Authored by Michael Mazengarb
The commencement of Australia’s mandatory climate reporting regime is just weeks away, and those tasked with the preparation of their company’s reports should be reassured that delivering comprehensive and informative climate disclosures is both very achievable and good business practice.
That said, preparation of the first mandatory reports will be challenging for many companies, and the design of the reporting regime, with no requirement for management certification or reasonable assurance from auditors, will mean that companies are likely to seek external assistance for the preparation of these complex reports.
It is perhaps a particularly timely reminder – that the process of preparing climate disclosures will help your business become more resilient to future risks and better prepared to seize upon future opportunities – at a time when it appears likely the mandatory climate reporting requirements of a major Australian trading partner likely to be wound back.
The re-election of Donald Trump as US President will obviously have broad ramifications for US climate policy with ESG reporting, including mandatory climate reporting, a clear target for the incoming administration.
In line with a global trend towards the adoption of mandated climate reporting, the United States had been preparing to join global in Europe, Australia, New Zealand, Japan and Canada in introducing new mandatory climate reporting obligations.
In March of this year, the US Securities and Exchange Commission (SEC) issued new rules and standards for the preparation of climate change disclosures. It is possible that the SEC’s reporting rule will now be repealed before the first mandatory reports are due to be published in 2026.
Open hostility towards climate and ESG reporting has become a feature of US politics – but this does not mean that the fundamental importance of assessing and monitoring environmental, social or governance risks has changed. The SEC cited the fact that more than half of the largest US companies were voluntarily disclosing climate-related data before issuing its mandatory reporting rule.
The short-term volatility of climate policy that can often play-out as part of political debate is often incongruous with the long-term outlook that the assessment and mitigation of climate-change related risks and opportunities require. It would be unfortunate if a repeal of the SEC climate reporting rules followed a recent set of natural disasters that demonstrated the devastating impacts that climate change can wreak on communities in the US and its broader economy.
There are good reasons for companies – both within the US and in other jurisdictions – to continue to prioritise the preparation of climate disclosures as part of its business-as-usual practices. As chair of the Australian Securities and Investments Commission, Joe Longo, told the Deakin Law School in an April speech, the preparation of climate disclosures is “good for business”.
“New climate-related reporting requirements will impose new obligations on directors and reporting entities. But they also create opportunities. More reporting requirements mean you benefit from greater visibility of the physical and transitional risks,” Longo said.
“You can also benefit from climate-related opportunities of other entities in your value chain, and more visibility on these issues across the entire economy. This will support companies to manage their own climate-related risk and opportunities over the short, medium and long term, in the best financial interests of the entity and its shareholders.”
While there are evident benefits in completing comprehensive climate disclosures, companies preparing disclosures will be aided in that process by the availability of a single set of coherent climate reporting standards. Anyone who has delved in to the world of climate reporting will understand the sheer number of disclosure regimes – and their acronyms - that have blossomed over the last decade.
The adoption of a single standard, overseen by key financial regulators, allows companies to prepare consistent reports – following the same requirements and procedures as those used by their peers. It is the role of regulators to guide the implementation of the appropriate set of standards – ideally with a level of consistency across jurisdictions. It allows reports to be compared and allows common experience and knowledge to be shared between reporters.
The repeal of the SEC climate disclosure rules would not make it easier for companies to navigate the labyrinth of climate reporting regimes, and those entities that decide to abandon climate reporting altogether will leave themselves – including their investors – with material and unmonitored risks.
Australia has adopted a climate reporting standard that will begin to apply from 1 January 2025 – based on the international IFRS standard. It is likely that if not now, the US will in the future, return to implementing a similar national regime and the companies that have continued to prepare climate disclosures will be better prepared for it – as well as being better prepared to respond to the impacts of climate change.
The completion of scenario modelling required under the standards, the collation and reporting of greenhouse gas emissions data and the development of a long-term Climate Transition Plan are each complex tasks, generally requiring the engagement of external support and specialist expertise – but each provides useful insights into the long-term resilience of the reporting company.
Owl Advisory has the expertise and capabilities to support companies to achieve compliance with the new mandatory climate reporting regime, including expertise in climate science and the complex technical aspects of climate risk analysis and scenario modelling.
Owl Advisory is available to support you with the preparation of your first and future climate disclosures.
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.