Climate-related financial disclosure exposure draft
1 March 2024
On 9 February 2024, the Law Council made a submission to Treasury’s third consultation on climate-related financial disclosure (CRFD), which sought responses to the Treasury Laws Amendment Bill 2024: Climate-related financial disclosure (the Exposure Draft).
This submission built on the Law Council’s earlier submissions on this topic, dated 2 March and 2 August 2023. It reiterated the Law Council’s strong support for the introduction of mandatory CRFD laws in Australia, drafted to align with the International Financial Reporting Standards S2 Climate-related disclosures (IFRS S2), as issued by the International Sustainability Standards Board (ISSB).
The Law Council’s position of support for mandatory CRFD is consistent with its Climate Change Policy adopted in 2021, which endorses rapid and widespread action on the part of governments, regulators, and the private sector, to combat the effects of human-induced climate change. The Policy emphasises that mitigation and adaptation measures must be based on principles of a just transition and the rule of law.
In analysing the exposure draft legislation for the proposed framework for Australian CRFD, the Law Council was mindful to balance between the important potential of disclosures in encouraging green and sustainable financing (noting the urgency of this action, including in ensuring Australia remains aligned and competitive with global markets), on the one hand, and the need for these laws to be carefully calibrated to Australia’s domestic context to be effective and worthwhile, on the other. It considered:
- The complexity of Australia’s existing legal framework for corporate disclosure
- The likely impact of the laws (including penalties) on the behaviour of entities captured under the scheme.
- The maturity of the systems and processes needed to produce and verify reliable CRFD, including in audit and assurance.
- The need to achieve disclosure that is accurate, concise, and consistent with international standards. This will ensure that investors and other users can easily navigate the information made available and that captured entities can comply without undue cost or complexity.
The Law Council’s submission identified three key issues that, in the Law Council’s view, require further consideration by Treasury:
- The scope of the proposed scheme, which may capture more entities than Treasury’s modelling shows, and which thresholds are lower than other corporate reporting schemes such as the Payment Time Reporting Scheme and Modern Slavery Reporting.
- The form of the director’s declaration proposed under the scheme, particularly in the short term, noting the immaturity of the systems and processes that will be used in climate reporting.
- The narrow approach to the limited immunity proposed during the transition period, whereby the regulator may still seek pecuniary penalties for some civil actions, and which immunity only applies to some forward-looking statements and only when these statements are made within the sustainability report.
The Law Council gratefully acknowledges the leadership of its Business Law Section in the preparation of this submission, particularly its Corporations Committee. It also thanks its Climate Change Working Group and members of its Legal Practice Section’s Australian Environment and Law Planning Group for reviewing the submission.
Last Updated on 20/06/2024