Date posted: 17/07/2023

The international baseline is here, but are you ready?

The ISSB has issued their inaugural standards and Australian Treasury shared their proposed reporting framework for Australian entities.

In brief

  • IFRS S1 and S2 represents a single global baseline for entities
  • Treasury has indicated Australia’s framework will align with IFRS S2
  • The first climate-related reporting period for the largest Australian entities to be 2024-25

26 June 2023 marked a momentous day for global capital markets and accounting, with the issuance of IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related disclosures. CA ANZ, a member of the Global Accounting Alliance, welcomed the release of the standards and also announced that we are the first Australasian organisation in the IFRS Foundation’s Partnership Framework for capacity building

So why are IFRS S1 and S2 so momentous? 

The two standards establish a comprehensive and consistent global baseline for sustainability reporting. Although not yet mandatory, and this will be dependent on jurisdiction, the standards provide a framework by which preparers can convey a business’s strategy taking into account judgement and uncertainties to assist stakeholders and investors to make decisions as it relates to sustainability. IFRS S1 uses the core content required for disclosures in line with the Taskforce on Climate-related Financial Disclosures (TCFD) recommendations relating to governance, strategy, risk management and metrics and targets. IFRS S1 also defines sustainability, materiality and connected information. IFRS S2 focuses on climate-related disclosures, fully incorporates the TCFD recommendations and requires the disclosure of material information in relation to climate-related physical and transition risks and climate-related opportunities.  

How does this relate to New Zealand? 

Mandatory climate-related disclosures took effect from 1 January 2023 in line with Aotearoa New Zealand Climate Standards, which are based on the TCFD recommendations. Following the release of IFRS S1 and S2, the External Reporting Board (XRB) are expected to compile a document comparing the ISSB standards and the Aotearoa New Zealand Climate Standards. 

How does this relate to Australia? 

On 27 June, Treasury released their second consultation which outlines intended policy positions to establish mandatory climate-related financial disclosures in Australia. The consultation document includes a three-phased implementation approach commencing from the 2024-2025 reporting period. This will ultimately capture all Australian entities required to report under Chapter 2M of the Corporations Act, including all large proprietary companies.

 

 

Entities that meet two of these

AND

 

FY

Employees

Consolidated gross assets

Consolidated revenue

Entities required under Chapter 2M of the Corporations Act that are a ‘controlling corporation’ under the NGER Act and meet the NGER publication threshold.

Group 1

24/25

over 500

$1bn or more

$500m or more

Group 2

26/27

Over 250

$500m or more

$200m or more

Group 3

 

27/28

Over 100

$25m or more

$50m or more

Entities required under Chapter 2M of the Corporations Act that are a ‘controlling corporation’ under the NGER Act.

The consultation document lists out a number of proposals relating to reporting requirements which cover materiality, governance, strategy, scenarios analysis, transition plans and metrics and targets. It is noted that the AASB will be responsible for developing Australian climate disclosures standards, which are envisaged to be closely aligned with IFRS S2. 

The consultation paper also sets out expectations in relation to assurance, commencing with limited assurance over scope 1 and 2 emissions and reasonable assurance over governance disclosures in year 1 and increasing to reach reasonable assurance over all disclosures in 4 years. The paper also proposes that financial auditors would lead climate disclosure assurance engagements, supported by technical climate and sustainability experts.

Consultation paper

Treasury Climate-related financial disclosure consultation paper 

Read paper

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What should businesses do now? Get started!

  • For the largest Australian companies who will be reporting in FY 24/25, use this upcoming financial year to reevaluate processes, understand the data that is produced and use the recently launched IFRS S2 to anticipate the likely requirements for disclosures in Australia.
  • For those Australian entities in groups 2 and 3, whilst there is an additional 2 and 3 years before reporting will commence, use this time to begin work. Implementation willl take a number of years and so it is important to start this early.
  • If you are a smaller entity outside the scope of New Zealand and Australian mandatory climate disclosures, you may still be asked to provide information on your climate emissions to suppliers and customers. Likewise, climate-related risks and opportunities can affect businesses of all sizes, so you can take steps now to understand and address the impact on your business.

CA ANZ have developed many resources to support members, including ISSB getting started guides, carbon accounting FAQs as well as training, including our new micro courses series.

Sustainability reporting is coming. Are you ready?

In collaboration with Deloitte, CA ANZ has three-practical guides on preparing for the ISSB’s sustainability disclosure standards.

Read more

CA ANZ sustainability micro courses

Elevate your knowledge and confidence in tackling the sustainability challenges that face your business.

Read more

CA ANZ Tools & Resources

Practical guidance to assist you to incorporate sustainability, or an environmental, social and governance (ESG).

Find out more