Introduction

Mandatory climate reporting will begin on 1 January 2025, introducing a new era in sustainability governance. Australian Securities and Investments Commission (ASIC), responsible for administering and, where appropriate, enforcing the sustainability reporting requirements under the Corporations Act, has released a draft guide to assist businesses in preparing for the new framework.

The draft Regulatory Guide 000: Sustainability Reporting (Draft RG 000) provides practical guidance on:

• Which organisations are required to prepare ASRS-compliant sustainability reports and how the new regime will interact with existing legal obligations.
• How ASIC plans to administer the regime, including its approach to granting relief from reporting requirements and its new powers to issue directions to companies.
• The content of sustainability reports, such as the presentation of climate-related financial disclosures and the handling of sustainability information outside the main report.

Directors’ duty of care and diligence

The draft guidance outlines directors’ obligations to ensure their organisation meets the new requirements. Directors must act with care and diligence, considering any significant climate-related risks or opportunities that could affect the company’s interests or prospects. They should:

• Stay informed about material climate risks and opportunities, assessing their impact regularly—not just during annual reporting.
• Ensure the company has systems in place to identify, monitor, disclose, and respond to these risks and opportunities.
• Use experts or advisers for sustainability reporting but still independently assess and use this advice in good faith.

This helps the board manage risks, make informed decisions, and meet sustainability reporting requirements.

ASIC’s role, modified liability and protected statements

ASIC has committed to take a proportionate and pragmatic approach to enforcing sustainability reporting requirements, recognising that businesses will need time to adapt.

There will be a transition period as reporting entities continue to build their capability, which is reflected in the phasing in of requirements and the temporary operation of modified liability settings. As part of the transition, modified liability settings will apply to certain “protected statements” in sustainability reports and their accompanying auditor’s reports. This means:

• Only ASIC or criminal proceedings can challenge these statements.
• Investors or other parties cannot take civil legal action (e.g., claims of misleading or deceptive conduct) against the entity for these statements.

Protected statements include disclosures about future climate-related risks and opportunities, such as:

• Climate-related strategies, risk management, metrics, and targets
• Scope 3 emissions
• Scenario analysis and transition plans

ASIC retains the power to issue directions if a sustainability report contains incorrect, incomplete, or misleading information. The draft guidance also suggests seeking professional advice to ensure compliance, while emphasising the independence of auditors, who cannot provide such advice to reporting entities.

What the future might hold

In their draft guidance, ASIC also considers that over time:

• The application of the sustainability standards will become common practice across the corporate sector
• Public sector and other agencies will report under a variation of the sustainability standards.

To prepare early, businesses and the public sector should assess their current reporting capabilities, identify gaps, and establish systems to comply with the new standards. Starting now will allow organisations to navigate the transition more effectively and align with best practices as the framework evolves.

ASIC is inviting feedback through the Consultation Paper 380: Sustainability Reporting (CP 380). You can submit feedback until 19 December 2024.

If you’re looking for support to prepare for climate reporting requirements, whether it’s developing a climate transition strategy, creating an action plan, or conducting a climate risk assessment, we can help. Reach out to Barbara or Patrick today to explore how we can assist you in meeting your goals. 

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