If your business is required to prepare sustainability reports, now is the time to ensure compliance with ASIC’s new reporting framework.
The Australian Securities and Investments Commission (ASIC) has released Regulatory Guide 280: Sustainability Reporting (RG 280), providing comprehensive guidance on the new mandatory sustainability reporting requirements under the Corporations Act 2001 (Cth) (Act), making it essential for entities to assess their obligations and establish robust reporting processes to ensure compliance with the reporting requirements. In this alert, we summarise who is required to report, the key components of the guide and the principles underlying ASIC’s approach to enforcement.
Key components of RG 280
RG 280 offers detailed guidance on:
- Determining reporting obligations: Clarifies which entities are required to prepare a sustainability report under the Act.
- Content requirements: Specifies the necessary disclosures within the sustainability report, including climate-related financial information.
- External disclosures: Provides direction on disclosing sustainability-related financial information outside the sustainability report, such as in disclosure documents and product disclosure statements.
- ASIC’s expectations of directors: Provides that directors should understand the entity’s sustainability reporting obligations and the climate-related risks
- ASIC’s administrative approach: Outlines ASIC’s methods for administering the sustainability reporting requirements, including considerations for relief applications and the use of its new directions power.
Who is required to report?
Entities are required to prepare a sustainability report if they are required to prepare an annual financial report under Ch 2M of the Act and meet one of the three sustainability thresholds under section 292A. The current thresholds of section 292A are:
- Corporate size thresholds for consolidated revenue, consolidated gross assets or number of employees per section 292A(3) of the Act.
- Emissions thresholds for registered corporations that have emissions reporting obligations under the NGERS Act; and
- Value of assets threshold for entities that are a registered scheme, RSE or retail CCTV where AUM is over $5 billion or they meet the relevant corporate size thresholds set out in item 1.
The threshold requirements for sustainability reporting are scheduled to be lower for financial years 1 July onwards in 2026 and 2027. The reporting requirements will eventually apply to entities that meet two of the following three criteria being consolidated revenue equal to or over $50 million, value of consolidated gross assets being equal to or over $25 million for that financial year, and if the entity and the entities it controls have 100 or more employees.
The reports are to be lodged no later than 3-4 months following the end of the financial year. If you are unsure of your company’s status to report, we recommend you contact us for advice.
What is required in the report?
Climate-related scenario analysis
In addition to the climate statements, the notes to climate statements and the directors’ declaration in relation to the compliance of the statements and the notes with the Act and sustainability standards, ASIC requires that reporting entities assess their climate resilience against a minimum of two climate-related scenarios for analysis. ASIC provides that the two climate-related scenarios are:
- An increase in global average temperature well above 2 degrees Celsius. This is a higher global warming scenario with temperatures above pre-industrial levels.
- An increase in global average temperature of 1.5 degrees Celsius. This is a lower global warming scenario where temperatures are still higher than pre-industrial levels, but less so than the first climate-related scenario. This is consistent with the most ambitious global temperature goal in the Climate Change Act 2022.
The purpose of the scenarios is for entities to consider how information can benefit their climate resilience, manage material financial risks and opportunities that consider global decarbonisation in the near and medium to long term time.
Scope 3 emissions
Scope 3 greenhouse gas emissions in RG 280 refer to indirect emissions from greenhouse gas emissions in the value chain of an entity, both up and down the line. The Act requires that the absolute gross scope 3 emissions are reported. The guide acknowledges that part of an entity’s disclosed data will be estimated due to difficulties in directly measuring the emissions.
Reporting entities are recommended to use primary and secondary data to navigate this. The guide mentions all reasonable and supportable information available for scope 3 measures is to be used by entity, if there is no ‘undue’ cost or effort. We note that small businesses and farmers may be asked by reporting entities in the same value chain to supply data. We recommend that businesses identify what reporting group they fall into regarding new reporting requirements set by ASIC. We expect small businesses to benefit from the reporting requirements for larger corporations through increased transparency.
Sustainability-related financial disclosures outside sustainability reports
It is a requirement that the sustainability related financial information is included in a product disclosure statement (PDS) in the event that the information is required in decision making for a business or is likely to materially influence a reasonable person to invest.
Reporting entities using the sustainability information or data outside of ASIC sustainability report are encouraged to use the ASIC definitions to create a streamlined and consistent approach for industry to follow. Application of principles for disclosure of sustainability-related financial information is also encouraged.
Directors’ duties and declarations
ASIC has updated their guidance on directors’ duties clarifying its expectations in relation to sustainability reporting and managing climate-related risks within the scope of existing obligations.
The duties have a higher requirement of ‘climate awareness’ where directors of reporting entities should have an understanding about sustainability reporting obligations; how climate-related risks and opportunities may easily affect financials; establishing systems, procedures and policies to prepare the sustainability report and record keeping; and application of a critical lens to the disclosures proposed in the sustainability report.
Concerning the disclosures proposed in the report, this is inclusive of the director questioning if there have been material omissions in their knowledge of the reporting entity’s business, inputs, assumptions and appropriateness of methodologies used for the report.
ASIC makes it clear that whilst directors may be assisted by experts, advisors or other qualified persons, both internally and externally, for sustainability reporting purposes, they must be able to make their own independent assessment of the data which is being presented in the sustainability report in order for ASIC to be satisfied that directors have appropriately discharged their duties.
ASIC’s enforcement approach
In addition to a modified liability regime for certain protected statements and forward-looking statements for a limited duration, ASIC has emphasised a pragmatic and proportionate approach to supervision and enforcement during the phased implementation of these requirements. The regulator will focus on supporting reporting entities through guidance and monitoring practices.
In instances where disclosures are found to be incorrect or misleading, ASIC may engage with entities to understand the basis of such disclosures and provide opportunities for correction. Enforcement investigations are more likely in cases with misconduct of a serious or reckless nature or failure to prepare a required sustainability report during that annual reporting period.
ASIC recognises the sustainability reporting requirements are in their early days and will develop over time. ASIC claims they will continue efforts in considering how reporting entities are best supported through guidance and application.
Relief from reporting requirements
Existing methods of relief apply to sustainability reporting. Applications for relief will be assessed by ASIC on an individual basis. The assessment is lead by underlying policy objectives, previous times relief was granted and financial reporting. Costs in preparing the sustainability report will not be persuasive enough by itself for ASIC to exercise its discretion to grant relief. ASIC does intend to release further information on significant relief applications in future.
Implications for your business
Entities meeting the reporting thresholds must ensure compliance with the new sustainability reporting obligations, including:
- Establishing robust processes for collecting and disclosing climate-related financial information: and
- Understanding directorial responsibilities and the expectations set by ASIC.
For entities uncertain about their reporting obligations or seeking relief, ASIC has provided guidance on applications for relief and has granted specific relief, such as allowing stapled entities to prepare a consolidated sustainability report for the stapled group.
What is next?
Affected entities are recommended to review RG 280 in detail and assess their current reporting frameworks to ensure readiness for compliance.
McCullough Robertson regularly advises clients on greenwashing, sustainability reporting and regulatory issues. If you would like any assistance understanding your sustainability reporting obligations, and how they will impact your business, please reach out to Natalie Kurdian, Partner, Corporate Advisory.
