by Jillian Button, Hannah Biggins, Victoria Costa, Tiana Macleod and Alexander Batsis · 8 April 2025
Overseeing a major change in corporate reporting
From 1 January 2025, the first phase of amendments to the Corporations Act 2001 (Cth) took effect to introduce a mandatory climate-related financial reporting regime for some Australian companies. Boards should be taking steps to make sure they understand, and that their organisation is preparing for, the new regime.
The amendments represent a significant expansion in corporate reporting. For many companies, mandatory climate-related financial reporting will mean producing new disclosures and navigating unfamiliar territory. As remarked by ASIC Chair Joseph Longo, 'the growing interest in ESG issues is driving the biggest changes to financial reporting and disclosure standards in a generation'.1 Boards will play an essential role in responding to these changes and overseeing management to ensure their organisations respond appropriately and adequately to climate-related risks and opportunities.
The new climate-related financial disclosure regime
The newly inserted provisions in Chapter 2M of the Corporations Act implement standardised, internationally aligned, mandatory climate-related financial disclosure requirements for large listed and unlisted entities, which sit alongside the existing financial reporting obligations. Such disclosures are intended to provide comparable, transparent and decision-useful information to stakeholders.
This information assists stakeholders to understand and assess:
- the climate-related financial risks and opportunities of reporting entities; and
- how entities manage, plan for and adapt to these risks and opportunities (see our Insight for further details on the new regime).
'Group 1' reporting entities are now required to provide relevant disclosures in a new 'sustainability report' for financial years commencing on or after 1 January 2025. The sustainability report will form part of an entity's annual reporting obligations. 'Group 2' and 'Group 3' reporting entities will be obliged to do the same for their first annual reporting period starting on or after 1 July 2026 and 1 July 2027 respectively.
Similar to the directors' declaration currently provided as part of the company's financial report, directors are required to make a declaration regarding the sustainability report. Directors are required to declare that (among other things), in their opinion, the substantive provisions in the sustainability report are in accordance with the Corporations Act (eg that they are compliant with the sustainability standards etc). However, a lower threshold will apply for declarations in respect of financial years commencing before 1 January 2028, with directors required to declare that, in their opinion, the entity has taken reasonable steps to ensure the substantive provisions of the sustainability report are in accordance with the Corporations Act. As is the case with other financial reporting, directors must exercise their duty of care and diligence when reviewing and approving the sustainability report.
Given the interaction of these requirements and duties with the new regime, and with the first cohort of reporting entities having commenced reporting for annual reporting periods from 1 January 2025, boards should be taking steps to understand the implications of the new regime for their organisations.
Steps boards should take to prepare for the new climate-related financial disclosure regime
We recommend that boards:
- seek information and training, whether from management or external advisers, regarding the new regime, including to understand what will be required of directors (and when), and the judgement calls that will need to be made regarding certain disclosures;
- ensure material climate-related matters are consistent with and embedded in the company's broader strategy, and that there are effective risk and governance frameworks in place to monitor, assess and manage climate-related risks and to prepare for compliance (including appropriate verification and sign-off procedures for climate-related financial disclosures);
- test and challenge management, including seeking information regarding the company's roadmap towards release of the first sustainability report and any potential hurdles to meeting proposed timeframes;
- set and articulate clear roles, responsibilities and accountabilities for management in relation to climate;
- support management to develop understanding, build internal capacity and capabilities, including to seek external advice or services where required (such as legal advice or early engagement with auditors on evolving assurance requirements);
- seek regular reports from management as to progress in line with the company's strategy; and
- consider what level of support the board will require prior to signing the directors' declaration for the first sustainability report and align with management on that process.
Boards should also consider how the regime will interface with other relevant laws and obligations, including prohibitions on false or misleading statements and misleading or deceptive conduct, and other regulatory requirements.
Reporting entities will be required to make relevant disclosures in a new sustainability report, which will form part of their annual reporting suite
What assurance will be required?
In order to ensure the accuracy and credibility of disclosures, sustainability reports will, in time, be subject to external audit processes consistent with existing obligations for financial reports. Assurance requirements and standards will be determined by the Australian Auditing Standards Board (AASB). The process is ongoing and it is anticipated that the AASB will phase in the assurance requirements over time up to 30 June 2030 (when the assurance regime is required by the Corporations Act to be fully online).
As a first step, the new assurance standard (the ASSA 5000) was approved by the AASB earlier, in January 2025. It is largely based on the equivalent international standard (the ISSA 5000). Consequential amendments to other standards will follow to accommodate the introduction of ASSA 5000, and the ASSA 5000 itself is expected to continue to develop over time as the new regime is embedded.
Risks to be aware of
Failure to comply with the new regime may attract civil penalties under the Corporations Act. Additionally, ASIC can issue infringement notices for non-compliance.
In acknowledging the substantial transition that is occurring in introducing a new reporting regime, ASIC has said it intends to take a 'pragmatic and proportionate approach to supervision and enforcement' as Australian companies adjust and make disclosures potentially for the first time, and that it is more likely to take enforcement action where conduct is serious or causes harm.
ASIC's facilitative approach is helpful as practices emerge, particularly in the early years of the new regime. However, when making climate-related financial disclosures, boards should be particularly aware of the heightened risk of greenwashing claims. Both ASIC and the ACCC have announced greenwashing as an enforcement priority for FY25, and civil penalty proceedings have already commenced against several companies for alleged greenwashing. Importantly, ASIC has specifically warned that its future cases may move beyond claims of misleading or deceptive conduct, including by potentially pursuing claims relating to a breach of directors' duties in connection with a company's greenwashing-related conduct.
For directors in particular, there may also be concerns about the requirement that directors provide a declaration in respect of all statements in the sustainability report, in the absence of full assurance of climate disclosures, and potential legal liability risks if such disclosures are later found to be incorrect.
The new regime may also present wider business risks, including:
- operational risk that may arise from inadequate internal processes to comply with the regime.
- strategic risk that may arise from disclosures unearthing inadequate management of climate-related risks and opportunities.
- reputational damage that may arise from disclosures revealing net zero targets or strategies that are out of step with peers.
As noted above, directors should focus on discharging their duties regarding climate-related risks and opportunities, including their duty of care and diligence, when reviewing and approving climate-related financial disclosures and relatedly, when signing their directors' declaration regarding the sustainability report.
Questions that boards should be asking management include:
- Have we undertaken a gap analysis to identify differences between current reporting practices and likely disclosures under the new regime? Do we understand the reporting boundaries, including how many companies within our group are captured by the new regime?
- Are our existing climate-related risk and governance structures and practices appropriate to comply with the new regime?
- Have we engaged with external providers where necessary, eg to understand and comply with external assurance requirements in relation to our climate-related financial disclosures?
- What judgement calls will need to be made in determining the nature and scope of disclosures, and what governance arrangements are in place for those judgement calls?
Politicisation of the new regime
Finally, the new regime has been swept up in broader politicisation of ESG issues in Australia. There is now some uncertainty around the extent to which the new regime will continue to be supported should there be a change of government as a result of the 2025 Australian federal election.
In early January 2025, soon after the reporting obligations were formally enlivened for Group 1 reporting entities, the Coalition stated that it intends to repeal the laws giving effect to the new climate-related financial reporting regime in Australia.2 The extent of its proposal is not entirely clear—including whether it would roll back certain parts of the regime or repeal it entirely—and it is also not clear whether there would be broad enough support to carry any legislative changes, particularly in the Senate.
Given the uncertainty around the new regime in Australia, boards should be aware that a change in government in 2025 could have practical implications for the new legislation and for mandatory climate-related financial reporting in the future, though for now, the only viable option is to prepare for the laws as they currently stand.