Compulsory climate reporting for businesses will bring Australia in line with trading partners and support investment, experts say.
The largest companies and financial institutions must provide greater detail on how climate change is affecting strategy and key business decision under amendments to the Corporations Act that have passed the Senate.
Mandatory disclosure of climate and nature-related risks will be a critical pillar of Australia’s climate response and an important way for companies to adjust, the Carbon Market Institute’s chief executive said on Friday.
“It provides transparency to investors, regulators and stakeholders to better understand corporate climate risks and opportunities leading to more investment in clean industry,” John Connor said.
Climate change risks were financial, deeply embedded across the economy and a significant challenge for companies and investors including super funds, the Australian Council of Superannuation Investors said.
“This very welcome development sees Australia follow other jurisdictions around the world,” the council’s CEO Louise Davidson said.
The legislation also signals the clear role of investors, companies and the broader market in decarbonisation, she said.
“We expect it to drive transparency in Australia’s largest companies and lift the standards and content across the market,” she said.
Physical climate-related risks are associated with higher global temperatures and the impact of a warmer climate, including more frequent and severe weather-related events or longer-term shifts in climatic patterns.
There are also transition risks associated with the market, regulatory and technological changes brought on by efforts to mitigate climate change.
Directors who fail to properly model, manage and disclose the risks could be held liable for breaching their legal duties.
Treasurer Jim Chalmers said the Australian Accounting Standards Board would issue internationally aligned standards in the near future.
“These new laws will modernise our financial system, provide greater information and clarity to investors, and incentivise investment in the net zero transformation,” he said.
Reporting will start on January 1 for Australia’s largest listed and unlisted companies and financial institutions, with others to be phased in over time.
It adds to market-based frameworks such as the Safeguard Mechanism and sector-by sector programs to reduce industrial emissions, that are intended to influence investment and support Australia’s climate targets.
The new laws also provide regulators with more powers to manage financial market infrastructure risks, addressing a regulatory gap.