Treasury consults on reducing climate disclosure costs

Treasury has opened a consultation to enhance efficiency of climate disclosures by reducing the cost of compliance for companies.

The reforms are intended to achieve this while maintaining international alignment between Australian standards and its global counterpart, while minimising disruption for reporting entities.

"Efficiency-enhancing reforms should focus on reducing the practical costs associated with complying with sustainability reporting while preserving the integrity and usefulness of disclosures," Treasury said.

"Such reforms may include regulatory, implementation, guidance or legislative measures that improve processes reporting entities use to identify, collect, verify and report climate-related information."

To achieve this, Treasury is considering the current assurance settings for the reporting.

The framework provides a phased assurance pathway, under which entities progressively transition from limited assurance to a comprehensive, positive-opinion audit known as 'reasonable assurance' across all disclosures by 2030.

Under one of the options, all companies would only require limited assurance on an ongoing basis, removing the requirement to transition to reasonable assurance.

"While reasonable assurance may strengthen confidence in sustainability disclosures over time, maintaining limited assurance as the mandatory requirement would better align compliance expectations with current market capability and data maturity," Treasury said.

"Reasonable assurance requires intensive compliance, system and capacity building for auditing firms.

The benefit of reasonable assurance may not fully justify the compliance costs, where factors such as the availability of primary data, evolving practice on materiality and the uncertainty of forward-looking climate outlooks have all been raised as significant challenges that may not warrant implementing reasonable assurance."

Under another option, the government would retain the long-term objective of progressing to reasonable assuring while extending the transition period from 2030 to 2035.

"The current timeline of transition to reasonable assurance risks burdening nascent sustainability reporting processes and systems," Treasury said.

"Additional time to build robust systems and market capacity may enhance the quality of data for reasonable assurance and reduce undue burden that may be placed if reasonable assurance is introduced in 2030."

In another option, Treasury is considering introducing a two-tier assurance model, aligning assurance requirements with the maturity of underlying sustainability metrics.

"Under this approach, the requirement to transition from limited to reasonable assurance would apply only where data availability and maturity meet a 'defined baseline standard'," Treasury said.

"For example, this could involve requiring reasonable assurance for Scope one and Scope two emissions disclosures, while Scope three emissions disclosures could continue to be subject to limited assurance."

Under this option, Treasury acknowledges Scope one and Scope two emissions are more accessible at a granular level, while assuring Scope three emissions can increase the overall cost significantly due to the increased effort that must be accounted for.

Treasury is also seeking views on what is considered a reasonable request when companies report on their Scope three emissions.

"The government is seeking views on mechanisms that could improve the consistency and predictability of value-chain information requests while preserving reporting entities' ability to obtain information necessary to identify and disclose material information relating to climate-related risks and opportunities," Treasury said.

It is considering further targeted guidance and clarity to help determine the boundaries of the types of information required for Scope three emissions reporting, including expectations surrounding the exercise of judgement in this context.

"Treasury is specifically interested in stakeholder views on mechanisms that can help balance the need for reporting entities to sufficiently understand their entity-specific exposure to climate-related risks and opportunities, while ensuring that unnecessary burden is not borne by those in the value chain," it said.