What's in the Senate Committee Report?

Treasury Law Amendment (Financial Market Infrastructure and Other Measures() Bill 2024 (Cth) was introduced into the House of Representatives on 27 March 2024 and referred to Committee for inquiry and report by 3 May 2024.  

If enacted, Schedule 4 to the Bill would establish the framework for a new ISSB- aligned mandatory climate disclosure regime in Australia (read: Mandatory climate reporting in Australia | Landmark Climate Disclosure Bill introduced).

The Labor Chaired Committee has recommended the passage of the Bill without amendment .  

Here are our key takeaways.

Views on the proposed climate disclosure requirements

Submissions were generally supportive in principle of the proposed climate reporting reforms.  However, the report acknowledges that though broadly supportive of 'the concept of a mandatory climate-reporting regime, several submitters and witnesses at the public hearing expressed concerns about aspects of the Bill'.  

Some concerns highlighted in the report include: 

• Concerns about the feasibility, cost and potential value of Scope 3 emissions disclosures 
• Concerns about the timing, cost and feasibility of proposed auditing/assurance requirements for sustainability reports, as well as concerns about the requirement for group 3 entities to undertake an audit where they have no material climate risks/opportunities. 
• Lack of clarity in the Bill around whether Australian based local subsidiaries of global companies would be required to prepare reports separately from their parent companies (where the parent company is already completing comparable (ISSB-aligned) global group sustainability reports in their home jurisdiction).

The Committee did not directly express a view on these issues, merely noting that 'industry stakeholders and Treasury have reflected positively on the extensive consultation process undertaken prior to the climate-related reporting regime being introduced into the Parliament' and that the Bill should 'pass without undue delay.  

Coalition senators' views

In a dissenting report, Coalition senators also raised concerns about various aspects of the 'scope, design and implementation' of the Schedule 4 reforms including the following.

The Bill would a place 'a disproportionate compliance burden on Group 3 entities the vast majority of whom do not have any material impact on climate'.  To address this concern, Coalition senators called for: 

• Group 3 entities be removed entirely from the regime; or (if not exempted)
• for the threshold for Group 3 entities be increased to $100 million in gross revenue or $50 million in gross assets and for Group 3 entities to be subject to simplified climate reporting standards 'similar to the simplified financial accounting standards that apply to Tier 2 reporting entities.  Critically, the requirement for an audit of any statement of 'no material climate risks or opportunities' should be removed'.  

Unfettered' (and unacceptably broad) ministerial discretion would enable the Minister to require additional sustainability-related disclosures (without appropriate consultation/scrutiny).  To address this, Coalition Senators recommended that 'the Minister’s proposed discretion in sections 296A(4)-(5) and 296(c) to require disclosure of “financial matters concerning environmental sustainability” be removed, or subject to explicit requirements of industry consultation'.  This is the mechanism by which we expect nature and biodiversity risk and opportunity reporting to be introduced in due course.

Proposed modified liability protections should be expanded: Coalition Senators raised concerns that, as drafted, the proposed modified liability protections in the Bill would not extend to statements replicated outside Sustainability or Audit Reports.  To address this, their view is that protections should be extended to 

'statements made in investor briefings, website statements, public addresses or other like documents and that further consideration be given to the appropriateness of compliance remaining with the regulator for an extended period'.  

Assurance requirements: Proposed section 307AA requires a reasonable level of assurance of all climate disclosures for corporate reporting periods from 1 July 2030.  Coalition senators consider that 'such a broad assurance scope is not technically feasible' within this timeframe, given the 'major capability gap of auditing professionals to conduct this level of assurance' and in light of the fact that the relevant auditing standards are still under development by the Auditing and Assurance Standards Board.  They recommend that the proposed mandatory reasonable level assurance requirements of section 307AA be removed on this basis and that 'an assessment be done after four years to consider what is possible and important to assure by early 2030'.
For clarity, despite these concerns, Coalition senators did not recommend that the Bill not be passed if their recommendations are not implemented.  

Other views

Similarly, the Greens and Independent Senators on the committee (separately) recommended changes to the modified liability framework and scenario analysis requirements but (similarly) made no indication that their support for the Bill is contingent on the government accepting/implementing their (separate) recommendations.

Modified liability framework

The single Greens senator on the Committee Nick McKim recommended that the scope of the proposed modified liability framework be narrowed: 
'The modified liability provisions be reduced so that they only cover misleading and deceptive conduct seeking loss or damage'.  
Senator McKim also recommended that:

'The modified liability should be spread out amongst the three groups to run for one, or at most two years from entry of that group so as not disproportionately benefit the biggest companies at the expense of smaller ones. ASIC should be given additional resources to prepare any necessary legal proceedings during this modified liability period'.

Independent senator David Pocock went further recommending that the liability modification provisions in section 1707D be removed 'so as to restore shareholders’ rights in relation to companies’ climate representations under the new regime'.

Alternately, if the proposed liability regime is to remain, Senator Pocock recommended that:

• 'the definition of ‘protected statement’ in subsection 1707D(3) should be amended to remove subparagraph (iii), ‘a transition plan’'; and 
• 'corporations currently listed under the corporate group threshold of the National Greenhouse and Energy Reporting Act 2007 should be excluded entirely from the liability modification regime'.

Outlook

The Bill is yet to pass either House and is currently before the House of Representatives.  As yet, no amendments have been circulated. 
The earliest date that Parliament could consider the Bill is 14 May 2024 (though there is no guarantee that the Bill will be considered, especially as it is Federal Budget week.).

[Sources: Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill 2024; Senate Report]