‘All hands on deck': RSM’s tips to prepare for climate-related financial reporting

From 1 January 2025, Australia’s largest businesses and financial institutions have been required to prepare annual sustainability reports, including mandatory climate-related financial disclosures.

RSM Australia ESG and climate services partner Jacob Elkhishin, who has guided a range of clients through the reporting shift, told Accounting Times that firms that prepared well in advance saw smoother transitions to the new regime.

“The ones that have engaged us early are doing fine. Some of my clients, I've been working for three years in preparing for what they need to report on. The ones that are starting late are struggling because they probably underestimated how much is involved,” he said.

Elkhishin noted that mandatory climate disclosures were not something that could be easily retrofitted at the end of the year, as they often related to underlying processes and structures that had to be set up at the beginning of the reporting year.

For example, under AASB S2, there was a requirement to disclose the board’s responsibilities for climate-related risks and opportunities. While this was an easy disclosure to make, it also needed to be reflected in strategy and documentation, he said.

“Behind that disclosure, there needs to be something in terms of artifacts. So if it is the board or an audit and risk committee, the expectation is that the audit and risk committee charter would be updated to reflect this specific oversight responsibility.”

“Those documents ideally should be developed early in the reporting period so that you can make that disclosure at the end of the reporting period.”

Private businesses that typically had more informal strategic planning processes had seen the most dramatic shift in adapting to the new requirements, Elkhishin said.

“Private businesses that are not subjected to the level of governance expectations have had more of a transformational journey in relation to whether they do set up structures or update existing structures to enable them to make the necessary disclosures,” he said.

For reporting entities, Elkhishin advised that the first year would likely be resource-intensive, underscoring a need to prepare in advance.

From July 2027, entities with consolidated revenue of at least $50 million, consolidated gross assets of at least $25 million and 100 or more employees would be directly subject to the reporting requirements.

“My advice has always been, [in the] first year, it's all hands on deck.”

“Then it should become more routine, systems and technology should catch up, and then it can sit within the reporting team, I'd say. But for now, early on, it's all hands on deck to make sure you can get everything done so that you can make your disclosures.”

Elkhishin also foresaw that smaller firms could be indirectly affected as reporting entities adjusted their procurement frameworks to reduce their scope 3 emissions.

“I can't see how it won't impact procurement decisions. We're working with companies now on sustainable procurement and how they can develop strategies around scope 3 greenhouse gas emissions, which are basically their greenhouse gas emissions associated with their upstream and downstream value chain,” he said.

“There's more control over what they do with the upstream. So that's where the focus is going to be. And so if you're not captured directly in the reporting requirements, you're highly likely to be indirectly captured initially through data requests.”

While ASIC expected most reporting entities to use industry averages and benchmarks to estimate their scope 3 emissions, some small firms could be asked to supply information, such as greenhouse gas emissions data, to their larger trading partners.

Alongside its challenges, Elkhishin said the new climate reporting requirements also posed a unique opportunity for firms that were proactive about sustainability.

“There's an opportunity … for businesses that are leading around carbon and sustainable initiatives to take advantage of potentially getting new customers that are looking for alternatives to reduce their own scope three or their own carbon footprint.”

“And [there are] opportunities associated with sustainable finance as well. With sustainable finance, you can get a favourable interest rate for any project if it's a green loan, a social loan or a sustainability loan.”