Governance Institute of Australia weighs in on climate reporting legislation

Governance Institute of Australia, on behalf of its members, has expressed concerns about the delay in releasing the draft legislation on climate reporting, given the proposed commencement date of 1 July 2024 for group entities.

In a submission to Treasury, Governance Institute suggests delaying the commencement date of the legislation to 1 July 2025, given the international assurance standard is unlikely to be released until September 2024. This would mean the corresponding Australian Standard is unlikely to be released until late 2024.

If the legislation were to commence on 1 July 2024, Group 1 entities would be required to prepare reports with no assurance standard in place. Given the complexity of this area and the significant ‘step-up’ for many reporting entities, this must be addressed as a priority.

CEO Megan Motto emphasised the need for the federal government to review the timeline.

“Our member concerns about the phased implementation of the climate disclosure legislation stem from the delayed release of the international assurance standard,” she said.

“This puts Group 1 entities in a tough spot, with only a few months to prepare for their first reports under the new regime, exacerbating an already significant burden.”

A recent study conducted by Chartered Accountants Australia & New Zealand (CAANZ) revealed that 35% of companies in Australia and New Zealand are now disclosing their climate-related risks in their financial statements.

The study, conducted in collaboration with the University of Melbourne and the University of Queensland, surveyed 356 companies and revealed a marked increase from 23% in 2021.

Another notable concern of the Institute’s members is the pace at which companies can build capacity to carry out audit and assurance of climate-related disclosures.

Ms Motto says there are some reservations about the threshold for reporting entities, suggesting that the consolidated revenue threshold for certain groups may be too low.

“Our members consider that Groups 1 and 2 are appropriately calibrated but consider that the consolidated revenue threshold for Group 3 is too low. They consider $100M consolidated revenue to be a more appropriate threshold,” Ms Motto said.

Additionally, the Governance Institute stressed the importance of considering international reporting obligations, especially those aligned with frameworks like the European Union and the United States of America. Likewise, aligning with the National Greenhouse Energy Reduction Act (NGER) requirements. This acknowledgment underscores the need for harmonisation and global cooperation in climate reporting standards.

While supporting the approach outlined in the Consultation Paper, Governance Institute emphasised the need for qualitative and quantitative scenario analysis to gauge climate change impacts accurately.

Governance Institute is urging the government to carefully consider these various factors, to ensure that the proposed legislation achieves its intended goals without imposing undue burdens on businesses.

You can read Governance Institute’s full submission on the website.