Final steps in the legislative and standard-setting process implements new mandatory sustainability reporting from 1 January 2025

Steps in implementing the new sustainability reporting framework

Legislative arrangements 

After final Parliamentary considerations, the enabling legislation received Royal Assent on 17 September 2024, introducing mandatory sustainability reporting into the Corporations Act 2001 and permitting the AASB to make sustainability standards under the Australian Securities and Investments Commission Act 2001. The legislation also requires high (2.5° or higher) and low (1.5°) scenario analyses and implements a three year modified liability framework for directors and auditors.

Australian Sustainability Reporting Standards (ASRSs)

Finalising deliberations on 20 September 2024, the AASB voted to issue AASB S1 General Requirements for Disclosure of Sustainability-related Financial Information (voluntary) and AASB S2 Climate-related Disclosures (mandatory for sustainability reports under the Corporations Act 2001). These ASRSs are closely aligned with the equivalent IFRS® Sustainability Disclosure Standards issued by the International Sustainability Standards Board but importantly the mandatory AASB S2 does not include consideration or disclosure of industry-based metrics.

Regulatory response

Following the legislative changes becoming law, ASIC called on entities to implement appropriate governance arrangements and sustainability record keeping processes to prepare for sustainability reporting and published guidance on its website on the new requirements. ASIC is expected to issue formal regulatory guidance in due course, including updating existing guidance on when relief may be granted. In an earlier report on greenwashing, ASIC recommended that entities voluntarily disclosing climate-related metrics and targets before the new regime becomes mandatory should consider the relevant disclosure requirements in the ASRSs.

Assurance requirements

Under legislative powers granted to the AUASB, assurance over the mandatory sustainability report will be phased in progressively, ultimately requiring reasonable assurance for all reporting entities from 2030. The AUASB released an exposure draft on the timetable for assurance on 17 September 2024, proposing limited assurance over governance, strategy (risks and opportunities) and scope 1 and 2 emissions in an entity’s first reporting year, moving to reasonable assurance for all mandatory disclosures  from the fourth year of compliance.

Reporting timeline

Sustainability reporting for entities reporting under Chapter 2M will be phased in using three groups, summarised broadly as:

IASB proposes changes to equity accounting of associates and joint ventures

The IASB has released an exposure draft that proposes changes to the way in which entities equity account interests in associates and joint ventures.

The proposals in IASB/ED/2024/7 Equity Method of Accounting – IAS 28 ‘Investments in Associates and Joint Ventures’ (revised 202x) respond to various application issues arising when accounting for interests in associates and joint ventures based on certain identified principles underlying IAS 28 Investments in Associates and Joint Ventures.

The IASB has not explored broader conceptual issues such as whether the equity method should be applied, or the nature of equity accounting. However, the exposure draft proposes the full recognition of gains and losses arising from transactions between an investor and an associate or joint venture, whereas currently such gains or losses would be recognised only to the extent of the other investors’ interests.

The exposure draft also proposes additional disclosures in relation to investments in associates and joint ventures.

The exposure draft is open for comment until 20 January 2025.

More information:

• IASB/ED/2024/7 Equity Method of Accounting – IAS 28 ‘Investments in Associates and Joint Ventures’ (revised 202x)
• Basis for Conclusions on IASB/ED/2024/7
• IASB snapshot of the proposals
• IASB media release IASB proposes improvements to the equity method
• iGAAP in Focus Financial reporting: IASB proposes amendments to IAS 28 to answer application questions on how an investor applies the equity method.