Super funds will need to move climate-related reporting to the top of their agenda as many will soon be required to provide an audited sustainability report, according to draft legislation released by the Treasury on Friday.
After two rounds of consultation, Treasurer Jim Chalmers announced the proposed amendments to the Australian Securities and Investment Commission Act and the Corporations Act and said they are necessary for Australian businesses to align with international standards.
“The draft legislation gives companies the opportunity to build capacity to make high-quality climate risk disclosures by providing early visibility of the proposed reporting requirements and expand the breadth of entities required to report over time,” Chalmers said in a media release.
The fundamental requirement is entities that are obligated to lodge financial reports under the Corporations Act must also prepare and keep a record of annual sustainability reports if they meet the size threshold – they must be audited and include an auditor’s report.
Upon the written request from a “concern person”, issuers of super products are required to give that person a copy of the sustainability disclosure report and its auditor’s report, making it subject to the same criteria that already apply to the financial report, directors’ report, and auditor’s report on the financial report.
“This is an important step for improving transparency and will help investors and companies make more informed investment decisions and lay the foundation for a stronger, more robust financial system,” Chalmers said.
“The Government is taking a balanced approach with these changes following extensive consultation with industry, investors, academics and regulators.”
The legislation will have a phase-in period, with different commencement dates for three groups. Group 1 reporting entities will require a sustainability report from July 1 2024, if they satisfy two of the three size criteria (equal or greater than $500 million in revenue, $1 billion is gross assets and 500 in employee numbers at the end of the financial year).
Asset owners with $5 billion or more in assets under management (AUM) will fall into Group 2, with the first reporting period starting on 1 July 2026.
Some funds have previously suggested that the timeline is too tight. AustralianSuper’s submission to the second consultation proposed that the initial reporting date be set one year after the actual standards are legislated to provide some room for adoption.
Meanwhile, the extra hurdle that super funds have to go through remains, which is the fact that they are both preparers of sustainability reports, and users of other entities’ reports.
The Australian Council of Superannuation Investors (ACSI) noted in its submission to the second consultation that this may make it hard for asset owners to meet the same reporting dates as other entities, as they will need time to receive the data, collate, reconcile and then release the consolidated information.
Both organisations declined to comment on the new draft legislation on Friday.
Regulators APRA and ASIC identified climate-related financial disclosure as a priority in a roundtable with superannuation executives last year. Both urged funds at the time to prepare promptly for the upcoming change by establishing systems, processes and governance practices.
The funds agreed with the principle but flagged challenges such as the lack of internal and external expertise, standardised taxonomy, and supervision over third-party providers.
Consultation for the draft legislation will close on 9 February 2024.
Note: This article has been updated on 17 January to clarify the reporting timeline.