Full steam ahead for Australian climate reporting as ASIC releases its final guidance

There is a helpful discussion in RG 280 around the role of directors in relation to the sustainability report, which broadly mirrors what we would already expect directors to be doing in a climate context to discharge their duties.

ASIC has removed guidance that was proposed in the Draft Guidance, which stated that directors of reporting entities should ‘ensure they are regularly informed’ about the extent to which a climate-related risk or opportunity may be material to the reporting entity, and that assessments of these risks or opportunities are ‘considered on an ongoing basis’.

ASIC noted in its consultation response that its guidance does not impose new obligations on directors, and is intended to help directors understand their existing obligations in light of the sustainability reporting requirements.

ASIC has provided general guidance for directors of reporting entities. ASIC’s amended guidance provides that directors should (in summary):

• understand the entity’s sustainability reporting obligations and the climate-related risks or opportunities that could reasonably be expected to affect the entity’s prospects;
• require the reporting entity to establish systems that identify, assess, and monitor any material climate-related financial risks (including any changes);
• require the reporting entity to establish controls, policies and procedures for overseeing, managing and preparing the sustainability report and for keeping sustainability records; and
• apply a critical lens to the proposed sustainability report disclosures (e.g. a director may be required to question the appropriateness or completeness of methodologies, inputs and assumptions used to support disclosures).

While there are no surprises in the directors’ duties guidance included in RG 280, companies should reflect on the extent to which any areas of uplift are needed for board processes (for example, this may include looking at the reporting to the board on climate-related risks and opportunities during the annual board cycle).

The key question for our clients is “how can directors get comfortable” with our approach to climate-related financial disclosures – both in terms of the underlying processes and systems, and the disclosures that will appear in the sustainability report and be subject to a directors’ declaration.

It will be important to bring directors along the journey throughout the reporting period – with oversight of processes, systems and key judgment calls – rather than retrospective attempts to provide comfort in the final weeks before the directors’ declaration is required (when it will be challenging to make any substantive changes to content or process). 

Given directors will be making the directors’ declaration before reasonable assurance is required over all climate disclosures, we would suggest reflecting on the way in which management processes and certifications will need to support the board’s ultimate approval. For example, by way of:

• compliance checklists (and/or summary papers of the outcomes of compliance checks);
• climate-specific strategy sessions to validate proposed systems, controls, policies and procedures;
• reporting and validation exercises;
• CEO / CFO sign-off letters; and
• expert analysis and advice e.g. in relation to target validation or projected capex allocations to respond to climate-related risks and opportunities.

Companies should consider how any additional sustainability report disclosure ‘sign-offs’ fit in with existing financial reporting review and sign-off processes and whether this can be leveraged for the sustainability report.

ASIC does not have the power to expand the coverage of modified liability settings in s1707D of the Corporations Act 2001 (Cth) (Corporations Act) or to establish 'safe harbours' for sustainability reporting requirements.

In terms of the scope of the modified liability settings, ASIC has clarified that:

• statements included in a sustainability report only by cross-reference to another report are not covered by modified liability settings;
• statements made voluntarily (e.g. where a protected statement is reproduced in an investor presentation) are not covered by modified liability settings;
• protected statements required to be included in the Operating and Financial Review (OFR) under s299A are covered by the modified liability setting; and
• disclosures outside the sustainability report or auditor’s report are only protected if they replicate the protected statement included in the sustainability report or auditor’s report. Summaries or expanded statements are not protected.

Disclosures in the sustainability report are protected statements only if made for the purposes of complying with the sustainability standards.

In light of this guidance (and the temporary nature of the modified liability settings), we recommend placing limited emphasis on the modified liability protections extending beyond statements made in the sustainability report itself. Instead, companies and directors should carefully consider any higher risk and forward-looking statements both in the sustainability report and in other parts of the reporting suite (or in other external publications).

For example, where forward-looking statements are included as general narrative disclosures in the broader annual report and are incorporated into the sustainability report by way of cross-reference, they would not be covered by the modified liability regime unless they replicate a statement already in the sustainability report and required by a Commonwealth law. So, for example, a statement required in the OFR and replicated in the sustainability report would be eligible for protection, but a statement made in the Corporate Governance Statement would not be (irrespective of whether it is replicated in the sustainability report).

Importantly, any information not required by a Commonwealth law that is incorporated by cross-reference from another document (e.g. a databook) is not protected by the modified liability regime.

More broadly in terms of forward-looking information, RG 280 recognises the uncertainties involved in these disclosures particularly over the medium and long-term. In saying that, they must still have a reasonable basis and ASIC expects there to be clear evidence to support the statements and for companies to provide further detail about, or background to, the inputs and assumptions used (particularly for areas of significant estimation, uncertainty and judgement).

Watch this space: If the Government's proposed amendments in the draft Treasury Laws Amendment Bill 2025: Miscellaneous and technical amendments (Autumn 2025) are enacted, ASIC will update its guidance if the legislation extends the modified liability provisions to disclosures in ‘relief condition reports’ (i.e. those prepared pursuant to ASIC relief) and voluntary sustainability reports.

As mentioned above, RG 280 states that the sustainability report and annual financial report should be lodged at the same time and relate to the same reporting period. ASIC’s regulatory response to the consultation notes that ASIC will consider whether it should provide further guidance on this topic once market practice evolves in this area.

In RG 280, ASIC:

• defines “annual report” as “generally including” a sustainability report, along with an annual financial report, a directors’ report and an auditor’s report on both the financial report and sustainability report; and
• positions the sustainability report as “the fourth report required as part of a reporting entity’s annual report” at various points throughout the guidance.

While the Corporations Act and ASIC do not expressly state that the sustainability report must be included in the entity’s ‘annual report’, ASIC’s guidance is consistent with the preliminary view that the sustainability report would form the “fourth report in the annual report”, as outlined in Treasury’s policy statement, and is consistent with various references in the explanatory memorandum for the legislation.

We expect that most reporting entities will include the sustainability report in the annual report, with some looking to move closer to an ‘integrated annual report’ approach.

ASIC has amended the guidance on labelling from the Draft Guidance to provide greater flexibility for reporting entities that wish to disclose broader sustainability-related information in their sustainability reports.

RG 280 provides that:

• reporting entities may prepare a standalone report that only contains the climate-related financial information required under the Corporations Act and AASB S2 and that it would be helpful for users if the report includes a prominent description explaining that the climate-related financial information is required under s292A of the Corporations Act and AASB S2; and
• ASIC will administer the sustainability reporting requirements on the basis that reporting entities may include additional sustainability-related information in the sustainability report, provided that climate-related financial information required under the Corporations Act and AASB S2 is clearly identified and not obscured. RG 280 suggests that this could be done using an index table, located in a prominent location in the sustainability report, that identifies the mandatory disclosures required under the Corporations Act and AASB S2.

ASIC also explains that the sustainability report and annual financial report should be lodged at the same time and relate to the same reporting period.

If a company proposes to report on sustainability topics beyond climate, they should reflect on how they structure their disclosures and if an index table or other signposting is needed to distinguish between the mandatory and voluntary disclosures.

This is welcome guidance and is consistent with global reporting trends where index tables are used to signal where users can find certain disclosures e.g. in compliance with TCFD under the UK Listing Rules. Given the length of the index for AASB S2 purposes, some companies may need to explore ‘balanced’ approaches to addressing the guidance, such as providing a link or summary key in the annual report itself – with a more fulsome index of the disclosures housed on their website.

As a starting point, reporting entities should refer to AASB S2 for application guidance on cross-referencing in the sustainability report.

To promote transparency and accessibility, ASIC has amended its Draft Guidance to encourage reporting entities to lodge cross-referenced documents with ASIC with their sustainability report, if these cross-referenced documents have not already been lodged with ASIC.

See below under “Interaction between OFR and sustainability report” for certain limitations on cross-referencing.

Reporting entities should reflect on the extent to which cross-referencing will be relied on in its sustainability report and which aspects of the disclosures could reasonably be covered in other sections in the annual report (and incorporated by cross-reference). For example:

• To what extent do disclosures in the Corporate Governance Statement cover the required disclosures under the “Governance” pillar of AASB S2?
• Does any discussion of corporate strategy meet the requirements under the “Strategy” pillar of AASB S2?
• Do risk disclosures focus on climate-related risks and opportunities in accordance with the requirements under the “Risk Management” pillar of AASB S2?
• Will you provide a standalone databook with information required under the “Metrics & targets” pillar of AASB S2? And will this be made available to ASIC at the same time and on the same terms as the sustainability report?

Depending on the nature and extent of the disclosures in other sections of the annual report, they may form a good foundation for climate-related disclosures however more specific and tailored narrative may be needed to satisfy the requirements of the sustainability report. Although, as set out above under “Modified liability regime”, the protections will not extend to climate-related disclosures voluntarily made outside of the sustainability report.

ASIC has clarified that climate-related disclosures must be included in the OFR only to the extent required to satisfy the requirements in s299A (i.e. if this is information that shareholders reasonably require to make an informed assessment of the entity’s operations, financial position, business strategies and prospects for future financial years).

The extent to which it is appropriate to include sustainability-related information in the OFR and the level of detail that should be included, depends on the nature of the entity’s business and other relevant circumstances.

ASIC explains in its consultation response that where climate-related financial disclosures are included in the OFR, these should be contextualised within the overarching summary of the entity’s operations, financial position, and business strategies and prospects for future financial years.

The OFR allows investors to find relevant information about the entity in a single location, rather than requiring reference to various past disclosures that investors may not have necessarily read. Consistent with ASIC’s guidance in RG 247, cross-referencing the sustainability report in the OFR is not permitted. However, a reporting entity may cross-refer to its OFR in a sustainability report.

It is clear that the OFR will need to tick off against all required disclosures in s299A of the Corporations Act as a standalone document (i.e. with no cross-referencing to the sustainability report). Entities will need to reflect on the extent to which climate-related matters meet the OFR disclosure requirements. We expect this will be most relevant for entities where climate matters have direct links to its strategies or material risks, but this will not necessarily be the case for all reporting entities.

To the extent that a disclosure in required in the OFR, and is also considered a “protected statement” in the sustainability report, it could be caught by the modified liability regime.

Although, given the limited scope and timeframe of the modified liability regime, we would suggest focusing on the aspects of the OFR which could be incorporated into the sustainability report by way of cross referencing in order to streamline disclosures. 

ASIC has clarified that where existing obligations under the Corporations Act require the inclusion of sustainability-related financial information in a disclosure document (such as a prospectus or PDS), that information does not need to comply with the sustainability standards.

ASIC has amended its guidance to encourage entities disclosing sustainability-related financial information outside the sustainability report to:

• adopt the definitions in the sustainability standards where appropriate (see Appendix A of AASB S1 or AASB S2); and
• apply the principles for disclosing useful sustainability-related financial information in paragraphs D4–D33 in Appendix D of AASB S1 and AASB S2.

ASIC considers these terms will become widely understood over time and be consistent with the expectations of investors, lenders and other users of information, and enhance comparability.

Selective use or reproduction of information contained in a sustainability report

ASIC has clarified that entities making sustainability-related financial disclosures in relation to sustainability-related products can refer to Information Sheet 271 How to avoid greenwashing when offering or promoting sustainability-related products (INFO 271). INFO 271 provides guidance on how to avoid making misleading or deceptive representation, however it does not specifically address information reproduced from a sustainability report.

Sustainability-related disclosures in annual directors’ reports, prospectuses, PDSs or other disclosure documents as required do not need to comply with AASB S2.

However, ASIC now encourages reporting entities to adopt the definitions provided in Appendix A of AASB S2 (e.g. “carbon credit”, “climate resilience”, “climate-related transition plan”) consistently across reports.

It is clear that ASIC will be surveying for any potential greenwashing where sustainability-related financial disclosures are made in relation to sustainability-related products.

Watch this space: We are also expecting the Australian Sustainable Finance Taxonomy to be released shortly – we suspect the terminology in the Taxonomy will also gain traction in sustainability reports.

ASIC general approach to sustainability reporting and audit relief

ASIC has discretionary power to grant relief from the sustainability reporting requirements.

ASIC notes in RG 280 that in assessing whether to grant sustainability reporting relief, it will consider the underlying policy objectives of the sustainability reporting requirements, the users of the sustainability report, and established policy and precedents in relation to sustainability reporting and financial reporting.

In its consultation response, ASIC has flagged that:

• relief applications will be assessed on a case-by-case basis on the principles set out in RG 280;
• it is not proposing to provide detailed guidance on specific scenarios, specific criteria or precise timelines for processing sustainability reporting relief (but may revisit this as applications are considered and new precedents develop);
• it is intending to publish information on significant or novel relief applications in due course; and
• there may be a longer period for decisions in the early years of the reporting requirements due to new policy considerations.

Other relief

Stapled entities - ASIC Instrument 2023/673 has been amended to allow stapled entities to prepare a single sustainability report for the entire stapled group. This change takes effect on 1 April 2025.

Wholly-owned companies - ASIC Corporations (Wholly-owned Companies) Instrument 2016/785 will not be amended to extend the modified liability settings to sustainability reports prepared pursuant to the ASIC relief. Where a holding entity reliant on this instrument is expected to prepare a sustainability report, ASIC expects that the holding entity will elect to prepare a consolidated sustainability report for the group.

Extending the relief in other ASIC instruments

Where a reporting entity is listed, the dual lodgement relief that allows the entity to lodge the financial report with ASX without needing to separately lodge this with ASIC, has been extended to cover the sustainability report: ASIC Corporations (Electronic Lodgement of Financial and Sustainability Reports) Instrument 2016/181.

The following relief instruments have not been amended:

• ASIC Corporations (Rounding in Financial/Directors' Reports) Instrument 2016/191: Not amended as ASIC considers AASB S2 provides sufficient flexibility for presenting amounts in sustainability reports.
• ASIC Corporations (Audit Relief) Instrument 2016/784: Not amended as ASIC will give further consideration to extending this instrument for audit requirements for sustainability reports. In the meantime, applications for audit relief will be considered.
• ASIC Corporations (Related Scheme Reports) Instrument 2015/839: Not amended as ASIC will consider applications for related scheme relief for sustainability reports for reporting entities relieved under this instrument.

We’ve been working with a number of companies to consider company specific grounds for sustainability relief and potential conditions to be included in the relief application. We are encouraging those considering applications for relief to apply sooner rather than later i.e. before “precedents are set” on the basis of other entities’ specific circumstances.

Watch this space: If the Government's proposed amendments in the draft Treasury Laws Amendment Bill 2025: Miscellaneous and technical amendments (Autumn 2025) are enacted, there may be some implications for the ASIC Corporations (Wholly-owned Companies) Instrument 2016/785.

ASIC has provided new general guidance on scenario analysis which clarifies that:

• reporting entities must use scenario analysis to assess climate resilience (both strategic and operational) using an approach that is commensurate with the entity’s circumstances; and
• in addition to a 1.5°C scenario, any second climate scenario that is based on an increase less than 2.5°C would risk non-compliance.

ASIC acknowledges that climate scenarios will evolve with changing real-world conditions and detailed regulatory guidance on specific scenarios may become outdated. The key objective of these requirements is to ensure that users have the benefit of information informed by a scenario that:

• contemplates rapid global decarbonisation in the near term (lower global warming i.e. high-end transition risks); and
• contemplates more pronounced climate impacts over the medium to long term (higher global warming i.e. high-end physical risks).

Scenario analysis that is “commensurate with the entity’s circumstances” is considered in paragraph 22 of AASB S2 and paragraphs B1 – B18.

With this in mind, there may be decision points above and beyond this guidance as to:

• how many scenarios to disclose against;
• whether a 2.5°C scenario is appropriate or whether a higher temperature e.g. 3°C+ should be considered; and
• what scenarios are appropriate in the circumstances e.g. ‘off the shelf’ or bespoke scenarios developed in house.

Depending on entity-specific decisions, there may be a big gap between the scenarios, and the results of that scenario analysis could be difficult to stitch together or reconcile with certain climate risks and opportunities. We would recommend clear and comprehensive disclosure of the assumptions, dependencies and inputs underlying the scenario analysis and to be wary of a ‘set and forget’ approach, as we are expecting that the approach to scenario analysis will develop over time.

ASIC acknowledges the difficulties some entities face in reporting scope 3 emissions, including financed emissions, and has confirmed that a reporting entity is permitted to use estimation in measuring its scope 3 greenhouse gas emissions.

Entities can use primary data (e.g. data provided by entities in the value chain) and secondary data (e.g. third-party data or industry-average data), or a combination of both, for measuring scope 3 emissions, with proportionality mechanisms applying to these disclosures.

ASIC notes that the accuracy of estimation techniques, and the extent of reliance on secondary data, is expected to improve as data quality and availability for reporting scope 3 emissions improves over time.

The recognition that scope 3 data collection and disclosure will require estimation is useful. It is clear that ASIC does expect that over time, disclosures will become more sophisticated as the underlying data and measurement processes develop, market practice evolves, and the information needs of primary users expand.

With this in mind, it will be important to proactively reach out to your value chain to start the data collection process. We’re also working with clients to reflect on other systems upgrades (e.g. contract drafting; due diligence processes; risk management practices) to reflect the more nuanced understanding of an entity’s value chain that will be required for compliance.