Australian firms, including insurers, must gear up now for mandatory climate reporting

Insurers are likely to be among the Reporting Entities required to provide climate-related disclosures during the 2024-25 financial year.

Following the implementation of mandatory climate-related disclosures for large companies in jurisdictions including the European Union, the UK and New Zealand (and similar requirements in states across the USA), the Australian government has made its own commitment to a mandatory reporting regime.

Legislation governing Disclosing Entities and Controlling Corporations (collectively, Reporting Entities) is expected by 1 July 2024, with the Australian Treasury’s current proposals requiring the largest Reporting Entities to provide climate related disclosures during the 2024-25 financial year.

Given their size, most insurers are likely to fall within the first cohort of Reporting Entities and carriers should therefore be looking now at implementing methodologies to quantify their investment, supply chain and underwriting emissions.

Executive management and directors at insurers should assess their ability to understand their entity’s climate exposures, risks and opportunities. Where necessary, investment in training and processes will be required to facilitate the identification and assessment of the risks and opportunities for the business. 

If the Treasury’s proposals are introduced, mandatory climate reporting will involve disclosure of climate related risks in annual reports and, in the case of listed entities, an operating and financial review within the directors’ report. Those disclosures are expected to be required to comply with the IFRS S2 Climate-related Disclosures standard (to be adapted for Australia in early 2024). 

Non-compliance with the regime will attract civil penalties and fall within the scope of existing continuous disclosure obligations. Directors’ duties may extend to include ensuring compliance with the regime. For scope 3 emissions and forward-looking disclosures, inaccurate disclosures may also fall foul of prohibitions against misleading and deceptive conduct.  

In line with Insurance Council of Australia recommendations, we anticipate insurers will seek to develop and implement an industry-wide approach to measuring climate exposures in 2024, including adoption of the Partnership for Carbon Accounting Financials’ Global GHG Accounting and Reporting Standard for Insurance-Associated Emissions.

However, the industry also needs to be wary of the risk this cooperation could contravene Australia’s competition laws, and we anticipate that in 2024 the Australian Competition and Consumer Commission will publish guidance on the issue.

Taking proactive steps now will make implementation of reporting requirements less complex, reduce the risk of civil penalties for non-compliance penalties and longer-term shareholder activism, including potential class actions.