Proposed climate reporting ‘a challenge for smaller entities’
Smaller firms may require government assistance in order to meet the proposed climate-related disclosures given the scale and time frames involved, says KPMG.
The alignment of Australian climate reporting standards with those issued by ISSB will strengthen the ability of Australian entities to participate in global markets but will also place increased pressure on annual reporting, KPMG has said in a recent submission.
The government released a consultation paper on proposed reforms for mandatory climate disclosure in late June which sets out which entities will be required to report and when they will be required to commence reporting.
The consultation paper proposed a three-phased approach starting with a relatively limited group of very large entities that expands over two years to apply to progressively smaller entities.
In its submission to Treasury, KPMG said it supported the three-phased approach to reporting climate-related financial disclosure standards.
However, the submission stressed that the scale of entities reporting, and time frames proposed were “ambitious and may create challenges in the ability of corporate Australia to meet those time frames”.
“The proposed time frames may require a coordinate government assistance package to ensure that smaller entities meet the proposed time frames,” it said.
KPMG said it supported the phased implementation of some disclosures in line with IFRS S2 Climate-related Disclosures.
“For example, Scope 3 GHG emissions disclosures only being required from the second year of adoption. KPMG acknowledges that the determination of Scope 3 GHG emissions can be challenging for certain entities, especially initially,” the submission said.
Given the difficulty involved with this type of reporting, KPMG said the government should consider allowing smaller entities in Group 3 to be able to report reduced levels of disclosures under the requirements.
“For example, only scope 1 and 2 emissions reporting. This differential reporting would align with the existing tiers of Australian Accounting Standards depending on whether an entity has public accountability,” the submission said.
KPMG said Treasury may need to consider the inclusion of all listed entities under the proposed reporting regime – even those outside of the prescribed size thresholds.
“As listed entities are considered public interest entities and face greater investor interest, Treasury may need to consider the inclusion of all listed entities with the climate related disclosure regime from 2027-28 onwards,” the submission said.
Given the large numbers of entities due to be covered by the regime, KPMG said it also critical that the Australian Accounting Standards Board and associated standard setters and regulators are resourced properly.
“This will ensure Australian businesses are well supported and the regime best meets the Australian context,” the submission said.
“This will also ensure that resources will not be diverted away from other critical regulatory activities and standard setting projects.”
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