Double materiality not ‘main objective’ of Australia’s planned climate disclosure regime

Australia’s government has stated its planned mandatory climate corporate disclosure regime will not focus on companies’ impacts and will align as “far as practicable” with those developed by the International Sustainability Standards Board (ISSB).  

In a consultation document published on Tuesday, the Treasury wrote: “While the proposed requirements would not prevent companies adopting a double materiality approach as part of their disclosures, double materiality is not currently the main objective of the proposed mandatory climate disclosure requirements.” 

Double materiality is a European concept and refers to capturing a company’s impact on the environment and society in addition to the sustainability impacts on the company. 

The EU’s focus on double materiality is a key difference between the standards being developed by the bloc’s standard setter the European Financial Reporting Advisory Group (EFRAG) and those being developed by the ISSB, the first two of which were published on Monday.  

The Treasury revealed that some stakeholders had pushed for a double materiality approach in consultation responses earlier this year. This included a response led by respected academic Carol Adams, chair of the GRI’s standards governance body, who “strongly” suggested that Australia should model its reporting regime on EU rules rather than the ISSB’s.  

“It was argued that external impacts on broader social and environmental conditions can often develop into financial risks over time, in unknown ways,” the Treasury wrote. 

The new consultation, which closes on 21 July, is focused on the design of the reporting standards, and “seeks views on proposed positions for the detailed implementation and sequencing of standardised, internationally-aligned requirements for disclosure of climate-related financial risks and opportunities in Australia”. 

Australia’s government also revealed that its standards will be “aligned as far as practicable with the final standards developed by the ISSB”. It added that the Australian Accounting Standards Board (AASB) is expected to consult on proposed standards in the second half of 2023. 

The Treasury’s indicative proposals would mean that Aussie firms would be eventually required to disclose if they meet two of the following criteria: revenues of more than A$50 million ($33.5 million; €30.5 million), more than 100 employees, or assets worth more than A$25 million. 

But a phased approach is being put forward by the government, “starting with a relatively limited group of very large entities that expands over two years to apply to progressively smaller entities”. 

Under the Treasury’s proposals, reporting entities would be required to use scenario analysis to inform disclosures, moving from qualitative scenarios in the first instance to quantitative ones.  

Disclosure of transition plans will also be required under the proposal – although a firm could meet this requirement by stating that it does not have one.  

The Treasury added that where offsets are being utilised in climate plans, “disclosures would be required to include information about whether these offsets are verified though a recognised standard (such as Australian Carbon Credit Units)”. 

It was also revealed that the Treasury would consider actions to strengthen the development of corporate transition plans as part of a broader consultation on the government’s Sustainable Finance Strategy later this year. 

Responses to the consultation can be submitted here.