Climate Risk and Sustainability Reporting: Financial Implications for Business
- Lucia
- Sep 19
- 4 min read
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Australia’s first National Climate Risk Assessment offers a stark view of how climate change could reshape our economy and society. Compared to many other developed nations, Australia faces heightened exposure to both physical and transition risks. At the same time, the Australian Securities and Investments Commission (ASIC) has introduced a comprehensive sustainability reporting framework, embedding climate considerations directly into financial disclosure obligations.
Together, these developments make clear that climate risk is no longer a distant environmental issue — it is a core financial reporting and governance matter.
The National Assessment: Why It Matters for Companies
The government’s climate risk review projects wide-ranging impacts:
Rising seas: By 2050, more than 1.5 million Australians could be affected by sea level rise, with coastal Queensland especially vulnerable.
Extreme heat: Heat-related deaths in major cities such as Sydney and Melbourne are expected to climb under higher warming scenarios.
Economic loss: Disaster recovery costs could exceed $40 billion annually by mid-century, while property values face risks of more than $600 billion.
Environmental strain: Alpine regions, rainforests, and coral reefs face irreversible damage under severe warming scenarios.
Water pressure: Declining rainfall threatens agriculture, regional communities, and urban supply.
For businesses, these impacts translate into financial risk: asset impairments, higher insurance costs, reduced valuations, and continuity challenges.
Why This Links to ASIC’s Sustainability Standards
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Sustainability Reporting Requirements under the Corporations Act
ASIC has confirmed that sustainability reporting will become mandatory for many entities beginning with financial years starting on or after 1 January 2025.
Who Must Report?
Entities required to lodge financial reports under Chapter 2M of the Corporations Act will also need to prepare sustainability reports if they meet at least one of the following thresholds:
Corporate size – meeting at least two of the three tests (revenue, assets, employees).
Emissions – entities with obligations under the National Greenhouse and Energy Reporting Act 2007.
Assets – registered schemes, superannuation entities, or retail CCIVs above the relevant thresholds.
Small proprietary companies, charities without financial reporting obligations, and certain foreign companies are excluded.
Phased Implementation
Cohort 1: Financial years beginning on or after 1 January 2025.
Cohort 2: On or after 1 July 2026.
Cohort 3: On or after 1 July 2027.
Larger entities will need to act immediately, while smaller organisations will have more lead time.
What Must Be Reported?
A sustainability report must include:
Climate Statements – prepared in line with the Corporations Act and AASB S2, covering:
Material financial risks and opportunities relating to climate.
Metrics and targets, including Scope 1, 2, and 3 emissions.
Governance, strategy, and risk management.
Climate resilience under at least two scenarios (1.5°C and well above 2°C).
Notes – further explanation where needed.
Directors’ Declaration – confirming compliance. For 2025–2027, directors may instead declare that “reasonable steps” were taken to ensure compliance.
Even entities identifying no material financial risks must disclose that conclusion and explain their basis.
Lodgement and Accessibility
Sustainability reports must be lodged with ASIC as part of the annual report package, following existing deadlines:
Disclosing entities: within three months of year-end.
Other entities: within four months of year-end.
Reports must also be made available to members or, if not required, published on the company’s website.
Relief and Flexibility
ASIC may grant relief if compliance would:
Make a report misleading,
Be inappropriate in the circumstances, or
Impose unreasonable burdens.
Applications must be submitted prospectively through the ASIC Regulatory Portal.
What This Means for Businesses
The alignment of the National Climate Risk Assessment with ASIC’s requirements sends a clear message: sustainability reporting is not optional — it is integral to financial reporting and governance.
Key implications include:
Asset Valuation & Impairment – physical and transition risks may trigger revaluations.
Going Concern – companies in exposed sectors or regions must reassess long-term viability.
Disclosure Quality – investors and regulators will scrutinise sustainability reports as closely as financial statements.
Insurance & Financing – rising premiums and reduced coverage could affect liquidity and capital access.
Board Accountability – directors will be responsible for signed-off disclosures, embedding climate governance at the top.
Preparing Now
For entities in Cohort 1, the first reporting year begins in less than four months. Preparations should include:
Conducting a gap analysis against AASB S2 requirements.
Establishing reliable data systems for emissions and climate metrics.
Beginning scenario analysis across mandated pathways.
Strengthening governance frameworks and board oversight.
Providing training for directors and finance teams.
Conclusion
Australia’s climate risk assessment underscores the scale of the financial and social impacts of climate change. ASIC’s sustainability reporting framework now requires businesses to bring these risks into clear, consistent, and comparable disclosures.
The message is unmistakable: the cost of inaction will outweigh the cost of action. For companies, embedding climate risk into governance, risk management, and financial reporting is not only a compliance obligation — it is essential to long-term resilience and value creation.
Source:
First climate risk assessment finds 1.5m Australians at risk from sea level rise by 2050, Story by political reporter Jake Evans
