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Ticking Clock: Prepare Now for Australia’s Mandatory Climate Reporting by 2025

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Starting in January 2025 the Australian Government’s new mandatory climate-related financial disclosures will take effect. This marks a significant step toward mitigating climate risk and opens up new opportunities in decarbonizing markets. Organisations need to understand these new disclosure requirements and start preparing now, they should look beyond reporting and integrate projects, that will reduce emissions and provide a payback through environmental certificates and grants. 

Key Updates: 

Global Context: At COP28 (Nov-Dec 2023), the International Sustainability Standards Board (ISSB) took over climate-related financial reporting responsibilities from the Task Force on Climate-related Financial Disclosures (TCFDThe Task Force on Climate-related Financial Disclosures (TCFD) is an industry-led effort, chaired by Michael Bloomberg, with 32 global expert members from the private sector. The TCFD recommendations are designed to solicit consistent, decision-useful, forward-looking information on the material financial impacts of climate-related risks and opportunities, including those related to the global transition to a lower-carbon economy. More), now disbanded. This shift signifies a major uplift in climate-related practices globally, with Australia introducing its own MCR system, which includes over 100 disclosures—far more than TCFD’s 11. 

Rollout: Starting with Group 1 in FY 2025/26, Australia’s mandatory climate reporting will be phased in, covering companies with over 500 employees, followed by Group 2 in FY 2026/27 for companies with more than 250 employees, and finally, Group 3 in FY 2027/28 for those with over 100 employees. This rollout will apply to organizations based on their gross assets, revenue, and employee count, ensuring comprehensive climate-related financial disclosures.

Applicability: MCR laws will apply to most public companies and may extend to larger NFPs, private entities, and government bodies. 

Liability: Treasury will limit Directors’ liability during the first three years of implementation for Scope 3 emissions and certain climate-related forward-looking statements. 

 

Why is MCR introduced? 

A robust, internationally consistent, and credible climate disclosure framework will enhance Australia’s reputation as an appealing destination for global capital, attracting the necessary investments for the transition to net zero. 

 

What is to be reported? 

 

Climate-related financial disclosures will encompass details on an entity’s climate-related risks and opportunities, as mandated by Australian climate disclosure standards, including: 

Where/How should I report Climate-related financial disclosures?  

Climate-related financial disclosures will be included within your sustainability report, serving as the fourth required document under annual financial reporting obligations and incorporated into an entity’s annual report. To assist users in easily locating climate disclosures, entities should provide an index table within their annual reports. The submission timeline for annual reports, including those filed with the Australian Securities and Investment Commission (ASIC), will remain consistent with the existing requirements specified in section 319 of the Corporations Act.  

 

These news laws place increased workload on finance and accounting teams, but critical to ensuring these compliance requirements become a benefit (not a cost) is examining capital projects through the lens of energy efficiency, emissions reduction, and the role environmental attribute certificates play.  Assessing and undertaking electrification projects, equipment upgrades, and improving production efficiency requires detailed technical understanding.  The right projects have a return on investment and pay you to reduce emissions.  Northmore Gordon, do more with less energy, and less carbon. 

Steps you can start doing now 

  1. Executive workshop and preparedness  
  1. Baseline your carbon footprint (Scope 1, 2 and 3) 
  1. Energy Audits to understand opportunities 
  1. Net Zero Roadmap including the technical solutions for real action  
  1. Environmental Certificates for renewable energy or project payback 

Prepare now to stay ahead. Explore our Mandatory Climate Reporting Services and ensure your organization is ready for these crucial changes. 

For more information, check out the Australian Sustainability Reporting Standards and Treasury’s Mandatory Climate-related Financial Disclosures. 

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When do Australia's new mandatory climate-related financial disclosures take effect?

The Australian Government's new mandatory climate-related financial disclosures (MCR) take effect starting in January 2025.

How is Australia's mandatory climate reporting (MCR) being rolled out to companies?

The rollout is phased in three groups: Group 1 in FY 2025/26 covers companies with over 500 employees; Group 2 in FY 2026/27 covers companies with more than 250 employees; and Group 3 in FY 2027/28 covers companies with over 100 employees. Applicability is also based on gross assets and revenue in addition to employee count.

Who does Australia's MCR law apply to?

MCR laws will apply to most public companies and may extend to larger not-for-profits (NFPs), private entities, and government bodies.

What happened to the TCFD and how does it relate to Australia's MCR?

At COP28 (Nov-Dec 2023), the International Sustainability Standards Board (ISSB) took over climate-related financial reporting responsibilities from the Task Force on Climate-related Financial Disclosures (TCFD), which has since disbanded. Australia's new MCR system includes over 100 disclosures, far more than the TCFD's 11.

What protection do directors have during the early implementation of MCR?

Treasury will limit Directors' liability during the first three years of implementation for Scope 3 emissions and certain climate-related forward-looking statements.

What must be reported in the first reporting year under MCR versus the second reporting year?

From the first reporting year, entities must report on governance, strategy, risk management, metrics, and targets, including Scope 1 and Scope 2 greenhouse gas emissions. From the second reporting year, entities must also disclose Scope 3 emissions, covering emissions across their supply chain and those associated with financing or investment activities, based on information available at the reporting date without excessive cost or effort.

Where should climate-related financial disclosures be included in a company's reporting?

Climate-related financial disclosures should be included within the entity's sustainability report, which serves as the fourth required document under annual financial reporting obligations and is incorporated into the entity's annual report. Entities should provide an index table to help users locate climate disclosures easily, and the submission timeline remains consistent with existing requirements under section 319 of the Corporations Act, including filings with ASIC.

Why is mandatory climate reporting (MCR) being introduced in Australia?

A robust, internationally consistent, and credible climate disclosure framework is intended to enhance Australia's reputation as an appealing destination for global capital, attracting the investments needed for the transition to net zero.

What steps does the article recommend organizations start taking now to prepare for MCR?

The article recommends five steps: 1) hold an executive workshop and preparedness session, 2) baseline your carbon footprint (Scope 1, 2, and 3), 3) conduct energy audits to understand opportunities, 4) develop a Net Zero Roadmap including technical solutions for real action, and 5) pursue environmental certificates for renewable energy or project payback.

Who wrote this article about Australia's mandatory climate reporting, and when was it published?

The article was written by Sid Bansal and published on August 27, 2024.

According to the knowledge base, what are the phased financial-year start dates for ASRS (Australian Sustainability Reporting Standards) cohorts?

ASRS mandatory sustainability reporting cohorts are phased in for financial years starting on or after 1 January 2025, 1 July 2026, and 1 July 2027, with applicability determined by corporate size, emissions, or assets tests.

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