Businesses ‘paralysed’ as Australia prepares tough climate rules

AUSTRALIA’S plans to introduce tougher climate disclosure rules are raising concerns among businesses about compliance by one of the world’s largest per capita emitters.

More than 6,000 companies, including listed and unlisted companies, financial institutions and asset owners, will eventually be covered by the mandatory rules, which will come into effect from January.

Because Australia is a larger market, it will impact more companies than those in New Zealand, Hong Kong and Singapore, which have so far been considered standard-setters in Asia, according to Bloomberg Intelligence.

The new rules could transform Australia from a climate laggard to one of the first countries in the world to implement reporting under new guidelines from the International Council on Sustainable Development.

But Kate Hart, Asia-Pacific co-leader of sustainability at consultancy Kearney, said compliance concerns had “paralysed some Australian organisations”.

“There is certainly some uncertainty in the business sector about how to ensure that these requirements are not burdensome and are actually seen as enablers of reporting and progress,” she added.

Authorities estimate the average cost of compliance is A$1 million (S$879,950), but some large organisations estimate the total is likely to exceed A$3 million, said Jillian Button, head of climate change at law firm Allens.

The Australian Accounting Standards Board is due to finalise the new standards next month, with the rules being phased in across three groups by 2027. Ultimately, all scope 3 companies will be required to report their emissions, a process often seen as the most difficult because it involves detailing climate impacts in supply chains.

Bloomberg Intelligence analysts Lu Yeung and Cindy Lam say that currently only about 10 percent of the country’s listed companies — typically large firms such as BHP Group and Telstra Group — provide fully comprehensive disclosures that include climate scenario analysis and adopt the Task Force on Climate-related Financial Disclosures principles.

Currently, more than 40 per cent of Australia’s S&P ASX/200 Index is made up of high-emissions sectors, including some of the world’s largest mining companies.

Research by the Australian Council of Superannuation Investors found that two-thirds of benchmark members have committed to achieving net zero emissions. However, only 29 per cent currently disclose how climate change is considered when assessing financial performance, and the use of carbon offsets often remains unclear, according to the organisation.

The new disclosures are seen as potentially helping companies approach funds interested in funding their decarbonisation goals, while the changes could also benefit companies with global operations and obligations under multiple climate reporting systems. For example, the European Union’s Corporate Sustainability Reporting Directive will apply to some Australian companies that list in or derive revenue from the region.

“A lot of smaller entities in Australia and across the region are going to be affected” as additional requirements are introduced, said Emma Jones, a sustainability analyst at Goldman Sachs Group. “Not just from a climate reporting disclosure perspective, but also climate-related regulations, carbon import tariffs and other regulations that we’re seeing coming in from overseas.”

Despite the changes, the new disclosure rules alone will not provide investors with a full understanding of a company’s impact on the climate.

Institutional investors typically look at issues such as biodiversity, waste reduction or recycling, and supply chain due diligence, which are not covered by Australian regulations, said Elena Lambros, a risk advisory partner at law firm Ashurst. BLOOMBERG