Australia’s latest climate disclosure draft offers partial protection against litigation

Australia is moving forward on a proposal to introduce mandatory climate reporting for companies and financial institutions, but is giving directors legal immunity around Scope 3 statements and scenario analysis.

The country is jumping on the climate regulation bandwagon with the proposed amendment of its Australian Securities and Investment Commission Act 2001 and Corporations Act 2001 to include sustainability reporting as an obligation for companies.

When it comes to penalties for non-compliance, France has set a strict bar with up to five years of jail time for executives, but Australia is showing more flexibility, with a maximum of two years of imprisonment for obstructing the work of auditors – and immunity on several topics.

Specifically, the exposure draft published last week by the Australian Treasury states that “no action, suit or proceeding lies against a person in relation to”:

• Statements made in sustainability reports between 2024 and 2027 (giving companies some time to adjust to the new regulation),
• Scope 3 emissions, and
• Scenario analysis.

Climate litigation is a fast-growing trend, and legal experts believe companies could soon sue each other on the basis of misleading sustainability reporting. But it appears the Australian government is seeking to protect companies from some of these risks: only the Australian Securities and Investment Commission (ASIC) can enter legal action on the above topics.

What is included in Australia’s climate disclosure regulation

The draft is based on the Australian Accounting Standards Board (AASB)'s SR1 Australian Sustainability Reporting Standards, which is itself largely inspired by the ISSB IFRS 1 and 2 standards – with some modifications.

In terms of metrics, it requires companies to report on Scope 1, 2 (location-based and market-based) and 3 greenhouse gas emissions, transition and physical risk, climate-related opportunities, capital deployment, internal carbon price (if they use one) and executive remuneration.

On top of that, companies will have to disclose sustainability governance processes; how they plan to meet their climate targets; their climate transition plans and new technologies they plan to adopt; as well as their adaptation and mitigation efforts (including whether or not they use carbon offsets).

“Our changes will establish Australia’s climate risk disclosure framework, giving investors and companies the transparency, clarity and certainty they need to invest in new opportunities as part of the net zero transformation,” said Australia’s Treasurer Jim Chalmers upon releasing the latest exposure draft.

Which companies will have to report under Australia climate regulation

The AASB draft proposes applying the new standards from July 2024 to entities that meet two of the following criteria:

• Over 500 employees; 
• A$1 billion or more in gross assets
• A$500 million or more in revenue

From 2026-27, the scope of the regulation would gradually expand to include smaller and smaller companies, down to those with more than 100 employees, A$25 million in assets or A$50 million in revenue.

This proposal was confirmed by the Australian Treasury in its own draft, which is now open for consultation until February 9.