The Slow March of Australian Sustainability Reporting Standards Adoption

The absence of common sustainability measurement and reporting standards makes comparability between companies difficult, if not impossible. By extension, this makes it difficult to assess sustainability financial impacts and materiality, management performance and variable pay outcomes, and risk.

But there are the beginnings of the journey to resolve this issue happening now.

On 28 November 2022, the Treasury of the Australian Government (Treasury) released an exposure draft (see HERE) and explanatory material (see HERE) to amend parts of the Australian Securities and Investment Commission Act 2001 (ASIC Act) to empower the Australian Accounting Standards Board (AASB) to develop sustainability standards to support the Australian Government’s commitment to ensure large businesses provide Australians and investors “with greater transparency and accountability when it comes to their climate-related plans, financial risks, and opportunities”.

Separately, on 12 December 2022, the Treasury released a separate comprehensive consultation paper (see here) on climate-related financial disclosure reforms. According to the consultation paper, the following principles will guide the reforms:

  • Support climate goals (i.e., support Australia’s transition to net zero emissions by 2050);
  • Improve information flows for regulators and investors;
  • Well-understood;
  • Internationally aligned;
  • Scalable and flexible; and
  • Proportional to risk.


This exposure draft legislation comes in the context of the release earlier this year of two draft sustainability standards by the International Sustainability Standards Board (ISSB):

  • IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information; and
  • IFRS S2 Climate-related Disclosures.

Consultations on the ISSB draft standards closed in July 2022. Since then, the ISSB has been progressing towards release of final standards. The ISSB has released interim statements when it has reached decisions on various reporting requirements, including:

  • Company disclosures will be required to include Scope 3 emissions (in addition to Scope 1 and Scope 2) applying the current version of the GHG Protocol Corporate Standard (see HERE).
  • Companies will be required to use climate-related scenario analysis to report on climate resilience and to identify climate-related risks and opportunities to support their disclosures (see HERE).

Exposure Draft

The ASIC Act does not currently give the AASB the authority to develop sustainability standards. As such, the amendments to the ASIC Act proposed in the Treasury exposure draft provide for the following:

  • The AASB will be responsible for developing sustainability standards;
  • The Auditing and Assurance Standards Board (AUASB) will be responsible for developing auditing and assurance standards for sustainability purposes; and
  • The Financial Reporting Council (FRC) will be responsible for providing strategic oversight and governance functions in relation to the AASB’s and AUASB’s sustainability standards functions.

The exposure draft further provides that the AASB may formulate a sustainability standard by issuing the text of an international sustainability standard (e.g., a standard issued by the ISSB). Importantly, the exposure draft also provides for the AASB to modify the text of an international sustainability standard:

  • To the extent necessary to take account of the Australian legal or institutional environment; and
  • In particular, to ensure that any disclosure and transparency provisions in the standard are appropriate to the Australian legal or institutional environment.

This capacity for the AASB to modify international sustainability standards to suit the appropriateness of the Australian context is critical, in light of the significant reservations raised by the AASB and AUASB in their joint submission in response to the ISSB’s consultation on the draft sustainability standards (see HERE). In summary, the AASB and AUASB raised concerns on the following topics:

  • Definition of “sustainability”,
  • Scalability of the sustainability standards for smaller reporting entities,
  • Conceptual framework vs general requirements,
  • Boundary of reporting and the value chain,
  • Definition of “material”,
  • Enterprise value and connectivity with the financial statements,
  • Effective date of the new standards,
  • The appropriateness of the current industry based SASB Standards for Australian reporting entities,
  • Permitting the application of jurisdictional legislation relating to GHG disclosures (e.g., the National Greenhouse and Energy Reporting Act 2007), and
  • Provisions for first-time application.

The ISSB is working through these concerns and feedback from other submissions (e.g., see HERE regarding scalability, definition of “material”, and definitions of “value chain and “reporting entity”, among other topics). However, to the extent AASB retains any material objections to the ISSB sustainability standards once finalised, the exposure draft legislation provides the AASB the authority to re-write them as it deems appropriate.

Consultation Paper

The consultation paper seeks views on elements of the design and implementation of standardised, internationally aligned requirements for disclosures of climate-related financial risks and opportunities at Australian companies, including the structure of the governing bodies that oversee climate-related financial disclosures.

Whilst the consultation paper does not include a disclosure draft, the breadth of questions give an indication that that substantial changes are in the docket. The Treasure has released the following questions for consideration:

  1. What are the costs and benefits of Australia aligning with international practice on climate-related financial risk disclosure (including mandatory reporting for certain entities)?
  2. Should Australia adopt a phased approach to climate disclosure, with the first report for initially covered entities being financial year 2024-25?
  3. To which entities should mandatory climate disclosures apply initially?
  4. Should Australia seek to align our climate reporting requirements with the global baseline envisaged by the International Sustainability Boards?
  5. What are the key considerations that should inform the design of a new regulatory framework, in particular when setting overarching climate disclosure obligations (strategy, governance, risk management and targets)?
  6. Where should new climate reporting requirements be situated in relation to other periodic reporting requirements? For instance, should they continue to be included in an operating and financial review, or in an alternative separate report included as part of the annual report?
  7. What considerations should apply to materiality judgments when undertaking climate reporting, and what should be the reference point for materiality (for instance, should it align with ISSB guidance on materiality and is enterprise value a useful consideration)?
  8. What level of assurance should be required for climate disclosures, who should provide assurance (for instance, auditor of the financial report or other expert), and should assurance provides be subject to independence and quality management standards?
  9. What considerations should apply to requirements to report emissions (Scope 1, 2 and 3) including use of any relevant Australian emissions reporting frameworks?
  10. Should a common baseline of metrics be defined so that there is a degree of consistency between disclosures, including industry-specific metrics?
  11. What considerations should apply to ensure covered entities provide transparent information about how they are managing climate related risks, including what transition plans they have in place and any use of greenhouse gas emissions offsets to meet their published targets?
  12. Should particular disclosure requirements and/or assurance of those requirements commence in different phases, and why?
  13. Are there any specific capability or data challenges in the Australian context that should be considered when implementing new requirements?
  14. Regarding any supporting information necessary to meet required disclosures (for instance, climate scenarios), is there a case for a particular entity or entities to provide that information and the governance of such information?
  15. How suitable are the ‘reasonable grounds’ requirements and disclosures of uncertainties or assumptions in the context of climate reporting? Are there other tests or measures that could be considered to ensure liability is proportionate to inherent uncertainty within some required climate disclosures?
  16. Are there particular considerations for how other reporting obligations (including continuous disclosure and fundraising documents) would interact with new climate reporting requirements and how should these interactions be addressed?
  17. While the focus of this reform is on climate reporting, how much flexibility to incorporate the growth of other sustainability reporting be considered in the practical design of these reforms?
  18. Should digital reporting be mandated for sustainability risk reporting? What are the barriers and costs for implementing digital reporting?
  19. Which of the potential structures presented in the consultation paper (or any other) would best improve the effectiveness and efficiency of the financial reporting system, including to support introduction of climate related risk reporting? Why?

What Does This Mean for Australian Company exposures, ESG ratings and executive pay?

The release of the consultation paper suggests that the Australian Parliament might not consider the exposure draft legislation in the first instance, given that the governance of climate-related financial reporting is under consideration.

Given the Government’s commitment on sustainability and climate-related reporting, it is expected that formulation of new exposure draft legislation will commence shortly after the end of the consultation period. A phased approach is likely, starting with larger listed companies and financial institutions, though large private companies may be captured in the initial coverage as well. Alignment with international standards is a given, but definitions of materiality and determinations of scalability and proportionality will be subject to debate. Assurance requirements are likely a given, with the audit firms in pole position to capitalise from this. Climate data management and governance will be critical.

Given a pro forma implementation year of FY2025, expect substantial variability in sustainability-related disclosures and key performance indicators (KPIs), which will continue to make comparisons between companies difficult. This lack of standardisation will also continue to present challenges in selecting and assessing valid, appropriate sustainability-related KPIs for the purposes of executive incentive schemes.

Have Your Say

See the consultation paper HERE.

The consultation period for the exposure draft legislation and the consultation paper close on 16 December 2022 and 17 February 2023, respectively. Interested parties can submit their responses by email to Treasury at

© Guerdon Associates 2024
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