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Starting from January 1, 2025, a significant change will impact many large Australian businesses and financial institutions. These entities will be required to produce annual sustainability reports that include mandatory climate-related financial disclosures. This follows the recent passage of the Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill 2024 (Cth), which was approved by Parliament on September 9, 2024, and received Royal Assent on September 17, 2024.
Proactive Engagement Encouraged
ASIC Commissioner Kate O’Rourke has emphasized the importance of proactive engagement with these new requirements. She advises that large businesses and financial institutions should start implementing robust governance structures and sustainability record-keeping processes well before the mandatory reporting begins in 2025.
“This reform is substantial and will significantly impact many of our key stakeholders,” Commissioner O’Rourke stated. “ASIC acknowledges that there will be a transition period as organizations build the necessary capabilities to comply. We will adopt a balanced and practical approach to supervision and enforcement as the industry adapts to these new requirements.”
Maintaining Current Standards
During this transition, ASIC will ensure that existing standards for voluntary sustainability disclosures are upheld and that entities continue to meet their current legal obligations. This includes adhering to the long-standing prohibition against misleading and deceptive conduct.
To support reporting entities, ASIC has launched a dedicated sustainability reporting page on its website. This resource provides detailed information about the new regime and how ASIC will oversee its implementation. Entities are encouraged to use this page as a continuous resource, as it will be regularly updated with new information and regulatory guidance.
Ongoing Consultation and Guidance
ASIC plans to consult with stakeholders to develop new or updated regulatory guidance to help entities comply with their sustainability reporting obligations. This guidance will cover ASIC’s approach to granting relief from these obligations and how the new regime will interact with existing legal and regulatory requirements.
Commissioner O’Rourke highlighted the growing importance of climate disclosure, noting that as more people consider environmental sustainability in their financial decisions, the demand for transparent climate-related information will increase. Enhanced climate disclosure will not only meet this demand but also help reporting entities better understand their climate-related risks and opportunities in the short, medium, and long term.
Phased Implementation
The mandatory climate reporting requirements will be introduced in phases over the next three years. The first group of reporting entities will need to prepare annual sustainability reports for the financial year starting on or after January 1, 2025. The second group will follow for the financial year beginning on or after July 1, 2026, and the third group for the financial year starting on or after July 1, 2027.
ASIC is urging all reporting entities, including those in the later cohorts, to begin preparing now for the new climate disclosure regime. Early preparation will help ensure a smoother transition and compliance with the new requirements. This proactive approach will allow businesses to identify and address any potential challenges early on, reducing the risk of non-compliance and associated penalties.
By taking these steps, businesses can not only comply with the new regulations but also enhance their sustainability practices and transparency, ultimately benefiting their stakeholders and the broader community. Improved sustainability practices can lead to better resource management, cost savings, and a stronger reputation among consumers and investors. Additionally, transparent reporting can foster trust and accountability, which are crucial for long-term success in today’s market.
Furthermore, businesses that lead in sustainability reporting may gain a competitive advantage. As consumers and investors increasingly prioritize environmental responsibility, companies that demonstrate a commitment to sustainability are likely to attract more support and investment. This can result in increased market share and improved financial performance.
In summary, while the phased implementation of mandatory climate reporting requirements presents a challenge, it also offers significant opportunities for businesses to improve their sustainability practices, enhance transparency, and gain a competitive edge. By preparing early and embracing these changes, companies can position themselves for long-term success and contribute to a more sustainable future.
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