Sustainability Reports in Australia

A key new development in Australia is the commencement of mandatory sustainability reporting from 1 January 2025. This development has a very broad reach and has been described by the chair of the Australian corporate regulator as “the biggest change to corporate reporting in a generation”.

Australia has adopted a local version of the international sustainability standards, which entities will be required to report against as they are phased in under the new regime.

Who is required to prepare a sustainability report?

The mandatory sustainability reporting requirements have been linked to the existing financial reporting requirements in the Australian Corporations Act. That means only companies that are required to prepare an annual financial report under Chapter 2M of the Corporations Act will be required to prepare a sustainability report.

In addition, entities must meet specific sustainability reporting thresholds to be required to report. Those thresholds also determine when entities will be required to prepare their first sustainability report, as set out below.

The following entities will be required to prepare a sustainability report for their financial years commencing on or from 1 January 2025 to 30 June 2026:

• entities (other than registered schemes, registrable superannuation entities or retail corporate collective investment vehicles) that meet at least two of the following three criteria:
1. the consolidated revenue of the entity (and any entities it controls) is at least AUD500 million for the financial year;
2. the value of consolidated gross assets of the entity (and any entities it controls) is at least AUD1 billion, as at the end of the financial year; or
3. the entity (and any entities it controls) has at least 500 employees, as at the end of the financial year; and

• entities (other than registered schemes, registrable superannuation entities or retail corporate collective investment vehicles) that:
1. are registered corporations under the National Greenhouse and Energy Reporting Act (NGER Act) or are required to make an application to be so registered under the NGER Act; and
2. are a member of a group (as defined in the NGER Act) that meets, for the financial year, the thresholds under the NGER Act (eg, 50kt CO₂e).

The following entities will be required to prepare a sustainability report for their financial years commencing on or from 1 July 2026 to 30 June 2027:

• entities that meet at least two of the following three criteria:
1. the consolidated revenue of the entity (and any entities it controls) is at least AUD200 million for the financial year;
2. the value of consolidated gross assets of the entity (and any entities it controls) is at least AUD500 million, as at the end of the financial year; or
3. the entity (and any entities it controls) has at least 250 employees, as at the end of the financial year;

• entities that are registered corporations under the NGER Act or are required to make an application to be so registered under the NGER Act; and
• registered schemes, RSEs (registrable superannuation entity) and retail CCIVs (corporate collective investment vehicle) where the value of assets at the end of the financial year of the entity (and any entities it controls) is at least AUD5 billion.

The entities that will be required to prepare a sustainability report for their financial years commencing on or from 1 July 2027 are entities that meet at least two of the following three criteria:

• the consolidated revenue of the entity (and any entities it controls) is at least AUD50 million for the financial year;
• the value of consolidated gross assets of the entity (and any entities it controls) is at least AUD25 million, as at the end of the financial year; or
• the entity (and any entities it controls) has at least 100 employees, as at the end of the financial year.

Whether an entity controls another, and the consolidated revenue, value of consolidated gross assets and value of assets, are to be worked out in accordance with the Australian accounting standards. In counting employees, part-time employees are to be taken into account as an appropriate fraction of a full-time equivalent employee.

Companies incorporated in a foreign jurisdiction and charities registered with the Australian Charities and Not-for-profits Commission are not within scope of the requirements. However, their Australian subsidiaries may be.

What are they required to include in their sustainability report?

Entities are generally required to include in their sustainability report the content required by the mandatory Australian sustainability standard. That includes the entity’s material financial risks and opportunities relating to climate, scope 1, 2 and 3 greenhouse gas emissions and other metrics and targets (although there is transition relief in relation to scope 3 greenhouse gas emissions for the first report in which the entity applies the mandatory Australian sustainability standard). It also includes information about governance, strategy and risk management in relation to those risks, opportunities, metrics and targets.

The mandatory Australian sustainability standard also requires disclosures in relation to scenario analysis. The Corporations Act requires that the scenario analysis be carried out using at least two scenarios, a high warming scenario and a low warming scenario. These are intended to reflect that climate-related physical risks are generally associated with higher average global temperature outcomes, while climate-related transition risks are generally associated with lower average global temperature outcomes. The high warming scenario is an increase in the global average temperature well exceeding 2°C above pre-industrial levels (guidance clarifies 2.5°C or higher will suffice). The low warming scenario is an increase in the global average temperature limited to 1.5°C above pre-industrial levels.

There is an exception for entities in the third reporting group (that is, entities who are required to prepare a sustainability report for financial years commencing on or from 1 July 2027) who determine they have no material financial risks or opportunities. They are only required to include in their sustainability report a statement that there are no material financial risks or opportunities relating to climate, a statement explaining how they reached that conclusion, and a directors’ declaration (discussed below).

Entities required to prepare a sustainability report must also keep written sustainability records that explain the methods, assumptions and evidence from which the sustainability report is made up.

The sustainability report forms part of an entity’s annual reporting obligations, and must be lodged with the Australian Securities & Investments Commission (ASIC) and generally provided to members (or made publicly available on the entity’s website). If the entity is a public company, the sustainability report must also be laid before members at the annual general meeting.

Can a consolidated sustainability report be prepared?

Entities that are required by the Australian accounting standards to prepare financial statements on a consolidated basis can elect to prepare a sustainability report on behalf of the same consolidated group. If they do so elect, no other member of the consolidated group is required to prepare a sustainability report for the financial year.

What declarations are directors required to make in the sustainability report?

Directors will be required to make a declaration which must be included in the sustainability report. For financial years commencing between 1 January 2025 and 31 December 2027, directors must declare whether, in their opinion, the entity has taken reasonable steps to ensure that the sustainability report (other than the directors’ declaration) is in accordance with the Corporations Act. Thereafter, directors must declare whether, in their opinion, the sustainability report (other than the directors’ declaration) is in accordance with the Corporations Act.

While the sections of the Corporations Act that require the directors to make directors’ declarations in relation to the sustainability report are not sections that give rise to offences or penalties, a breach of the requirement to make the directors’ declaration may give rise to a breach of other provisions of the Corporations Act imposing liability on directors. That includes (among others) the requirement on directors to take all reasonable steps to comply with, or secure compliance with, the sustainability reporting requirements, as well as the sections on directors’ duties.

Is forward-looking information required?

A range of forward-looking information is required to be disclosed, including for example the anticipated effects of climate-related risks and opportunities on the entity’s business model and value chain, strategy and decision making, and financial position, financial performance and cash flows.

Under Australian law, some representations about future matters will be taken to be misleading unless there are reasonable grounds to make the representation. Accordingly, it is important entities are comfortable at the time the sustainability report is issued that any forward-looking information included in the report is based on reasonable grounds.

As noted above, entities will also need to ensure they keep sustainability records that explain the methods, assumptions and evidence for forward-looking information.

Entities that have continuous disclosure obligations will also need to monitor compliance with those obligations if facts and circumstances change in relation to forward-looking information in the sustainability report.

What are the modified liability settings?

The modified liability settings generally prevent legal action being brought against a person in relation to certain statements made in the sustainability report or the auditor’s report on the sustainability report. Importantly, however, the modified liability settings do not prevent criminal actions or actions brought by ASIC.

For reports prepared for financial years commencing between 1 January 2025 and 31 December 2025, the modified liability settings apply to statements relating to climate that, at the time they are made, are about the future. For reports prepared for financial years commencing between 1 January 2025 and 31 December 2027, the modified liability settings apply to statements made about scope 3 greenhouse gas emissions, scenario analysis or a transition plan.

Statements made in the sustainability report must also be made for the purposes of complying with the mandatory Australian sustainability standard, for the modified liability settings to apply. Statements made in the auditor’s report on the sustainability report must be made for the purposes of complying with the Corporations Act or the Australian auditing standards. That means, for example, that if an entity discloses information in a sustainability report beyond what is required by the Australian sustainability standard, the modified liability settings will not apply.

The modified liability settings also extend to statements made in another location if the statement is required to be made under a Commonwealth law and is either the same as a statement in the sustainability report or auditor’s report on the sustainability report, or updates or corrects such a statement.

Is an audit required?

Entities must have the sustainability report initially assured, and then audited, in accordance with Australian auditing standards that set out the phasing in of the audit requirements.

How will the regime be enforced?

ASIC is responsible for administering and enforcing the sustainability reporting requirements. It has said it will take a proportionate and pragmatic approach to supervision and enforcement as the requirements are being phased in.

ASIC also has power to grant relief from the requirements on an individual or class basis where it is satisfied complying with the relevant requirements would:

• make the sustainability report or other reports misleading;
• be inappropriate in the circumstances; or
• impose unreasonable burdens.

ASIC has granted relief to allow stapled entities to prepare a sustainability report that includes information on behalf of all members of the stapled group, as if the stapled group was a single entity.

ASIC may use compulsory information-gathering powers to obtain sustainability records for regulatory and enforcement purposes. It also has a broad directions power under which it may (among other things) direct an entity to publish a corrected, completed or amended statement if it considers a statement in the sustainability report is incorrect, incomplete or misleading.

What should you do now?

The new regime will require significant work by entities required to prepare a sustainability report. The first step is to determine whether any entities within the corporate group will be within scope of the regime.

Many entities that have already been voluntarily disclosing information in relation to their climate-related risks and opportunities are conducting a gap analysis to identify what additional information they will need to disclose, and developing a project plan to address the gaps. Other entities should start by familiarising themselves with the requirements and determining what resources they will need to comply with them.

ASIC has provided guidance that directors of entities required to prepare a sustainability report should:

• have an understanding about the entity’s sustainability reporting obligations;
• have an understanding about the climate-related risks or opportunities that could reasonably be expected to affect the entity’s prospects;
• require the establishing of systems that identify, assess and monitor any material financial risks and opportunities relating to climate;
• require the establishing of controls, policies and procedures for overseeing, managing and preparing the sustainability report and keeping sustainability records; and
• apply a critical lens to the disclosures proposed in the sustainability report, such as questioning the appropriateness or completeness of methodologies, inputs and assumptions used to support disclosures, and whether additional information should be disclosed.

There is significant work to be done in putting in place these systems, controls, policies and procedures to meet the requirements – the most important step is to start early to allow time to transition.