Duty of disclosure – risks and realities for Australia companies

By Resolve Editor, Deb Eccleston

Over the course of my career, I’ve worked on many annual reports for organisations large and small and can tell you it’s serious business.

Every word used needs to be carefully considered, every figure accurate. And transparency is paramount.

Most organisations are like a well-oiled machine when it comes to producing annual reports. However, this year’s amendment to the Corporations Act 2001 (Cth) – which requires reporting entities to also prepare an Annual Sustainability Report for lodgement with ASIC – is raising the reporting bar even higher.

Barrister Tomo Boston KC said while there were existing obligations for listed companies to report on climate impact in an “indirect way”, the mandatory requirement to produce a sustainability report imposed direct obligations on certain large companies and financial institutions.  This new obligation was seen by the Federal Government as a necessary step in Australia reaching its net zero emissions target by 2050.

“One of the things that’s really relevant in this area is whether or not companies will actually be able to get to net zero by 2050 and in particular, if and how companies will deal with their Scope 3 emissions,” he said.

“And so when companies pledge that they’re going to reach certain targets by 2050, there is a risk that they won’t be able to reach those targets and this raises a concern as to whether the company had a reasonable basis to make the climate pledge.  This can give rise to reputational, regulatory and litigation risks, not only for companies but also directors-who will be required to sign off on the Sustainability Report.”

Reporting requirements

An organisation’s Annual Sustainability Report must include:

• A climate statement and any notes to the climate statement.
• Any other statements relating to “matters concerning environmental sustainability.
• A directors’ declaration, to the effect that the climate and environmental sustainability statements comply with the Corporations Act 2001.

Organisations that have consolidated assets valued at $25 million or more, consolidated revenue of $50 million or more or more than 100 employees are legally required to produce a sustainability report.

In terms of timing, those that report on the calendar year’s activities will have a deadline of 31 December 2025, while those that report on the financial year have until 30 June 2026.

The legislation requires an entity’s climate statement and accompanying notes to comply with the “sustainability standards” and disclose – at a minimum – it’s material climate risks and opportunities, climate-related metrics and targets (including Scope 1, 2 and 3 greenhouse gas emissions) and related governance policies.

Tomo said many organisations made climate-related disclosures around Scopes 1 and 2, however neglected Scope 3.

“90% of gas and oil companies’ emissions are Scope 3, so if they’re not accounting for that in their pledges, how is it that they’re going to be able to achieve net zero by 2050?” he said.

“And what’s the force and meaning and effect of an interim measure of say 30% by 2030 if it’s only limited to Scope 1 and Scope 2?

“The sustainability report might provide the mechanism by which these issues can be tested.”