Australia’s 2035 Target and Climate Risk Assessment: Implications for Mandatory Climate Reports

September marked a flurry of activity from the federal government on climate policy that was kicked off by the publication of the first, long-awaited, National Climate Risk Assessment. It was quickly followed by the announcement of Australia’s 2035 emissions reduction target and a slew of new policy commitments and sectoral decarbonisation plans designed to progress Australian industry towards zero net emissions by 2050.

For companies preparing climate-related disclosures for the first time, or stepping up their efforts ahead of their first mandatory climate report, these reports contain a depth of information that can underpin corporate climate strategies, scenario analysis and future resilience planning.

Owl Advisory has the expertise and experience to help you understand the outcomes of the First National Climate Risk Assessment and the implications of the new 2035 emissions target, working with you to integrate its findings into your own climate risk assessments and strategies.

The National Climate Risk Assessment is the first comprehensive assessment of future climate risks that specifically considers Australia’s environment and economy. It is the combined work of multiple government agencies working together under the umbrella of the Australian Climate Service.

It presents an assessment of Australia’s potential vulnerabilities under future climate scenarios – including under 3 degrees of global warming. As a point of reference, the most recent Emissions Gap Report published by the UN Environment Program in late 2024, assessed that current climate policies would limit warming to 3.1°C. As such, the scenarios considered by climate risk assessment are not intended to be predictive in nature but serve as representations of possible future outcomes based on an assumed set of economic inputs and global warming levels. Rather than being predictive, the scenarios provide insights into how plausible future outcomes could develop, assisting strategy setting, planning and the determination of what mitigation actions may be necessary to limit negative impacts.

In this context, the National Climate Risk Assessment provides a raw assessment of Australia’s future climate risks and seeks to spotlight the areas of particular vulnerability to the hazards being amplified by warming global temperatures. It warns of ‘cascading, concurrent and compounding’ climate impacts, as climate hazards increase in frequency and severity over time, reducing the ability for Australian communities and the economy to recover and build long-term resilience.

While highlighting the prospect that all of Australia will be impacted by climate change and will experience the impacts in different ways, the risk assessment identified four core settings within Australia that exemplified Australia’s likely future vulnerabilities, which included:

• Northern Australia will be impacted by a range of ‘escalating challenges’ across healthcare systems, infrastructure and the natural environment. Under high warming scenarios, Northern Australia is anticipated to experience worsening heatwaves, flooding, tropical cyclones, and bushfires;

• Outer urban communities are likely to experience the dual challenges of being both increasingly exposed to worsening climate hazards and having reduced access to the resources required to mitigate and recover from climate impacts;

• Throughout Australia’s coastal communities, more than 1.5 million Australians could find themselves located in areas prone to coastal flooding by 2050 due to future sea-level rise, particularly communities located along Australia’s east coast; and

• The increased vulnerabilities of remote and regional communities, which may lack access to resources for building climate resilience for support for recovery from extreme events, while often being dependent on climate-exposed industries like agriculture and tourism.

  
  

Owl Advisory’s detailed summary of the National Climate Risk Assessment is available here.

Alongside the climate risk assessment, the new 2035 emissions reduction target provides a critical waymarker for companies developing climate strategies and preparing their direct mandatory climate disclosures. Forming Australia’s 2035 Nationally Determined Contribution, as required under the Paris Agreement, the government has adopted a commitment to reduce emissions by between 62 and 70 per cent of 2005 levels. The Australian Government adopted the target on the direct recommendation of the Climate Change Authority, which stated the target represents an ‘ambitious’ and ‘achievable’ target that balances Australia’s national and economic interests.

The target places Australia on par with the announced 2035 targets of global trade peers, including the European Union (66.25 to 72.5% on 1990 levels), the United Kingdom (81% reduction on 1990 levels) and Japan (60 to 73% by 2040 on 2013 levels).

Australia’s new target will require a significant step-up in the pace of emissions reductions, with the authority noting achieving the target will require emissions reductions of 19–24 Mt CO2-e per year on average until 2035. This is more than double the pace of the reductions achieved since 2005 and achieving the target will require emissions reductions across all major economic sectors, providing a critical point of guidance for companies preparing climate risk assessments, climate transition plans and scenario analysis.

The Sectoral Plans published by the Department of Climate Change, Energy, the Environment and Water (DCCEEW) provide further detail about potential pathways to net zero emissions by 2050. The government-developed pathways can provide useful indications of the scale and direction of market shifts under a future net zero scenario that could be used as inputs into climate scenario analysis.

For example, the ‘Electricity and Energy Sector Plan’ reiterates the Australian Government’s expectation that Australia will reach 82% renewable electricity penetration by 2030 and will progress the substantial exit of coal fired generators throughout the 2030s. While the achievability of these targets has come under scrutiny, with the pace of renewables development lagging behind that required to meet the 82% target, it likewise provides an indication of the current direction of government policy.

Additionally, Treasury modelling anticipates a significant declines in Australia’s domestic gas and liquid fuel use, with demand for gas undergoing a “shift towards higher-value and non-substitutable use cases over time”, and such analysis can inform strategy development for companies active in Australia’s energy sector.

Companies in the process of preparing climate disclosures should consider the scenarios outlined in the sectoral plans and the updated 2035 emissions target. Like the National Climate Risk Assessment, these sectoral and emissions trajectories are not necessarily predictive of how Australia’s economy will develop under emissions-constrained scenarios, but can provide a strong indication of the scale and pace of transition that may be required across critical sectors.

This publication is a joint publication from King & Wood Mallesons, and KWM Compliance Pty Ltd (ACN 672 547 027) trading as Owl Advisory by KWM.   KWM Compliance Pty Ltd is a company wholly owned by the King & Wood Mallesons Australian partnership.  KWM Compliance Pty Ltd provides non-legal compliance and governance risk advisory services for businesses.  KWM Compliance Pty Ltd is not an incorporated legal practice and does not provide legal services. Laws concerning the provision of legal services do not apply to KWM Compliance Pty Ltd.