Carbon reporting is heating up

There is a fundamental maxim that ‘what can’t be measured, can’t be managed’ and managing Australia’s path to net zero carbon emissions by 2050 relies heavily on measuring and managing carbon emissions across the economy, and understanding the financial risks and opportunities for businesses, investors, and government policymakers.

A key part of managing the orderly transition and economic implications for the country achieving net zero is the appropriate governance of climate-related corporate disclosures.

Consequently, since the end of 2022, the Federal Government has been consulting widely on proposals for a new mandatory disclosure regime for the reporting of financial information under a Climate-related Financial Risk Disclosure (CRFD) framework aligned with the International Sustainability Standards Board (ISSB) standards which will start being applied globally by organisations from 2024.

The implications of the CRFD framework are substantial as it is estimated that the regime will mandate 23,000 entities in Australia reporting climate-related disclosures by 2028 which is the end of the proposed phasing-in period. From that time, any entity fulfilling two of the following criteria will be required to report – i) over 100 employees, ii) more than $25m in gross assets, or iii) $50m in annual revenue.

The proposed (but not finalised) CRFD regime will give confidence to the investor community regarding the accuracy of climate-related reporting, but it does require new auditing and assurance standards for sustainability reporting. In turn, this will require reporting entities to have accurate data on carbon emissions, including scope 3 emissions which to date have not been included in the mandatory reporting under the National Greenhouse and Energy Reporting Act 2007 (NGER Act).  In addition to carbon emissions and material climate-related information, entities are likely to be required, when reporting, to detail governance processes, controls, and procedures for monitoring their risks and opportunities that are climate-related.

Given the inevitability of the substantial additional regulatory requirements foreshadowed, businesses should examine closely the proposed CRFD regime, and the current ISSB climate standards and consider additional resources and capabilities that might be needed to comply with CRFD obligations, when they come into force.

Prepared by Dr Geoffrey Annison
ESG Consultant, National Retail Association

The National Retail Association continues to upweigh its activities in the ESG to assist members in understanding and navigating the ESG landscape. For more information, please contact Dr Geoffrey Annison.