Chapter 1: The mandatory climate reporting landscape

Australia’s mandatory climate reporting regime, legislated in September 2024, requires large organisations, including listed companies, financial institutions, and superannuation entities, to disclose their climate-related risks and opportunities. Reporting begins in 2025 for large emitters, with smaller entities phased in by 2026 and 2027. These disclosures must comply with the AASB S2 standard, adapted from the international ISSB standard. Organisations are required to disclose climate risks using two scenarios: one aligned with a 1.5°C warming scenario and another where warming well exceeds 2°C.

The report highlights that only 42.8% of Australian companies currently disclose climate-related information, with just 10.5% referencing the Task Force on Climate-related Financial Disclosures (TCFD) recommendations. Only 3.4% are fully aligned with all four TCFD pillars, signalling a significant gap in the sector’s readiness for upcoming regulatory requirements.

Chapter 2: Duties and expectations of directors

Directors play a critical role in ensuring accurate and transparent climate disclosures. They are responsible for overseeing the robustness of corporate reporting systems and ensuring that climate risks are integrated into overall risk management frameworks. This includes assessing the materiality of climate risks and ensuring that climate-related financial information aligns with general financial reporting requirements under the Corporations Act 2001 (Cth).

Directors must also stay informed and upskill to meet new reporting standards, as failing to disclose material climate-related risks could lead to legal liabilities. This includes working closely with management to align climate disclosures with corporate strategies and considering external assurance to enhance report credibility. Directors should also be aware of potential penalties for misleading disclosures, which could include civil penalties or imprisonment.

Chapter 3: Practical steps to support mandatory climate reporting

The report provides practical recommendations for directors, focusing on key areas such as governance, strategy, risk management, and data integrity. Directors should begin by evaluating the organisation’s current climate-related disclosures and identifying gaps in data collection, particularly regarding scope 1, 2, and 3 emissions. A robust data management system is essential for accurate emissions tracking, particularly as scope 3 emissions reporting becomes mandatory from the second year onwards.

A key recommendation is the integration of internal carbon pricing to reflect the financial impact of carbon emissions on the organisation. Directors should also ensure that climate targets are set and that progress towards those targets is regularly monitored. Another critical step is conducting scenario analysis to understand the financial implications of physical and transitional climate risks, including potential regulatory changes, carbon taxes, and shifts in market demand.

Recommendations and suggested actions

The report advises that boards adopt climate reporting as a strategic opportunity rather than merely a compliance obligation. Key recommendations include:

• Upskilling directors on climate governance and integrating climate risks into regular board discussions.
• Aligning executive remuneration with climate targets to incentivise progress towards sustainability goals.
• Implementing scenario analysis aligned with international agreements, ensuring that organisations assess both physical and transitional climate risks.
• Data system improvements, particularly in tracking scope 1, 2, and 3 emissions, are essential for effective reporting.
• Ensuring governance structures are periodically reviewed and that appropriate resources are allocated to meet reporting obligations.

The report concludes that successful organisations will approach climate reporting as an opportunity to demonstrate resilience and long-term value creation, rather than viewing it as a simple compliance task.