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Despite widespread agreement on the benefits of climate financial disclosure rules, critics of the government’s proposed approach are an increasingly broad church.
The government estimates that climate-related financial disclosures will cost between $1 million and $1.3 million per entity, averaged over 10 years – higher than those in the US, New Zealand, and the UK.
At least 1,800 entities are expected to be captured, meaning the climate disclosures could cost the economy $2.3 billion per year.
In a dissenting report attached to the Senate Economics Legislation Committee’s review of the bill, Coalition senators Andrew Bragg and Dean Smith wrote that the committee had been given insufficient time to consider the bill, given its economic consequences.
“The measures described in the Bill have been described by ASIC chair Joe Longo as ‘the biggest change to company reporting in a generation’ – a point reiterated by the Australian Institute of Company Directors in their evidence to the committee,” they wrote.
“Despite this, this committee was permitted just 14 days to receive submissions, just four hours of hearing time, and just a week to report what is a significant, permanent change to Australia’s corporate law.”
They added that the compliance costs are “particularly onerous” when considering that 75 per cent of ASX-listed companies already voluntarily disclose climate-related information to investors.
Greens Senator Nick McKim also expressed disapproval over certain aspects of the bill, including that it guards against only transitional risks, not physical climate risks.
“The government’s policy statement says, “entities should use at least two possible future scenarios and one of these scenarios must align with the most ambitious global temperature goal in the Climate Change Act 2022 (Cth) (i.e. limiting global warming to 1.5 degrees),” he said.
“This requirement forces the issue of transition risk to be considered by companies, but leaves confronting the physical impacts of climate damage on a company as a mere option.”
“While the Australian Greens acknowledge that corporate climate reporting is long overdue, there are aspects of the regime that must be adjusted in order to ensure an enduring long-term framework is in place and that greenwashing is not legally encouraged.”
Despite these concerns, in principle support for the bill is widespread. The committee noted “overwhelmingly positive support” for the reforms, noting that the disclosures will “support Australia to continue to attract international capital.”
“The committee believes that these reforms will guide investors to maximise Australia’s economic opportunities and maintain and grow Australia’s reputation as a destination for international capital that will be needed in the transition to net zero.”
The report also considered concerns that smaller Group 3 entities, with consolidated revenue of between $50 million and $200 million, would be required to conduct due diligence and be vulnerable to enforcement actions even where they do not pose material climate risks. Coalition senators said applying these rules to Group 3 entities would contradict the government’s “climate first, but not only” approach referred to in the bill’s explanatory memorandum.
Eighty-four per cent of respondents to a CA ANZ survey of members involved in small to medium-sized practices and not-for-profits as well as those with direct interests in the area disagreed that Group 3 companies had the capacity to comply with the requirements of the bill.
Entities would be required to conduct audits simply to prove that they do not pose material climate risks at an estimated cost of between $20,000 and $50,000 and would affect 7,000 to 8,000 businesses, it said.
"What's the point of subjecting Group 3 firms to such costs when the government has already indicated it expects that 95 per cent of them will have no material risks or opportunities?" said Amir Ghandar, CA ANZ reporting and assurance leader.
Accordingly, the committee recommended that Group 3 entities be removed entirely from the regime or that the minimum threshold be raised to capture only entities with $100 million in gross revenues or $50 million in gross assets and above.
Should the government reject those suggestions, the committee recommended that Group 3 entities be subject to simplified reporting standards absent any requirement to conduct an audit.
Under the proposed legislation, Group 3 entities will be required to commence reporting on or after 1 July 2027.
This article was originally featured in Accounting Times.
Nick Wilson
Nick Wilson is a journalist with HR Leader. With a background in environmental law and communications consultancy, Nick has a passion for language and fact-driven storytelling.
