Mandatory Sustainability Disclosures on the Horizon for Australia

Updated 3.10.24

Oct 3: Following their approval on 20 September 2024, the Australian Accounting Standards Board (AASB) has released two critical standards: the voluntary AASB S1 General Requirements for Disclosure of Sustainability-related Financial Information and the mandatory AASB S2 Climate-related Disclosures. Entities subject to the Corporations Act 2001 and meet the reporting criteria must adopt AASB S2 for reporting periods beginning on or after 1 January 2025.

AASB S2, the climate-related financial disclosures framework focuses on governance, strategy, and the identification of climate risks and opportunities to ensure transparent communication to stakeholders. Here is a brief summary:

Governance

Entities must disclose how they monitor, manage, and oversee climate-related risks and opportunities. This involves detailing the governance body or individuals responsible for oversight, such as the board or specific committees. Information should include how responsibilities are reflected in policies, how the necessary skills are assessed or developed, and how often the oversight bodies are informed of climate risks and opportunities. Additionally, entities must explain how climate considerations are incorporated into strategic decision-making, major transactions, and risk management processes. They must also disclose how targets for managing climate risks and opportunities are set, monitored, and integrated into remuneration policies. Management's role in overseeing these processes, including how oversight is delegated and the controls used, must also be outlined. Duplicative disclosures should be avoided by integrating sustainability-related risks and opportunities, if applicable.

Strategy

Entities must disclose the climate-related risks and opportunities that could affect their prospects, including how these risks and opportunities influence their business model and value chain. They need to explain the impact of these factors on financial performance, position, and cash flows over short, medium, and long-term horizons. The strategy must detail how climate risks are factored into financial planning and how resilient the entity is to climate-related changes.

Climate-related Risks and Opportunities

Entities are required to describe identified climate-related risks, distinguishing between physical and transition risks. These risks and opportunities should be linked to specific time horizons (short, medium, long term), and the entity must define these terms in alignment with their strategic planning horizons.

AASB S1 is available here. An entity electing to voluntarily apply this Standard would disclose information about all sustainability-related risks and opportunities that could reasonably be expected to affect the entity’s cash flows, its access to finance or cost of capital over the short, medium or long term.

AASB S2 is available here. AASB S2 requires an entity to disclose information about climate-related risks and opportunities that could reasonably be expected to affect the entity’s cash flows, its access to finance or cost of capital over the short, medium or long term. Entities required by the Corporations Act to apply AASB S2 should refer to the Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Act 2024 for details about the changes to the Corporations Act that require certain entities to prepare an annual sustainability report.

As a complimentary service, we are providing a brief strategic review to discuss your response to mandatory sustainability disclosure requirements impacting on the Australian landscape.    

Please email us to book an complimentary appointment with one of our consultants to discuss how these new stanards may impact your business.