TOM WARNER, Shareholder Analytics & Engagement
On 26 June 2023, following a year and a half of intensive consultation, the International Sustainability Standards Boards (ISSB) released its first two Sustainability Disclosure Standards: IFRS S1 and IFRS S2. FIRST Advisers wrote about the new standards in our ISSB Releases Inaugural Global Sustainability Disclosure Standards blog on 30 June 2023. The day after the ISSB release, the Australian Treasury released its second consultation paper on climate related financial disclosures for Australian Business. This included a target for mandatory disclosure requirements to begin in FY2025, or from the 1st of July 2024. The deadline for submissions closed on 21 July 2023.
The clock for climate-related financial disclosures for Australian businesses is now counting down, creating a relatively short timeframe for Australian companies to transition to standards that align with those of ISSB. The framework designed by Australian Treasury will be officially constructed by the Australian Accounting Standards Board (AASB), with the underlying objective of aligning ‘as far as is practicable’ with the ISSB standards.
The requirement to adhere to the AASB climate-related financial disclosure framework is intended to be staggered with larger companies, that exceed certain thresholds, being required to meet the standards first. The thresholds relate to revenue, gross assets and headcount and are summarized below.
| Size | Employee Numbers | Value of consolidated gross assets* | Consolidated revenue for the financial year | Timing |
|---|---|---|---|---|
| Large | >500 | >$1B | >$500m | 2024-25 onwards |
| Medium | >250 | >$500m | >$200m | 2026-27 onwards |
| Small | >100 | >$25m | >$50m | 2027-28 onwards |
* at the end of the relevant financial year
While the ISSB had an 18-month consultation period prior to publishing their inaugural standards, the AASB has just six months to firstly formalize its framework and determine whether it will adopt the newly formed ISSB standards in full or adhere to it being ‘aligned as far as practicable’ with those standards, as the second Treasury consultation paper indicated.
Building on the already established international frameworks, including the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), the ISSB Standards aim to serve as a single global baseline. Companies reporting on their sustainability-related risks can then add the relevant jurisdictional requirements to these baselines. It has been noted that the new sustainability framework could have substantial negative impacts on Australian businesses and their plans to reduce emissions. It would appear that the proposed approach to implementing sustainability standards in Australia, is influenced by the widely differing levels of sustainability reporting among listed companies and unlisted entities. The concern therefore is that it does not allow Australia a lot of time to meet its 2030 targets.
While Australia waits to understand what the AASB’s mandatory climate-related financial disclosures framework will look like, the majority of the top 300 ASX listed companies have already embedded sustainability and climate-related reporting to some degree. Every two years FIRST Advisers researches trends in ESG and Sustainability reporting amongst Australia’s and NZ’s top companies. We will be updating this following the August 2023 reporting season but the results from our last analysis can be found HERE. The insights gained from FIRST Advisers ESG research inform the advice we offer around ESG best practice and how companies may need to update their existing corporate sustainability disclosure frameworks to meet the July 1, 2024, start date for the AASB standards.