Potential changes to Australia’s climate-related disclosures

Changes in the pipeline for climate-related disclosures in Australia

With climate-related financial disclosures mandatory in Australia for periods beginning from 1 January 2025, Group 1 entities should be well on their way to calculating their greenhouse gas (GHG) emissions for disclosure under the mandatory Australian standard, AASB S2 Climate-related Disclosures.

Although determining GHG emissions is likely to be a complex task for many entities, the good news is that the International Sustainability Standards Board (ISSB) recently proposed targeted amendments to IFRS S2 Climate-related Disclosures. The ISSB aims to reduce complexity and the risk of potential duplication of GHG emission reporting, thereby lowering implementation costs.

The Australian Accounting Standards Board (AASB) is currently consulting on proposed amendments to AASB S2 in AASB ED SR2 Amendments to Greenhouse Gas Emissions Disclosures, which incorporates the ISSB’s proposed amendments to IFRS S2. The AASB is seeking comments on ED SR2 by 2 June 2025.

The four proposed amendments are discussed briefly below:

When to use jurisdictional requirements for measuring GHG emissions rather than the GHG Protocol
Using global warming potential (GWP) values other than those from the latest Intergovernmental Panel on Climate Change assessment
Measuring Scope 3 Category 15 GHG emissions
Use of the Global Industry Classification Standard for disclosing industry information about financed emissions

1. When to use jurisdictional requirements rather than the GHG protocol

Entities reporting climate-related financial information under AASB S2 must disclose their absolute gross GHG emissions generated during the reporting period, expressed as metric tonnes of CO₂ equivalent. The absolute gross emissions must be disclosed separately for Scope 1, Scope 2 and Scope 3 emissions.

Paragraph 29(a)(ii) requires GHG emissions to be measured in accordance with the Greenhouse Gas Protocol: A Corporate Accounting and Reporting Standard (the GHG Protocol). This applies unless a jurisdictional authority or listed exchange requires the use of a different method (alternative method). This implies an ‘all or nothing’ approach such that an entity must either apply the GHG Protocol, or an alternative method to the whole entity.

What is the proposed amendment?

Entities will be able to measure GHG emissions using the GHG Protocol for some parts of their business and an alternative method required by a jurisdictional authority or listed exchange for other parts.

How will the amendment impact Australian entities?

Heavy emitters currently reporting their Scope 1 and Scope 2 emissions under the National Greenhouse and Energy Reporting Act 2007 (NGER reporters) for a particular facility will be able to report GHG emissions under AASB S2 using the methodology set out in the National Greenhouse and Energy Reporting (Measurement) Determination 2008 because this measurement approach is required by a jurisdictional authority.

However, they will use the GHG Protocol to measure:

Scope 3 emissions for these heavy emitters because the National Greenhouse and Energy Reporting Act 2007 does not address Scope 3, and
Scope 1, Scope 2 and Scope 3 emissions for parts of the business that are not NGER reporters.

2. Using global warming potential (GWP) values other than those from the latest Intergovernmental Panel on Climate Change assessment

As noted above, entities reporting climate-related financial information under AASB S2 must disclose the absolute gross GHG emissions generated during the reporting period, expressed as metric tonnes of CO₂ equivalent. This involves converting the six constituent greenhouse gases into CO₂ equivalent values, in order to add to the seventh greenhouse gas (Co₂).

The seven constituent greenhouse gases are carbon dioxide (CO₂), methane (CH₄), nitrous oxide (N₂O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), sulphur hexafluoride (SF₆), and nitrogen trifluoride (NF₃).

Entities using direct measurement methods to calculate their GHG emissions will convert the seven constituent greenhouse gases into a CO₂ equivalent as follows:

Global warming potential (GWP) values are based on a 100-year time horizon contained in the latest Intergovernmental Panel on Climate Change (IPCC) assessment available at the reporting date. At the time of writing, this would be the IPCC Sixth Assessment Report.

What is the proposed amendment?

Entities required, in whole or in part, by a jurisdictional authority or a listed exchange to use different GWP values for converting the seven constituent gases into CO₂ equivalent values will be permitted to do so. In all other instances, entities must use the latest IPCC assessment available (currently the IPCC Sixth Assessment Report).

How would the proposed amendment impact Australian entities?

Legislation governing NGER reporters currently contains GWP values from the IPCC Fifth Assessment Report, which is embedded in Section 2.02 of the National Greenhouse and Energy Reporting Regulations 2008. Without this proposed amendment, NGER reporters would have to measure GHG emissions twice: firstly, for NGER reporting using GWP values from the IPCC Fifth Assessment Report; and then again for AASB S2 reporting using GWP values from the IPCC Sixth Assessment Report, resulting in duplicate reporting and the need for two different systems to measure GHG emissions.

3. Measuring Scope 3 Category 15 GHG emissions

Entities must include all 15 categories referenced in the GHG Protocol when measuring the absolute gross Scope 3 GHG emissions generated during the reporting period.

Category 15 Scope 3 emissions are GHG emissions arising from an entity’s financial investments (including loans) that are not already included in its Scope 1 or Scope 2 emissions. These are also referred to as ‘financed emissions’ in AASB S2. Entities participating in financial activities such as asset management, commercial banking and insurance would be expected to have significant Category 15 Scope 3 emissions.

AASB S2 requires additional disclosures about Category 15 Scope 3 GHG emissions for entities whose activities include asset management, commercial banking and insurance, including splitting them down into the Scope 1, Scope 2 and Scope 3 emissions of related investees and borrowers.

The Basis for Conclusions to IFRS S2, paragraphs BC127-BC129, notes that disclosure of GHG emissions relating to derivatives, facilitated emissions and insurance-associated emissions is not required. However, there is a potential conflict with the requirement in paragraph 29(a)(i)(3) to measure the absolute gross Scope 3 emissions, including Category 15 emissions. Paragraph 29(a)(i)(3) is silent on whether derivatives and facilitated and insurance-associated emissions must be included or excluded when measuring Scope 3 Category 15 GHG emissions.

What is the proposed amendment?

The amendment tidies up the inconsistency described above for entities involved in asset management, commercial banking and insurance activities.

Firstly, they will measure and disclose the gross absolute Scope 3 Category 15 emissions under paragraph 29(a)(i)(3) by:

Including only financed emissions (facilitated emissions and insurance-associated emissions may be excluded)
Excluding emissions associated with derivatives.

Additional disclosure is required about the amount of excluded derivatives and other financial activities excluded (such as investment banking advisory services and insurance and reinsurance underwriting). An explanation is also required about what the entity treats as excluded derivatives.

Financed emissions are those attributed to the entity’s loans and investments. They include loans, project finance, bonds, equity investments, and undrawn loan commitments.

For entities participating in asset management and insurance activities, financed emissions include GHG emissions from assets under management and insurance assets only. Emissions from any underwriting activities by investment banks (facilitated emissions) and insurance and reinsurance activities by insurance companies (insurance-associated emissions) are not financed emissions.

Secondly, they clarify that the additional disaggregated disclosures about investees’ emissions in Category 15 Scope 3 GHG emissions are limited to only financed emissions.

4. Use of the Global Industry Classification Standard for disclosing industry information about financed emissions

AASB S2 requires entities involved in commercial banking and insurance activities to disclose disaggregated information about the Scope 1, Scope 2 and Scope 3 emissions of investees for each industry (paragraphs B62-B63). Industry classification is based on the latest version of the Global Industry Classification Standard (GICS) available at reporting date. Some of these entities may not currently use GICS as an industry-based classification system, which could result in additional licensing costs and duplicative reporting.

What is the proposed amendment?

Commercial banking and insurance entities will not have to automatically use GICS to determine industry classifications. The amendments propose a four-level hierarchy for determining the appropriate industry classification system as follows:

If the entity is subject to multiple jurisdictional or exchange requirements and uses more than one industry-classification system, it is proposed that it will select one classification system for the whole entity.

Entities will also have to disclose which industry-classification system they used to disaggregate financed emissions, and if not GICS, the basis for selecting that system.

More information

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