The journey towards Mandatory Climate Reporting: Are you ready?

In July, the Australian Government’s long-awaited Mandatory Climate Reporting will be phased in for large Australian corporations and financial institutions.

The Commonwealth Climate Disclosure Policy requires all Commonwealth entities and companies to disclose climate risks and opportunities in annual reports from FY2024-25, which will be progressively phased in for different cohorts, generally based on the size of the entity.

The legislation is designed to help decarbonise the economy and limit global warming to 1.5C above pre-industrial levels, representing one of the biggest shifts in financial reporting to ever take place.

While the first cohort will be financial institutions, and already we are seeing Australia’s big banks increase their focus on climate-related disclosure with sustainability KPIs, we expect this to have a trickle-down effect to prompt and mandate the construction industry - and the built environment as a whole.

As a result, the legislation will lead to a significant change in the way clients report in the future. The growing pressure to address climate risks means that clients will need to start taking concrete steps towards sustainability, working towards the bigger picture of shifting the industry towards net zero as part of global targets.

Steps as part of this journey may include:

  • Gaining a better understanding of climate-related risks associated with projects or businesses
  • Integrating climate considerations into business strategies
  • Stricter lending criteria for projects with high climate risks, and potentially higher borrowing costs
  • Benefiting from increased access to green financing options, for clients in sustainable initiatives
  • Increasing interest rates or fees reflecting climate risks for high-risk projects
  • Expanding climate risk assessments to include broader supply chains
  • Incentivising clients to adopt more sustainable practices to align with evolving lending criteria; and
  • Needing to provide additional information to comply with enhanced climate-related disclosure requirements.

At Hames Sharley, we are here to help. We have developed an assessment matrix that addresses climate risks, signifies a proactive response to the evolving landscape and offers a practical approach to identify and mitigate risks associated with regulatory compliance and environmental impact, which is crucial for long-term sustainability.

By considering the issues associated with building construction at an early stage, early design consulting may help to develop fundamental principles that reduce financial risk and explore how to obtain green financing options. This will also work towards reducing the risk of increased interest rates or fees reflecting climate risks.

Like anything new, there is a lot to learn and there are many implications locally and globally. Locally, we believe that climate disclosure will support responsible investment with lower risk and higher value, but there are grey areas with bank benchmarking and potential insurance issues that will need to be addressed in the long term.

Globally, we see the value in aligning the Australian Sustainability Reporting Standards (ASRS) with the International Financial Reporting Standards (IFRS). Australia must remain competitive in a global marketplace, and alignment will enable our performance to be compared more easily with what the rest of the world is doing – a positive step forward.

As a signatory to Architects Declare and through our own National Sustainability Forum (NSF), Hames Sharley is committed to advocating, educating and striving for change. We are ready to work with clients on their sustainability journey.

For more information, refer to: Mandatory climate-related financial disclosures

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