An update on Australia's progress towards Sustainability Reporting Standards implementation

An update on Australia's progress towards Sustainability Reporting Standards implementation

For New Zealand entities with reporting obligations in Australia, it should be noted that the Australian Accounting Standards Board (AASB) has released an Exposure Draft ED SR1 Australian Sustainability Reporting Standards – Disclosure of Climate-related Financial Information on 23 October 2023. It is available for comment until 1 March 2024.
ED SR1 includes three draft Australian Sustainability Reporting Standards (ASRS Standards):
  • ASRS 1 General Requirements for Disclosure of Climate-related Financial Information
  • ASRS 2 Climate-related Financial Disclosures
  • ASRS 101 References in Australian Sustainability Reporting Standards.
ASRS 1 uses the equivalent IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information issued by the International Sustainability Standards Board (ISSB) as a baseline, but its scope is limited to climate-related financial disclosure. ASRS 2 uses the equivalent IFRS S2 Climate-related Disclosures as a baseline. To be updated periodically, ASRS 101 is a service standard that lists the relevant versions of any non-legislative versions of non-legislative documents published in Australia, as well as any foreign documents referenced in ASRS Standards. This will be updated periodically.

Why is the scope of ASRS 1 limited to climate-related financial disclosure?

The AASB has decided to address climate-related financial disclosure first, leaving other sustainability-related financial reporting for later. This is because at this stage the Australian Government is only proposing mandatory reporting for climate-related disclosures. In order to achieve its objective, the AASB therefore had to limit the scope of any equivalent standard of IFRS S1 to climate-only matters.

A call for feedback on the approach

By limiting ASRS 1 to only climate-related financial disclosures, there would be significant ‘double-up’ between ASRS 1 and ASRS 2, in many cases, requiring the same disclosures in both standards. The AASB is therefore seeking comment on the best way to deal with this duplication. ED SR 1 outlines three options and the AASB is asking for preferences in approach from the broader business community:
  • Option 1 – Issue one ASRS Standard that would combine the relevant contents of IFRS S1 relating to the general requirements and judgements, uncertainties, and errors within an Australian equivalent of IFRS S2
  • Option 2 – Issue two ASRS Standards, with ASRS 1 to be developed based on IFRS S1, and ASRS 2 to be developed based on IFRS S2. Under this option, we would see duplication with some requirements with respect to governance, strategy and risk management included in both Standards
  • Option 3 (the AASB’s preferred option) – Two ASRS Standards will be issued. ASRS 1 will include the requirements relating to disclosures of governance, strategy, and risk management, and ASRS 2 will replace the duplicated content with Australian-specific paragraphs cross-referencing users to the corresponding paragraphs in ASRS 1.

Other modifications to IFRS S1 and IFRS S2

ED SR 1 also proposes the following modifications to the content of IFRS S1 and IFRS S2:
  • If there are no material climate-related risks and opportunities that could reasonably be expected to affect the entity’s prospects, an entity must disclose this fact, and explain how it arrived at this conclusion
  • The scope of ASRS 2 is limited to climate-related risks and opportunities related to climate change. ASRS 2 does not apply to other climate-related emissions (e.g. ozone depleting emissions) that are not greenhouse gas (GHG) emissions
  • Greenhouse gases must be converted into a CO2 equivalent value using the global warming potential values from the same Intergovernmental Panel on Climate Change assessment report as that applying under the Paris Agreement and the National Greenhouse and Energy Reporting Act 2007 and related regulations (NGER scheme legislation)
  • Before referring to foreign measurement frameworks, entities must prioritise applying relevant methodologies in the NGER scheme legislation as the default methodologies for measuring GHG emissions
  • If reasonable and supportable data related to the current reporting period is not available to the entity at the reporting date without undue cost or effort, entities can disclose their Scope 3 GHG emissions using data for the immediately preceding reporting period
  • Entities that will be required by the Corporations Act 2001 to prepare climate-related financial disclosures must:
  1. Undertake climate resilience assessments against at least two possible future states, and one of these future states must be consistent with the most ambitious global temperature goal set out in the Climate Change Act 2022 (i.e. 1.5°C above pre-industrial levels)
  2. Disclose their market-based Scope 2 GHG emissions, with transitional relief for the first three annual reporting periods in which the entity applies ASRS 2.

Effective date

The effective date of these ASRS Standards depends on the Government’s final timeline for making climate-related financial disclosures mandatory in Australia. If the Government’s proposed roadmap (please refer to our Australian firm’s article for more information about the criteria for each group) is legislated, effective dates will be as follows:
  • Group 1 entities – In annual periods beginning on or after 1 July 2024
  • Group 2 entities – In annual periods beginning on or after 1 July 2026
  • Group 3 entities – In annual periods beginning on or after 1 July 2027.
Have your say
The AASB invites stakeholders to provide feedback on ED SR1 by either:
BDO Australia will also be submitting a response. Please contact Aletta Boshoff if you have any comments on ED SR 1.
For more on the above, please contact your local BDO representative.

This article has been based on an article that originally appeared on BDO Australia: Read the original article here.