The upcoming financial reporting season will shine a spotlight on the efforts of Australian corporates to meet new global sustainability disclosure standards and stamp out greenwashing.

There are less than six months until the first two International Sustainability Standards Board (ISSB) standards come into voluntary global effect on 1 January 2024. 

They are IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosures.

According to RSM Australia National Technical Director and Head of IFR0S, Ralph Martin, entities that fail to vigorously address climate-based risks in 2022-23 reporting may struggle with urgent future reporting requirements.

“All listed entities must outline material business risks within their Operating and Financial Review (OFR), including climate-based risks, and this is something the Australian Securities and Investments Commission (ASIC) has been scrutinising in recent years in its reviews of OFRs,” Mr Martin said.

“ASIC has repeatedly noted climate change as a systemic risk with the potential to impact financial position or performance.reporting risk

“A lack of climate-related material business risks would likely ring alarm bells that entities underestimate the impacts of climate change – and Australia’s net zero emissions plan – on the viability of their future operations and earnings.”

While Australia’s own climate-related financial disclosure framework is still under consultation by Federal Treasury, the process has unveiled potential phasing for mandatory reporting across 2024-25 to 2027-28 according to an entity’s employee numbers, value of assets, and/or consolidated revenue.

“With mandatory reporting potentially just a year away for the largest and most profitable, there is an urgency for Australian organisations to better understand, substantiate and report on their climate impact,” Mr Martin said.

“Even those for whom reporting won’t be mandated immediately are likely to be affected, depending on their industry and the requirements of shareholders, suppliers, or export markets.

“For example, organisations looking to export to Europe – and benefit from the potential Australia-EU free trade agreement – will need to comply with the new Corporate Sustainability Reporting Directive (CSRD) requirements like carbon emissions reporting.”

According to RSM Australia Director, Climate Change and Sustainability Services, Catherine Bell, an organisation’s ability to scientifically back up its climate and sustainability strategy will be key to sound sustainability reporting and governance.

“Boosting corporate transparency of sustainability and climate risks and opportunities will require companies to provide detailed quantitative and qualitative analysis,” Ms Bell said.

“Compliance with the new global ISSB standards will require alignment with new reporting methodologies and standards, which aims to stamp out greenwashing and to provide consistency and comparability of sustainability reporting for the financial markets."    

“To move forward, organisations need to undertake a climate and sustainability risk assessment so they understand what data, governance, and strategy will be required to report under the new regime.sustainability reporting risk

“Sustainability and climate reporting, like financial reporting, will one day require assurance, so it’s important for companies to treat and manage their data so it can be verified.  

“Even for companies not captured immediately by the new reporting regime’s phased approach, many are feeling the pressure to communicate from their suppliers, partners, customers, and banks. Establishing a baseline does take time, so we encourage all businesses to start preparing as early as possible.” 

For more information

Please contact Ralph Martin or Catherine Bell to find out more on the new global sustainability disclosure standards, or contact your local RSM adviser.