Mandatory Climate Related Financial Disclosures for Australian Forestry Sector Businesses: Who is Affected and What You Should Know

22nd January 2024

Most mid-scale and large Australian forestry sector companies will be affected by newly proposed mandatory climate-related disclosure requirements. This article explains why and what you should be aware of.

The Australian Government is implementing mandatory climate-related disclosures based on the International Sustainability Standards Board’s (ISSB) climate standard, International Financial Reporting Standard (IFRS) S2. The disclosures are required to be included in a company’s Annual Report. They will cover governance, strategy, risk management, and metrics and targets, building on the four pillars of the Taskforce for Climate-related Financial Disclosures (TCFD). It will require detailed and quantitative disclosures of climate impacts by companies that are decision-useful for the primary users of general-purpose financial reports (i.e. investors and shareholders) based on IFRS S2 as adapted to the Australian context by the Australian Accounting Standards Board (AASB).

Those companies that are defined as entities who are required to report under Part 2M of the Corporations Act, being all disclosing entities, public companies, large private companies, registered schemes and registrable superannuation entities (s292 of the Corporations Act) will be the reporting entities under the proposed mandatory climate reporting regime. A three-tiered implementation is proposed, depending on organisational size. The largest carbon dioxide emitters and organisations will begin reporting from 1 July 2024 (Cohort 1), with other organisations phased in over the financial years commencing 1 July 2026 (Cohort 2) and 1 July 2027 (Cohort 3) (Table 1).

Table 1: Mandatory Climate Reporting Thresholds by Cohort

Start Reporting Period

Thresholds

Cohort 1
1 July 2024
(FY 2024/25)
Reporting Entities that fulfil two of the following three thresholds:
1. Over 500 employees.
2. Over AUD 1 billion in consolidated gross assets.
3. Over AUD 500 million in consolidated annual revenue.
OR
Reporting Entities that are also National Greenhouse and Energy Reporting Scheme (NGERS) ‘Controlling Corporations’ which meet the NGER publication threshold.
Cohort 2
1 July 2026
(FY 2026/27)
Reporting Entities that fulfill two of the following three thresholds:
1. Over 250 employees.
2. Over AUD 500 million in consolidated gross assets.
3. Over AUD 200 million in consolidated annual revenue.
OR
Reporting Entities that are also NGERS ‘Controlling Corporations’ which meet the NGER publication threshold.
Cohort 3
1 July 2027
(FY 2027/28)
Reporting Entities that fulfill two of the following three thresholds:
1. Over 100 employees.
2. Over AUD 25 million in consolidated gross assets.
3. Over AUD 50 million in consolidated annual revenue.
OR
All Reporting Entities that are also NGERS ‘Controlling Corporations’ regardless of NGER publication threshold.

Sources: AICD

Margules Groome has been made aware that some companies believe that because they are not NGERS controlling corporations meeting the NGERS publication threshold, they are excluded from the proposed mandatory climate reporting regime altogether. In other words, they have read the proposed thresholds as dependent criteria (“AND”). This is understandable as AASB Exposure Draft – ED SR1 Australian Sustainability Reporting Standards – Disclosure of Climate-related Financial Information published in October 2023 uses the word “AND” unqualified. The advice of the Australian Institute of Company Directors (AICD) is that this interpretation is incorrect. They are independent criteria and should be read as “OR” per Table 1. In other words, the AASB meant that reporting entities who meet two of the three threshold requirements AND, independently, entities that are NGERS controlling corporations and meet the NGERS publication threshold, irrespective of whether they meet two of the three requirements, are required to disclose.

We believe that a few of the larger forestry and wood products companies will qualify as Cohort 1 reporting entities and must get across the new reporting regime rather quickly if the Australian Government sticks to its implementation timeline. Most will need to be reporting by 1 July 2027 and should start preparing sooner rather than later. In any case, the new reporting regime will provide a marvellous opportunity for the forest and wood products industries to showcase their carbon-positive credentials.

Further information about TCFD and mandatory climate-related reporting is available here. For a free consultation on how we can help you to prepare for compliance with IFRS S2 reporting, contact Margules Groome.

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