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New ESG Regulations Australian Sustainability Reporting Standards (ASRS - ED SR1)





Important Acronyms:


  • ISSB:   International Sustainability Standard Board

  • IFRS:   International Financial Reporting Standards  / Sustainability Disclosure Standard

  • AASB:  Australian Accounting Standard Board

  • ASRS:  Australian Sustainability Reporting Standards

  • ASIC:   Australian Security and Investment Commission Act

  • ASX:    Australian Securities Exchange

  • NGER Act:  National Greenhouse and Energy Reporting Act

  • GRI:     Global Reporting Initiative



Overview:


  •  In June 2023, the International Sustainability Standards Board (ISSB) introduced the initial International Financial Reporting Standards (IFRS) Sustainability Disclosure Standards. These standards outline new guidelines for reporting on sustainability (IFRS S1) and climate-related (IFRS S2) financial information.


  • The IFRS sustainability disclosure standards will be effective from June 2024. However, it will be up to the local jurisdiction to enforce these or other versions of the standards on their own timeline.


  • In Australia, ESG regulations have been steadily growing in recent years. In 2023 the  Australian Federal Regulators ( ASIC, ACCC) proposed a mandatory national regulation framework.


  • in October 2023 the AASB released  “Exposure draft ED SR1 - Australian Sustainability Reporting Standards - Disclosure of Climate-related Financial Information” which sets out what entities will need to disclose to comply with the mandatory climate disclosure requirements introduced by the Corporations Act.


  •  This is the first public draft of the Australian Sustainability Reporting Standards- Disclosure of Climate-related Financial Information. And comprises 3 drafts Standards:


  1. Draft ASRS 1 General Requirement for Disclosure of climate-related financial information

  2.  Draft ASRS2 Climate-related Financial disclosure, and

  3. Draft ASRS 101 References in Australian Sustainability Reporting Standards



  •  The ED ASRS1 and ASRS2 draft are closely aligned with the corresponding International Financial Reporting Standards (IFRS) Sustainability  Disclosure Standards issued by the International Sustainability Standards Board  (ISSB), however, there are some differences.


  •  The main difference between the IFRS ( International Standards) and the ASRS1 ( Australian Standards) is that the ASR 1 does not require an entity to disclose sustainability-related financial information for topics other than climate.


  •  The AASB is also proposing to modify the application of the ASRS to also apply to Nonprofit entities. As a result, it has defined the objective of the ASRS is to disclose information about climate-related risks and opportunities that could reasonably be expected to affect the entity’s cash flows, access to finance or cost of capital, and its ability to further its objectives, over the short, medium or long term.  (Grant Thornton)


  • Other than limiting the scope of ASRS Standards to climate and extending their application to non-profit entities, the main differences between ASRS standards and IFRS relate to amendments and clarifications proposed by the AASB so that the Climate-related financial disclosure requirements fit within the context of the Australian legislative and regulatory environment.


  •  However, an entity following ASRS Standards can not assume it automatically complies with IFRS Sustainability Disclosure Standards. To claim compliance with both, the entity must provide extra disclosure where ASRS Standards lack detail, like specific Scope 3 greenhouse gas emissions. It should also voluntarily use IFRS S1 and disclose all sustainability-related risks and opportunities each reporting period.


  • New legislation is proposed to commence in 2024- 2025. This legislation will require mandatory reporting of climate-related risks for corporations meeting particular thresholds.


  •  This new legislation means that corporations of all sizes need to urgently revisit or introduce legal compliance and governance systems specifics to ESG. 


  • Mandatory climate reporting will be implemented in three phases, based on the size of the entity.  For the largest entities ( group 1) The first set of climate disclosures will be required by 30 June 2025 year ends. Group 2 entities and Group 3 entities will commence reporting two and three years later respectively. (EY Mandatory climate-related financial disclosure update).




Who Needs to Report?


The exposure draft legislation specifies that an entity will be required to make climate-related financial disclosures if the entity is required to lodge financial reports under Chapter 2M of the Corporations Act and either the entity:


  •  Meets the prescribed size threshold, or

  •  Is a registered corporation under the NGER Act ( or required to make an application to be registered)


A three-phased approach to implementation will apply based on the following thresholds, noting that both listed and unlisted entities that meet these criteria and thresholds will be within the scope of mandatory climate disclosure.




Group

Timing of reporting

Climate reporting Criteria and thresholds





Size test ( 2 or more are mets)

Asset owners

NGER reporters

1

 2024- 2025 onwards

> 500 employees 

Consolidated Total assets > $1 B


Consolidated revenue > $500 M

Not Applicable

Above NGER Publication Threshold

2

2026-2027 onwards

> 250 employees


Consolidated Tortal assets > $500 m


Consolidated revenue >200m


Asstes under management > $5 b

 All other NGER reporters

3

2027 - 2028 Onwards

> 100 employees 


Consolidated total assets >$25 m


Consolidated revenue > $50 m


Not Applicable


Not applicable

 

What needs to be reported?


 The Exposure Draft SR1 specifies that sustainability reports must be prepared in compliance with ASRS standards. The AASB includes three proposed ASRS standards:


  1.  Draft ASRS 1 General Requirement for Disclosure of Climate-Related Financial Information.  Outlines general requirements for preparing and presenting climate-related financial disclosure, including disclosures about climate resilience, greenhouse gas emissions and climate-related targets.

  2. Draft ASR2 Climate-related Financial Disclosure. Specifies the climate-related financial disclosures that an entity is required to make, including disclosures about climate resilience, greenhouse gas emissions and climate-related targets.

  3. Draft ASRS 101 References in Australian Sustainability Reporting Standards.  Represents a service standard to enable the AASB to manage the legal effect of any references in the ASRS Standards to non-legislative documents ( such as Greenhouse gas protocol). ASRS 101 does not include any additional requirements.


Conceptual foundations and general requirements:


Some core reporting concepts include:


  •  Sustainability related Financial information;

  • Fair presentation;

  • Materiality;

  • The reporting entity;

  • Connectivity of Information;


It also outlines general requirements about:


  • Location of the disclosure;

  • Timing of reporting;

  • Comparative information;

  • Judgements;

  • Measurement uncertainty; and

  • The correction of prior errors.



  • The final ASRS standards are anticipated to be finalised before the 1 July 2024 commencement of the mandatory climate disclosure regime. When issued, the AASB’s intention is for the standards to apply to annual reporting periods beginning on or after 1 July 2024.



Both, IFRS S1 and ASRS  share a disclosure framework under four key pillars, consistent with the Task Force on Climate-related Financial Disclosure (TCFD) recommended disclosure:



  • Governance: How the Entity monitors and manages sustainability-related risks and opportunities.  


  • Board Governance including oversight of targets

  • Management’s role in governance


  • Strategy:  The anticipated impact of sustainability-related risks on the business model, value change, financial position and performance.


  • Identify risks and opportunities

  • Current and anticipated effects on the entity’s business model and value chain

  • Strategy and decision-making, including information about the entity’s transition plans ( if any)

  • Current and anticipated effects on the entity’s financial position, financial performance and cashflows

  • Climate resilience and scenario analysis



  • Risk management:  The processes used to identify, assess and prioritise, sustainability-related risks and opportunities, including the use of scenario analysis.


  • Processes and policies used to identify, assess, prioritise and monitor climate-related risks and opportunities

  • Assess the entity’s overall risk profile and its overall risk management process


  • Metrics and targets: Disclosure of sustainability-related metrics used to measure and manage its sustainability-related risks and opportunities, and progress towards any targets the entity has set.


  • Climate-related metrics: scope 1, 2 and 3 greenhouse gas emissions

  • $ - % assets or business activities vulnerable to climate-related risks and opportunities

  •  Capital deployment

  •  Internal carbon prices

  • Remuneration

  • Industry based metrics

  •  Climate-related targets, set with supporting information on approach, scope, progress



Other Key Information


Climate disclosure will be required to be published in a new “Sustainability report” which will form part of an entity’s annual reporting package that typically will be comprised of the following:


  • Financial report

  • Directors Report

  • Auditor’s report

  • Sustainability report




The Sustainability Report for a Financial year includes:


  •  The Climate Statement for the year

  • Any notes to the Climate statements, and

  •  The director’s declaration about the Statements and notes.


  •  To improve the readability of the annual report entities should include an index that displays climate disclosure requirements ( Governance, strategy, risk management, metrics and targets) and the corresponding disclosure section and page number.



Frequency and timing of lodgement


A sustainability report will be required to be prepared annually. An interim sustainability report is optional.


A company's sustainability report must be submitted to the Australian Securities and Investment Commission (ASIC) simultaneously with its other reports. This submission timing will align with the current regulations outlined in section 319 of the Corporations Act for filing annual reports, which are:


  • For disclosing entities and registered schemes: within three months after the end of the financial year


  • All other entities- within four months after the end of the Financial year


An entity will also be required to make its sustainability report publicly available on its website one day after the report is lodged with ASIC ( Unless it is required to disclose this report to its members)


 The ISSB allows an entity, in its first year of applying the IFRS Sustainability Disclosure Standards, to release its first sustainability report after its financial report.  This relief is not available for use under the exposure draft legislation or ASRS standards.






What is next?


By addressing the following considerations in line with the new Australian Sustainability Report Standards (ASRS), an entity can develop a comprehensive and credible sustainability report that effectively communicates its commitment to sustainability and demonstrates tangible progress towards achieving environmental, social, and economic goals.



  • Familiarise with ASRS: Take the time to thoroughly understand the requirements and guidelines outlined in the Australian Sustainability Report Standards (ASRS) to ensure compliance and alignment with best practices.


  • Start Planning: perform gap assessment and action plan.  Create a road map to identify capacity constraints.


  • Engage in discussion on the proposal and the applicable transition reliefs in Australia. Support cross-collaboration within your organisation to consider the connectivity of climate and financial information, and begin to understand the potential short, medium and long-term impacts of climate on financial performance, position and cash flows.


  • Roles and responsibilities: Assess and establish roles and responsibilities over sustainability reporting within the organisation, by understanding who will be responsible for preparing and reviewing climate-related reporting. Ensure this is articulated within the role descriptions and is well communicated.



  • Scope and Boundaries: Clearly define the scope of the sustainability report, including the organisational boundaries and activities covered. Determine whether the report includes direct operations, supply chain impacts, or other relevant aspects.


  • Materiality Assessment: Conduct a materiality assessment to identify and prioritize key sustainability issues that are significant to the organisation and its stakeholders. Focus on issues that have the most substantial impact on environmental, social, and economic performance.



  • Data Collection and Verification: Establish robust systems for collecting, tracking, and verifying sustainability data in accordance with ASRS requirements. Ensure that data collection methods are transparent, consistent, and reliable to maintain the credibility of the report.


  • Stakeholder Engagement: Engage with stakeholders throughout the reporting process to understand their perspectives, concerns, and expectations regarding sustainability performance. Incorporate stakeholder feedback to enhance the relevance and credibility of the report.


  • Reporting Principles: Adhere to the reporting principles outlined in ASRS, including accuracy, completeness, reliability, comparability, and relevance. Ensure that the report provides a balanced and fair representation of the organisation's sustainability performance.


  • Governance and Management Approach: Describe the organisation's governance structure and management approach to sustainability, including roles, responsibilities, and decision-making processes. Highlight how sustainability considerations are integrated into overall business strategy and operations.


  • Goals and Targets: Clearly articulate sustainability goals, targets, and commitments in line with ASRS requirements. Ensure that goals are specific, measurable, achievable, relevant, and time-bound (SMART) to demonstrate progress and accountability.


  • Performance Indicators: Select appropriate sustainability performance indicators in accordance with ASRS guidelines to track and report progress over time. Ensure that indicators are relevant, reliable, and aligned with organizational goals and stakeholder interests.


  • External Assurance: Consider obtaining external assurance or verification of the sustainability report from independent third-party auditors in accordance with ASRS requirements. External assurance can enhance the credibility and trustworthiness of the report.


  • Integration with Financial Reporting: Integrate sustainability reporting with financial reporting to provide a comprehensive view of the organisation's performance. Highlight connections between sustainability initiatives and financial outcomes to demonstrate value creation.


  • Continuous Improvement: Commit to continuous improvement in sustainability reporting practices by regularly reviewing and updating processes, methodologies, and metrics. Embrace feedback from stakeholders and seek opportunities to enhance transparency and accountability.




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