ASIC provides guidance on the modified liability settings for mandatory sustainability reporting
ASIC provides guidance on the modified liability settings for mandatory sustainability reporting
On 31 March 2025, the Australian Securities and Investments Commission (ASIC) published regulatory guidance to assist entities preparing mandatory sustainability reports containing climate-related financial information under Chapter 2M of the Corporations Act 2001. Amongst other things, Regulatory Guide 280 Sustainability reporting (RG 280) explains the modified liability settings contained in section 1707D of the Corporations Act 2001 and how they work.
What are the modified liability settings?
For a set transition period, no legal action other than criminal action, or action by ASIC, can be brought against a person (such as a director or the company) in relation to certain types of statements (‘protected statements’) made within a sustainability report or the auditor’s report on the sustainability report.
This means that an investor cannot bring a civil action alleging that a protected statement in a sustainability report is misleading or deceptive.
Why have modified liability settings?
Modified liability settings are intended to give entities, auditors, and directors time to gain experience and adjust to the mandatory reporting regime without immediate liability concerns.
In the first few years, a modified liability approach will apply to ease the transition, and after this period, the usual liability rules will come back into effect. In other words, the modified liability settings provide a shield from certain civil claims and should encourage more comprehensive and less risk-averse reporting, especially in areas like scenario analysis, transition plans, and Scope 3 emissions, where high levels of judgement and uncertainty are involved.
What are protected statements?
Table 3 in RG 280 explains what the protected statements are and the period of modified liability.
| Protected statement | Location and purpose of the statement | Modified liability period |
|---|---|---|
| Statement relating to climate and, at the time it is made, is about the future. |
|
Report prepared for financial years commencing from 1 January 2025 to 31 December 2025 inclusive. |
A statement made about:
|
|
Report prepared for financial years commencing from 1 January 2025 to 31 December 2027 inclusive. |
Statement relating to climate about the future
Protected statements relating to climate, which, at the time they are made, are about the future, are likely to include statements about:
- Climate-related risks and opportunities that could reasonably be expected to affect the entity’s prospects (see paragraph 11 of AASB S2 Climate-related Disclosures)
- The anticipated effects of climate-related risks and opportunities on the entity’s:
- Business model and value chain
- Strategy and decision making
- Financial position
- Financial performance
- Cash flows
- Any planned use of carbon credits to offset GHG emissions to achieve any net GHG emissions target (see paragraph 36(e) of AASB S2 and paragraph B70 of Appendix B of AASB S2).
Statements relating to Scope 3 GHG emissions, scenario analysis and transition plans
Protected statements about an entity’s Scope 3 GHG emissions, scenario analysis and transition plans are likely to include statements about inputs and assumptions that support these disclosures.
These protected statements are also explained further in RG 280:
- Scope 3 GHG emissions: These include both upstream and downstream emissions and include the fifteen categories mentioned in the Greenhouse Gas Protocol Corporate Value Chain (Scope 3) Accounting and Reporting Standard (2011)
- Scenario analysis: This is the process whereby the entity identifies and assesses a potential range of outcomes of future uncertain events
- Transition plan: This is part of the entity’s overall strategy, which covers the entity’s targets, actions or resources for its transition towards a lower-carbon economy (including actions such as its GHG emissions reductions).
What if an entity goes above and beyond mandatory sustainability standards?
Statements are only considered ‘protected statements’ if they are made to comply with a sustainability standard. The modified liability settings, therefore, do not apply where entities go above and beyond and voluntarily choose to disclose:
- Climate information beyond what is required in AASB S2, or
- Sustainability information for topics other than climate.
Can statements be protected if included outside the sustainability report or the auditor’s report?
Under section 1707D(1)(b), the modified liability settings also apply to statements required under Commonwealth laws if they are the same as a protected statement, or only differ due to updates or corrections to the protected statement. RG 280 provides examples of when a protected statement may be required under Commonwealth laws:
- A protected statement required to be included in the Operating and Financial Review under section 299A(1), in a disclosure document (such as under section 710), or in a product disclosure statement (such as under sections 1013D and 1013E)
- A protected statement, and any updated or corrected versions required to be made in accordance with the entity’s continuous disclosure obligations under sections 674 and 675
- Where ASIC gives a direction under section 296E(1)(g) to update or correct a protected statement.
However, RG 280 also clarifies that the modified liability settings do not extend to statements made outside the sustainability report. This includes:
- Voluntary statements: An example of this is when a protected statement is reproduced in investor presentations or promotional materials - it will not be covered unless the disclosure is required under a Commonwealth law.
- Cross-referencing: The statement is not protected if it is not actually included in the body of the sustainability report (that is, the sustainability report cross-references to the statement in another document).
- Summaries or expansions: The statement is a summary of the protected statement or expands on the content of a protected statement. The modified liability settings only apply to a disclosure required under a Commonwealth law that is the same as a protected statement (i.e. a reproduction of the protected statement).
- Updates or corrections: The modified liability settings only apply where the update or correction is included in a revised version of a protected statement that is required to be made under a Commonwealth law.
More information
Our previous article provides more information about ASIC's regulatory guidance for sustainability reporting, and our website contains additional resources for sustainability reporting and measuring your carbon footprint.
Need help?
Mandatory sustainability reporting, including disclosures in accordance with AASB S2, is just around the corner, with Group 1 entities having to report for the first time from 31 December 2025. Entities need appropriate systems, controls, policies and procedures in place to support the production of their first sustainability report. Our sustainability reporting, sustainability strategy, and carbon accounting experts are always available to assist with your sustainability reporting journey. Contact us for help.
