1January 2025 marked the start of a new calendar year but also the commencement of mandatory climate-related financial reporting in Australia. The phased implementation will see group 1 reporters start to disclose information about governance, strategy, risk management, and metrics and targets related to climate risks and opportunities as they relate to climate. Groups 2 and 3 will be phased in with all reporting entities captured by 2027-28.
New Zealand marks its second year of climate-related financial reporting with the XRB issuing amendments at the end of 2024 which extends the adoption of provisions 2 (anticipated financial impacts), 4 (scope 3 GHG emissions) and 5 (comparatives for scope 3 GHG emissions) for another year. An exemption for assurance of scope 3 GHG emissions for periods ending before 31 December 2025.
The Australian Accounting Standards Board (AASB) has published Sustainability Reporting Standards, including AASB S1 General Requirements for Disclosure of Sustainability-related Financial Information (voluntary) and AASB S2 Climate-related Disclosure (mandatory). The Australian standards are aligned with the International Sustainability Standards Board’s standards (ISSBs) on IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosure.
Disclosure of scope 3 GHG emissions
One of the most significant aspects of these disclosures is the inclusion of Scope 3 GHG emissions reporting. Scope 3 GHG emissions are indirect emissions that occur in a company’s value chain, including both upstream and downstream activities. These emissions are often the largest share of a company’s carbon footprint, yet they are also the most challenging to measure and report.
The emphasis on Scope 3 GHG emissions encourages companies to take a holistic view of their environmental impact. By considering emissions across the entire value chain, companies can identify significant sources of emissions that may have been previously overlooked. Entities will determine which material scope 3 categories need to be measured and disclosed.
The measurement of scope 3 GHG emissions is likely to include the use of estimation rather than solely comprising of direct measurement.1 Primary data, which is information directly sourced from specific activities within the entity’s value chain, can be used by reporting entities to improve the estimated scope 3 emissions measurements. However, data not obtained directly from activities within the entity’s value chain (secondary data) or a combination of both can be used to measure scope 3 GHG emissions.
However, the disclosure of Scope 3 GHG emissions presents several challenges. Companies need to develop robust methodologies for measuring and reporting these emissions, which often require collaboration with suppliers and other stakeholders. Additionally, the assurance of Scope 3 GHG emissions data will be phased in, with reasonable assurance expected to be provided by 30 June 2031 for all groups of reporting entities. This phased approach allows companies time to build the necessary capabilities and systems to ensure disclosures reflect information to assist users to understand the measurement approach, inputs and assumptions used to estimate relevant scope 3 GHG emissions.
Reporting entities are exempt from disclosing scope 3 GHG emissions in their first reporting period. There is also limited immunity for reporting entities for the first 3 years of the reporting regime, meaning that reporting entities disclosing scope 3 GHG emissions information within their sustainability reports will be protected from any third-party actions, proceedings or suits. However, this immunity does not apply if its criminal in nature or brought by the regulator, the Australian Securities and Investments Commission (ASIC).
GHG Protocol - Scope 3 Calculation Guidance
Further information on scope 3 GHG Emissions
Stepping up to mandatory scope 3 emissions reporting: practical considerations for a smooth transition
Are SMEs expected to report or provide emissions information?
Entities that do not fall into groups 1, 2 or 3 could still be in the value chain of a reporting entity. So, what does this mean? As noted above, reporting entities are required to disclose their scope 3 GHG emissions (indirect), which will include the scope 1 GHG emissions of entities within its value chain.
As such, non-reporters, potentially including SMEs, maybe approached by reporting entities to share their scope 1 GHG emissions data to assist reporting entities to determine their scope 3 GHG emissions information for disclosure (i.e., primary data).
However, despite many articles and commentary to the contrary, a reporting entity is NOT required to obtain direct emissions information solely from entities in their value chain for their scope 3 GHG emissions and is ‘likely to include the use of estimation rather than solely comprising direct measurement’2.
1 AASB S2 Climate-related disclosures Appendix Bparagraph B38
2 AASB S2 Climate-related disclosures Appendix B paragraph B38 -B63
