Mandatory Climate-Related Financial Risk Disclosures in Australia: What Businesses Need to Know

In July 2024, Australia introduced mandatory climate-related financial risk disclosures for large listed entities and financial institutions. This reform aligns with global trends in corporate sustainability reporting, ensuring businesses assess and disclose their exposure to climate risks. The move represents a significant step in Australia’s commitment to achieving net-zero emissions and enhancing financial transparency.

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Key Requirements for Climate-Related Disclosures

Under this new mandate, companies will be required to disclose:

• Governance – How climate-related risks and opportunities are managed and integrated into overall governance frameworks.
• Strategy – The actual and potential impacts of climate risks on the company’s business, strategy, and financial planning.
• Risk Management – How the company identifies, assesses and manages climate-related risks.
• Metrics and Targets – Specific climate-related targets, including carbon emissions and progress towards emissions reduction goals.

These disclosures are expected to be aligned with the Task Force on Climate-related Financial Disclosures (TCFD) framework, which is widely adopted globally.

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Implications for Businesses in the Supply Chain

The introduction of mandatory climate risk disclosures will have a cascading impact on businesses throughout the supply chain of companies required to report. The key effects include:

1. Increased Accountability – Suppliers will face greater scrutiny as large entities will need to evaluate and disclose the carbon footprint and climate-related risks throughout their value chain, including Scope 3 emissions. This means that even if a smaller business is not directly mandated to disclose, it will be indirectly assessed based on its customers’ reporting requirements.
2. Pressure to Reduce Emissions – Businesses supplying goods and services to large entities will be expected to monitor and reduce their emissions. Companies that cannot demonstrate a commitment to sustainability and emissions reduction may risk losing contracts or facing higher costs of doing business with large listed entities.
3. Data Sharing and Collaboration – Supply chain partners will need to provide accurate emissions and climate-related risk data. This will likely lead to increased data-sharing requirements and closer collaboration between suppliers and large companies to ensure the accuracy of disclosures.
4. Opportunities for Innovation – Companies that proactively address climate risks and reduce their carbon footprint will likely gain a competitive edge, positioning themselves as preferred suppliers. Opportunities will arise for businesses that offer sustainable products or services, as they align better with climate-conscious large corporations.

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How Businesses Can Prepare

With less than six months until implementation, affected businesses should:

1. Assess current climate risk exposure – Conduct scenario analysis and climate risk assessments.
2. Enhance emissions tracking – Improve data collection and reporting systems, particularly for Scope 3 emissions.
3. Strengthen governance and accountability – Establish clear oversight mechanisms for climate risk management.
4. Align with global reporting frameworks – Prepare reports that meet TCFD and ISSB standards.
5. Engage stakeholders early – Work with investors, regulators and sustainability consultants to ensure compliance.

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How can we help?

The introduction of mandatory climate-related financial risk disclosures marks a new era of transparency and accountability for Australian businesses. While it presents challenges, particularly for companies throughout the supply chain, it also creates opportunities for innovation and leadership in sustainability. By preparing now, businesses can align with this new reporting landscape, reduce their climate impact and position themselves for long-term success.

For businesses needing expert guidance on climate-related financial disclosures, the sustainability consultants at Climate Logic can help. Our team provides tailored solutions to ensure compliance, manage risk and turn sustainability into a competitive advantage. Contact us to learn more.