An introduction to Climate-Related Financial Disclosure reporting

An introduction to Climate-Related Financial Disclosure reporting

Australia’s sustainability reporting landscape has undergone significant transformation,  with new requirements at law which came  into effect on 1 January 2025. New reporting standards require entities to disclose climate-related financial risks and opportunities. This enhances the quality and comparability of financial information on significant climate-related issues to investors and other capital market participants. 

While increased sustainability reporting is expected to lead to stronger environmental outcomes, the introduction of new processes and requirements can take some time for adjustment. To help businesses understand where NABERS can assist in the Australian sustainability reporting legislation and standards, NABERS has put together a brief Q&A to cover some of the key information. Please note that this should be referred to only as a brief introductory guide and should not be relied upon for reporting purposes.  

What sustainable finance reporting requirements have been introduced?

The Treasury Laws Amendment (Financial Market Infrastructure and Other Measures Act 2024) (the Act) was passed in September 2024,  which will require certain Australian businesses to disclose climate-related financial information over the coming years.

The Australian Sustainability Reporting Standards (ASRS) developed by the Australian Accounting Standards Board (AASB) specifies the reporting requirements. This includes:

• AASB S1: General Requirements for Disclosure of Sustainability-related Financial Information (voluntary standard)
• AASB S2: Climate-related Disclosures (mandatory standard)

This means that eligible companies will need to include a sustainability report as part of their annual reporting obligations, alongside the financial report, directors’ report and auditor’s report. ASIC is responsible for monitoring the compliance with the sustainability reporting requirements,    

What businesses need to comply with the mandatory  reporting and when?

Implementation of the Climate-related Disclosures will be phased in over three years. The below table includes a summary of the timings for different businesses, however additional criteria on this can be found in the Act. 

Source: treasury.gov.au

Businesses that do not fall into the three categories may also choose to undergo voluntary reporting and disclosure. 

What information do businesses need to include in the Climate-related Disclosures?
 

The mandatory Climate-related Disclosures includes the following core content:

• Governance – this sets out the governance processes, controls and procedures used to monitor, manage and oversee climate-related risks and opportunities.
• Strategy – this details the approach to managing climate-related risks and opportunities and includes the following sections:
      o Climate-related risks and opportunities
      o Business model and value chain
      o Strategy and decision-making
      o Financial position, financial performance and cash flows
      o Climate resilience
• Risk management – this section focuses on the processes to identify, assess, prioritise and monitor climate-related risks and opportunities, including whether and how those processes are integrated into and inform the overall risk management process.
• Metrics and targets – this covers performance in relation to climate-related risks and opportunities, including progress towards any climate-related targets it has set, and any targets it is required to meet. This includes:
     o Climate-related metrics (including Scope 1, 2 and 3 greenhouse  gas emissions)
     o Climate-related targets 

Can NABERS and other rating tools be used in Climate-related Disclosures? 

Existing rating tools such as NABERS will be helpful in preparing for both voluntary and mandatory sustainability reporting, including Climate-related Disclosures. This can include:

• Metrics – Scope 1 and 2 emissions:

  For calculating an entity’s  Scope 1 and 2 emissions, having a consistent record keeping system in place will help ensure information is correct and up to date. Scope 1 and 2 emissions can include the energy consumed by a building, including office buildings, warehouses and data centres. Undergoing regular NABERS Energy ratings can be a helpful step to ensure that building energy use is measured consistently, to be used for calculating an entity’s Scope 1 and 2 emissions. It can also be useful to refer to data obtained through regular NABERS Energy ratings, including the Renewable Energy Indicator for reporting purposes. 

• Metrics – Scope 3 emissions:
  Depending on the type of business, it may be useful for suppliers to capture their building energy use through NABERS Energy ratings to feed into Scope 3 indirect emissions reporting. For example, a company that produces food products may need to know the energy use of the warehouses and retailers within its supply chain to calculate its Scope 3 emissions.
• Climate-related targets:
  Third-party verification tools such as NABERS can be used to set sustainability targets and measure progress against them.   In addition to tracking total emissions and setting goals to reduce this, using rating tools can help make the goals more transparent and easier to communicate.

• Strategy:
  For any business, regardless of whether they are expected to comply with mandatory Climate-related Disclosures, it’s important to have a strong sustainability strategy. Rating tools can again be an instrumental part of a business’s strategic plan to ensure that the strategy is well defined and can be clearly communicated to internal and external stakeholders.

  For some businesses, the use of rating tools such as NABERS and Green Star could unlock sustainable finance opportunities to fund improvements to buildings. Learn more in the NABERS Sustainable Finance Criteria or Green Building Council of Australia and Australian Sustainable Financing Institute’s Unlocking the Value Guide. 

Where to from here?
 

For businesses that may be required to comply with mandatory Climate-related Disclosures over the coming years it’s important to familiarise themselves with the requirements and start the reporting process ahead of time to ensure they are well equipped. 

If you do not expect to be required to comply with the mandatory Climate-related Disclosures, it may be worth considering voluntary reporting. Tracking Scope 1 emissions would be valuable for all businesses to provide Scope 3 emissions to businesses they supply that are required to report.