What Australia’s New Climate Reporting Requirements Mean for Businesses

ASIC’s latest educational materials explain the key areas businesses need to understand, from climate risks and emissions accounting to scenario analysis and governance.

Australia’s mandatory climate-related disclosure requirements introduce new responsibilities for large businesses and financial institutions. To help organisations prepare, the Australian Securities and Investments Commission (ASIC) has released educational materials covering the main concepts involved in sustainability reporting.

The materials focus on the practical issues businesses will need to consider when preparing climate-related disclosures. These include physical and transition risks, potential business opportunities, greenhouse gas emissions, scenario analysis and internal governance.

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1. Understanding Climate-Related Risks

Climate-related risks generally fall into two categories: physical risks and transition risks.

Physical risks result from the effects of climate change. Acute risks include events such as floods, bushfires, storms and extreme heat. Chronic risks develop over time as climate patterns change.

The effects may also extend beyond a company’s own premises. An extreme weather event affecting an overseas supplier, transport route or production facility could disrupt an Australian company’s supply chain and increase its operating costs. Businesses therefore need to consider risks across their broader value chain.

Transition risks arise as governments, businesses and consumers move towards a lower-carbon economy. Changes in regulation, technology, market demand and public expectations can affect operating costs, business strategy and financial performance. They can also create legal and reputational concerns for companies that do not respond appropriately.

2. Identifying Climate-Related Opportunities

Changes associated with climate policy and customer expectations can also create opportunities for businesses.

Reducing emissions or improving energy efficiency may lower operating costs. Developing climate-resilient products and services may help a business enter new markets or strengthen its relationships with customers.

ASIC’s materials include examples from the transport and logistics sector. A logistics company may attract new customers by reducing emissions from its fleet and operations. A food transport business may improve its reliability and reputation by adapting its services to extreme weather conditions.

The opportunities will vary between industries and organisations. Each business will need to consider how changes in technology, regulation and customer demand could affect its products, services and future plans.

3. Improving Emissions Data and Scenario Analysis

Reliable data is essential for preparing useful climate-related disclosures.

Businesses may need to identify their Scope 1, Scope 2 and Scope 3 greenhouse gas emissions and decide how those emissions will be measured. This may require information from different teams, suppliers and other organisations in the value chain.

Some smaller businesses may also receive requests for emissions information from larger customers, even if they are not directly required to prepare a sustainability report. Financial institutions may need to consider financed emissions associated with their lending and investment activities.

Scenario analysis is another important area. It allows a business to consider how different climate conditions and transition pathways could affect its operations and strategy. The purpose is to understand possible outcomes and assess whether the organisation is prepared for them.

4. Establishing Clear Governance and Responsibilities

Climate-related reporting will often involve several parts of an organisation. Finance, risk, compliance, operations and sustainability teams may all hold information needed for the report.

Businesses need to decide who will oversee climate-related matters, who will collect and review the information, and how significant risks will be reported to senior management or the board.

ASIC’s materials also consider how climate-related issues can be included in existing governance and risk management processes. Clear responsibilities and regular oversight can improve the quality of reporting and help businesses respond to risks more effectively.

ASIC recommends that Group 2 and Group 3 entities begin preparing early. Reviewing current systems, identifying missing information and assigning responsibilities can take time, particularly when several teams or external suppliers are involved.

Preparing for the New Reporting Environment

Australia’s climate-related disclosure requirements will affect the way many organisations collect information, assess risk and plan for the future.

Businesses can start by reviewing their exposure to physical and transition risks, identifying relevant opportunities and checking whether their current data and governance arrangements are suitable.

Early preparation will give organisations more time to address gaps and establish a reporting process that reflects their actual business circumstances.

Disclaimer

This article reflects publicly available information regarding the exposure of draft legislation as at the date of publication and is general in nature. It does not constitute tax, financial, or legal advice and should not be relied upon without obtaining professional advice tailored to your specific circumstances. To discuss how these proposed changes may affect you or your business, please contact our advisory team at Wis Australia.

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