Ahead of mandatory climate financial disclosure rules, CA ANZ, ACCA and the Climateworks Centre have released fresh guidance to help firms adapt to new reporting requirements.

Mandatory climate financial disclosures are due to take effect for the first tranche of reporting entities from the 2024-25 financial year.

The new rules require firms to publicly report on their climate-related risks, opportunities and strategies, including the effects of climate change on their business operations, value chains and financial outlook.

To help Australian accounting professionals prepare for the new mandatory climate disclosure requirements, CA ANZ and ACCA have crafted a practical guide for adhering to the International Standard on Sustainability Assurance 5000 (ISSA 5000), which outlines global sustainability disclosure frameworks.

“The trust and confidence of investors, regulators and other stakeholders in sustainability assurance is vital if sustainability reporting is to be successful in bringing about a more sustainable approach to business,” Antonis Diolas, head of audit and assurance at ACCA, said.

“This guide is intended to support assurance practitioners in applying professional judgement when planning and performing sustainability assurance engagements under ISSA 5000.”

The guide homed in on ISSA 5000’s materiality requirements. ACCA and CA ANZ noted that in the first few years of mandatory climate disclosures, there would be limited historical precedent for practitioners to base their materiality reasoning on.

“In the context of a sustainability assurance engagement, the determination of materiality is not a purely quantitative exercise based on a single benchmark or threshold,” the guide noted.

“Rather, it requires the assurance practitioner to apply professional judgement when considering both qualitative and quantitative factors.”

The Climateworks Centre has also released fresh guidance for corporations ahead of the new transparency requirements, helping firms craft evidence-based net-zero transition strategies.

Their guide has drawn on 34 global best practice resources and input from leading Australian industry groups and climate transition experts.

“A credible climate transition plan is one of the best ways for companies to adjust to the new era, where planning for net zero is becoming standard practice for Australian companies,” Charlotte Turner, co-author of the guide and former lawyer specialising in climate risk, said.

“Those who view disclosures as more than a compliance exercise and make credibility a central pillar stand to gain.”

The guide offered seven criteria related to robust emissions plans.

These included crafting ambitious emissions targets, having a feasible action plan, emissions reductions instead of carbon credits, strategic and financial alignment, stakeholder engagement, strong governance and continuous review and disclosure.

Climateworks said firms that were proactive about their climate strategies would be poised to benefit from global capital flows underpinning the net-zero transition.

“As the world’s money moves to align with the Paris Agreement goals, companies with credible plans – aligned to all seven criteria – are better positioned to attract and retain capital,” Turner said.

While firms aren’t legally required to commit to a climate strategy under the mandatory climate disclosure legislation, legal scholars have warned that inaction could generate reputational risks.

“Reputation is really important for companies. That's what they care a lot about. And so civil society groups can start campaigns, they can write legal letters,” Bek Markey-Towler, a climate law expert who manages Australia’s database on climate litigation, told Accounting Times regarding corporate risks stemming from mandatory climate disclosures.

As government regulations call for stronger climate transparency among large firms, Markey-Towler emphasised the importance of businesses having concrete, honest and realistic strategies to underpin their climate claims to avoid greenwashing litigation risks.

“Are you going to reach [your climate goals] using offsets? How are you planning to reach that goal? So being really clear about how you have reached the targets that you have, what is covered in those targets, and how you're going to achieve those.”