Australian Regulator Promises Flexible Enforcement of Sustainability Disclosures

The Australian Securities & Investments Commission (ASIC) has released a draft guide, titled “Regulatory Guide 000 Sustainability Reporting,” outlining the country’s new sustainability reporting regime and how the regulator plans to enforce these requirements. In the accompanying media release, ASIC Commissioner Kate O’Rourke pledged a “proportionate and pragmatic approach to supervision and enforcement,” recognizing that companies need a “period of transition” as they build their capabilities to meet the new requirements.

The new guidelines follow the passage of the Treasury Laws Amendment Act, which introduces mandatory climate-related reporting requirements for large and medium-sized companies. These disclosures include climate-related risks and opportunities, as well as greenhouse gas emissions across the value chain. The reporting will begin as early as 2025 for the largest companies.

The new regulations apply to all public and large proprietary companies that are required to provide audited annual financial reports to ASIC, meeting certain size thresholds. Reporting requirements start with companies having more than 500 employees, revenues over $500 million, or assets over $1 billion, along with asset owners with more than $5 billion in assets. For medium-sized companies, reporting will commence in July 2026, followed by smaller companies in 2027.

To help companies build their capabilities, the legislation includes reliefs such as a phased-in approach for Scope 3 emissions reporting, giving companies an extra year from the start of their disclosure requirements to report on their indirect value chain emissions. There are also modified liability provisions to ease the transition.

ASIC, tasked with administering these requirements, aims to monitor compliance effectively. Key topics addressed in the draft guide include which entities must prepare sustainability reports, content requirements, obligations on record keeping, directors’ duties, and how to disclose sustainability-related financial information outside of sustainability reports.

In the draft report, ASIC acknowledged that the sustainability reporting regime is new for Australia, and many entities required to prepare these reports will be doing so for the first time. Market practices and policies around climate-related financial disclosures are expected to evolve both domestically and internationally.

A consultation period for the new guidance is open until December 19, 2024. ASIC is seeking feedback on the proposals, including potential compliance costs, effects on competition, and other impacts, costs, and benefits.

“We acknowledge that there will be a period of transition as reporting entities continue to build their capability, as reflected in the phasing in of sustainability reporting requirements. Accordingly, we will take a proportional and pragmatic approach to supervision and enforcement during this transition period,” ASIC noted in the consultation paper.

Commissioner O’Rourke added, “Our focus for this regulatory guide is to assist preparers of sustainability reports to comply with their obligations so that users are provided with high-quality, decision-useful, climate-related financial disclosures that comply with the law and the sustainability standards.”