to climate-related financial risks. 

While the passage of this legislation represents a significant step forward for Australia, global leaders like John Turner, CEO of XBRL International, have called for even greater progress. Turner emphasized that Australia still has some catching up to do with the rest of the world when it comes to digital reporting mandates. Currently, XBRL reporting mandates cover 84% of the world’s market capitalization, making Australia’s lack of a digital reporting mandate a noticeable gap. 

The integration of XBRL (eXtensible Business Reporting Language) would allow for real-time data sharing, enhanced transparency, and improved decision-making for all stakeholders. As Australian companies begin to adjust to the new climate disclosure requirements, a future push towards digital financial reporting could further streamline processes and improve the accuracy and accessibility of climate data. 

Australia’s new climate-related financial disclosures legislation marks a watershed moment in the nation’s fight against climate change. By aligning with global standards and focusing on transparency, the law not only holds companies accountable for their climate impact but also provides investors and stakeholders with reliable data for making informed decisions. 

However, this is just the beginning. As John Turner noted, the next logical step for Australia is to adopt digital reporting standards to ensure that companies are not just compliant but also competitive on the global stage. For businesses, the new requirements will present challenges, but they also open up significant opportunities to engage in sustainable transformation and lead the way in climate-conscious corporate governance.