Grant Thornton updates climate disclosure guide on ASIC regulatory guidance
Grant Thornton has updated its advice on upcoming mandatory sustainability disclosures to reflect ASIC’s recent regulatory guidance, including their definition of materiality.
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.
Grant Thornton’s updated guide has reflected ASIC’s clarification of what constitutes materiality in the context of climate financial reporting, to help firms identify what information to include in their reports.
“Information is material if omitting, misstating or obscuring that information could reasonably be expected to influence decisions that primary users of general purpose financial reports make on the basis of those reports,” ASIC’s AASB regulatory guidance said.
In general financial settings, materiality refers to whether the omission or mis-statement of certain information in a financial report would impact a reasonable user’s decision-making.
When evaluating materiality, Grant Thornton suggested that firms should define and understand the ‘primary users’ of their financial reports in order to determine what climate-related information should be disclosed under the new reporting regime.
Material information could influence stakeholders’ decision-making processes, such as where to invest money, provide loans or exercise influence or voting rights.
ASIC’s guidelines also noted that there would be legal protections for firms publicly declaring sensitive climate information.
During the transitional phase for financial years commencing between 1 January 2025 and 31 December 2027, reporting entities have protection to disclose certain information in their climate reports without being subject to legal action.
“No action, suit or proceeding (collectively ‘legal action’) is able to be brought against a person or entity in relation to the following ‘protected statements’ made in those sustainability reports,” Grant Thornton wrote.
Protected statements included disclosures of scope 3 greenhouse gas emissions, those in relation to climate-scenario analysis and discussions about a transition plan.
Under the new regime, entities would not be required to set climate-related targets, Grant Thornton noted. However, firms that did have climate targets would be required to disclose clear objectives, metrics, their approach to monitoring progress and analysis of progress towards the target.
Grant Thornton urged businesses to prepare as early as possible for climate reporting obligations, noting that the new regulations would bring new compliance burdens for accounting teams.
“Preparing for reporting in line with the requirements is complex, and it takes time to implement the appropriate processes and controls,” Grant Thornton said.
“In addition, gathering the necessary data and/or developing the internal capabilities required to complete the reporting in line with the requirements needs to be developed, which requires a proactive, and structured approach to preparing for reporting.”
