The Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Act 2024 (Cth) (Act) took effect on 1 January 2025.
The Act amends the Corporations Act 2001 (Corporations Act) and mandates that certain Australian entities that are already required to lodge a financial report with the Australian Securities and Investments Commission (ASIC) under Chapter 2M of the Corporations Act, must also prepare a sustainability report for financial years post 1 January 2025.
Which Australian entities must prepare a sustainability report?
Under section 292A of the Corporations Act, if an entity must prepare a financial report for a financial year as required under Chapter 2M of the Corporations Act, and is an entity that either:
- meets at least two of three thresholds relating to the entity’s consolidated revenue, value of consolidated assets, or number of employees (Large Entity);
- is above the threshold in section 13(1)(a) of the National Greenhouse Energy Reporting Act 2007 (Cth) (NGER Act) (NGER Reporter); or
- is a registrable superannuation entity (RSE), registered scheme or retail corporate collective investment vehicle (CCIV) that meets the relevant thresholds (Asset Owner),
then the entity must prepare a sustainability report as part of its annual financial report.
The obligations of reporting entities commence at different times, phased in over three years based on the type of reporting entity – Large Entity, NGER Reporter or Asset Owner.
Note that each of these three groups include the Reporting Entity and any entities it controls.
Reporting entities | Group 1 The first annual reporting periods commencing on or after 1 January 2025. | Group 2 The first annual reporting periods commencing on or after 1 July 2026. | Group 3 The first annual reporting periods commencing on or after 1 July 2027. |
Large entities and their controlled entities (meeting at least two of three criteria) |
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NGER Reporters | Above the NGER publication threshold specified in section 13(1)(a) of the NGER Act. | All other entities subject to NGER reporting requirements. | Not applicable. |
Asset Owner | Not applicable. | Assets under management of $5 billion or greater. | Not applicable. |
Note that each of these three groups include the reporting entity and any entities it controls.
What must a sustainability report contain?
Section 296A(1) of the Corporations Act provides that the sustainability report for a financial year must contain the following:
- the climate statements for the year;
- any notes to the climate statements; and
- the directors’ declaration regarding the statements and notes;
along with other statement or notes that may be formally required from time to time.
What are climate statements and what must be disclosed?
Climate statements must comply with the sustainability standards set by the Australian Accounting Standards Board (AASB). The AASB released the AASB S2 Climate-related Disclosures (AASB S2) on September 2024. Generally, the stated aim of AASB S2 is the disclosure of information to aid ‘primary users’ (i.e. investors, lenders and creditors) in understanding climate-related risks and opportunities that may impact the reporting entity’s cash flows, access to finance, or cost of capital in the short, medium, or long term.
Under section 296D of the Corporations Act, a reporting entity’s climate statement and accompanying notes for the financial year must disclose all of the following:
- any material financial risks and any material financial opportunities relating to the climate for the reporting entity;
- any climate-related metrics and targets to be disclosed under the sustainability standards, including data on scope 1, 2, and 3 emissions of greenhouse gases; and
- any information about the reporting entity’s governance, management or strategies in relation to material financial risks, material financial opportunities and the metrics and targets relating to the climate.
Reporting entities must also make disclosures as to its climate resilience, which is assessed through scenario analysis involving two prescribed possible future scenarios based on global temperature increases that are ‘well in excess’ of temperatures specified in the Climate Change Act 2022 (Cth), being:
- 1.5°C above pre-industrial levels; and
- 2°C above pre-industrial levels.
What are directors’ declarations?
Section 296A(6) of the Corporations Act provides that directors’ declarations are declarations by the reporting entity’s directors as to whether, in the directors’ opinion, the substantive provisions of the sustainability report are in accordance with the Corporations Act. Directors’ declarations must be made in accordance with a resolution of the directors, signed by a director and specify the date on which the declaration was made.
From 1 January 2025 to 1 January 2028, however, directors are only required to confirm whether the entity has taken “reasonable steps” to ensure the reporting entity’s sustainability report is in accordance with the Corporations Act (see the ASIC website at (link) for further information).
Relief from reporting requirements
Under section 340 of the Corporations Act, ASIC has the power to grant relief, by way of exemption order, from certain reporting requirements to reporting entities (or specific groups of reporting entities). Section 342 of the Corporations Act provides that to make an exemption order, ASIC must be satisfied that complying with the relevant reporting requirements would:
- make the financial report, sustainability report or other reports of a reporting entity misleading;
- be inappropriate in the reporting entity’s circumstances; or
- impose unreasonable burdens on the reporting entity.
ASIC’s decision on whether to grant an exemption order is discretionary and in doing so, ASIC may impose conditions on the relief granted. ASIC may also revoke or suspend the grant of an exemption order on written notice. Further information is available in ASIC’s Regulatory Guide 51 – Applications for relief (RG 51). Applications are submitted through the ASIC Regulatory Portal.
When must sustainability reports must be lodged?
The sustainability report forms part of a reporting entity’s annual financial reporting obligations under Chapter 2M of the Corporations Act, and must be lodged online in the same manner. Further information is available in ASIC’s Information Sheet 31 – Lodgement of financial reports (INFO 31).
Modified Liability Settings
‘Modified Liability Settings’ have been implemented in relation to certain types of statements (‘protected statements’) made in relation to sustainability reporting. Under section 1707D of the Corporations Act, no action, suit or proceeding lies against a person in relation to a protected statement of a statement that is required to be made under Commonwealth law. However, this limited liability expressly excludes criminal actions or enforcement actions brought ASIC.
To fall within these settings, the statement must:
- be made in a sustainability report or audit report for a financial year commencing between 1 January 2025 and 31 December 2027; and
- relate to scope 3 greenhouse gas emissions, scenario analysis or a transition plan (as per the sustainability standards).
Further information has been published by ASIC on its website (link).
How to prepare?
With the sustainability reporting requirements already in effect, entities must know and have frameworks in place to meet their reporting obligations. We recommend that entities:
- ensure familiarity with the new reporting obligations, particularly the standards set by the AASB; and
- assess existing governance frameworks to ensure alignment with the regime.
For those entities already reporting under the previous voluntary framework, a review of against the new mandatory framework may assist in identifying areas that require changes for compliance.
For further guidance on sustainability reporting, please contact Peter Motti or Tim McCarthy.
This article may provide CPD/CLE/CIP points through your relevant industry organisation.
The material contained in this publication is in the nature of general comment only, and neither purports nor is intended to be advice on any particular matter. No reader should act on the basis of any matter contained in this publication without considering, and if necessary, taking appropriate professional advice upon their own particular circumstances.
