Date posted: 04/09/2023

Climate-related disclosures: key developments

Keep up to date with key developments in climate-related disclosures.

In brief

  • Globally, the ISSB has issued its first two standards and TCFD continues to gain traction
  • In Australia, Treasury has signaled mandatory climate-related financial disclosures will be phased in from 2024-2025
  • In New Zealand, climate-related disclosures are now mandatory for certain large entities

Global developments

International sustainability disclosure standards

The International Sustainability Standards Board (ISSB) has now issued its first two standards, IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information; and IFRS S2 Climate-related Disclosures. The ISSB was set up by the IFRS Foundation to develop a comprehensive and consistent global baseline for sustainability reporting including climate-related disclosures. The TCFD recommendations form the core of the climate standard IFRS S2.

IFRS S1 and S2 are available for adoption for annual reporting periods beginning on or after 1 January 2024, with transition relief to allow entities to report only on climate-related risks and opportunities in accordance with IFRS S2 in the first year they apply IFRS S1 and S2. The ISSB has included application guidance within an Appendix B to both IFRS S1 and S2 and is developing further resources to support implementation, available from the IFRS Foundation website.

Access the ISSB’s standards and supporting resources from the IFRS Foundation.

Prepare now: read CA ANZ and Deloitte’s practical guidance on preparing for the ISSB’s sustainability disclosure standards.

TCFD

The Task Force on Climate-related Financial Disclosures (TCFD) has developed recommendations for voluntary climate-related disclosures by entities. These disclosures are designed so entities provide information to investors, lenders and insurance underwriters about their climate-related financial risks.

Read our brief explainer on the TCFD’s recommendations.

Access the TCFD recommendations and guidance.

Australia

In 2022, the Australian Government made an election commitment to mandate climate-related financial disclosures for large companies. Treasury has now consulted on legislative amendments to enable the AASB to develop sustainability standards, clarify the AUASB can develop sustainability assurance standards, and empower the FRC to provide strategic oversight and governance in relation to these functions. Treasury has signalled that mandatory climate disclosures, aligned with IFRS S2, will be phased in for large Australian companies from the 2024-2025 financial year, with all entities required to lodge financial reports by the Corporation Act 2001 (Cth) covered by 2027-28.

In the meantime, ASIC continues to encourage listed companies to use the TCFD’s recommendations for voluntary climate-related disclosures.  IFRS S2 builds on the TCFD recommendations, so entities voluntarily disclosing climate-related information aligned with the TCFD recommendations are on the front foot preparing for mandatory disclosures.

New Zealand

The eXternal Reporting Board (XRB) released the Aotearoa New Zealand Climate Standards in December 2022. Around 200 of New Zealand’s most economically significant entities are required to report against these standards from 1 January 2023. The XRB’s standards are aligned with the TCFD recommendations, and the XRB is closely following ISSB developments. Regulations have also been issued which address record keeping requirements and penalties for non-compliance. The Financial Markets Authority (FMA) has published guidance for Climate Reporting Entities (CREs) on meeting their record keeping obligations.

Read more about New Zealand’s mandatory climate related disclosure regime, the new regulations  and XRB Climate-related Disclosure Standards.

Other jurisdictions

Internationally many other jurisdictions require or are introducing mandatory climate-related disclosures, including the European Union (EU) and USA.  These requirements may impact on entities based in Australia or New Zealand if they trade with, are listed or operate in these jurisdictions.

Europe

Europe’s Corporate Sustainability Reporting Directive (CSRD) extends enhanced social and environmental reporting requirements to all companies listed in an EU market (other than micro-enterprises) and large entities with operations and/or selling goods or services in Europe. This means entities based outside Europe, including in Australia and New Zealand, will be subject to the requirements if they meet the CSRD size thresholds.

Entities subject to the CSRD will present disclosures required by the European Sustainability Reporting Standards (ESRS). This sustainability information must be assured, and digitally tagged in alignment with the EU taxonomy. The first set of 12 ESRS are nearing completion, and will be phased in from 1 January 2024 subject to being passed as EU law.Like the ISSB’s standards, the ESRS require disclosure of risks and opportunities arising from social and environmental issues. However, the ESRS differ significantly as they take a double materiality lens, requiring entities to report both from the perspective of the impact of sustainability-related factors such as climate change on the entity, and the impact of an entity’s activities on the environment and people. For entities in Australia and New Zealand reporting or planning to report under the Aotearoa New Zealand Climate Standards, TCFD, and/or ISSB’s standards this is likely to mean extending their materiality assessment and reporting on many data points reflecting new areas not currently captured.

Keep up to date with the ESRS.

USA

The Securities and Exchange Commission (SEC) issued a proposed rule in March 2022 to enhance and standardise climate-related disclosures by SEC registrants (both domestic and foreign). The proposed rule draws on the TCFD framework, with some additions, for example progress against climate commitments such as net zero.  It is more explicit on controls and assurance, mandating that climate-relate disclosures would be subject to management’s internal control over financial reporting, and audit. It was anticipated this rule will be finalised in the first half of 2023 however it appears this has been delayed to later in 2023.

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