Proposed Australian Sustainability Reporting Standards and IFRS® Sustainability Disclosure Standards – A comparison

We previously summarised some of the decisions taken by the Australian Accounting Standards Board (AASB) when compiling Exposure Draft ED SR1 Australian Sustainability Reporting Standards – Disclosure of Climate-related Financial Information for climate-related financial disclosures in Australia.

The AASB’s proposed Australian Sustainability Reporting Standards, as outlined in ED SR1, could require some Australian entities with overseas operations or parent entities to report climate-related financial disclosures twice, as they diverge from the IFRS Sustainability Disclosure Standards issued by the International Sustainability Standards Board (ISSB) in some places. Here, we outline some of the changes and what they could mean for Australian organisations with international operations.

Where Australian Sustainability Reporting Standards and IFRS Sustainability Disclosure Standards diverge

Decisions taken by the AASB in ED SR1 deviate from the requirements of IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information (IFRS S1) and IFRS S2 Climate-related Disclosures (IFRS S2). Some of the differences include:

  • Limiting the sustainability disclosures to only climate-related information
  • Significantly changing the requirements of IFRS S2 by requiring the use of the National Greenhouse and Energy Reporting Act 2007, related NGER Regulations and the NGER Measurement Determination (NGER Scheme legislation), where practicable, to measure greenhouse gases (GHG) – instead of the GHG Protocol as outline in IFRS S2
  • Limited direction of whether the ‘operational control’ method noted in NGER Scheme legislation must be used in all cases (sometimes the ‘financial control’ or ‘equity’ approaches are considered more sensible measurements for accounting groups)
  • Requiring industry-based metrics using ANZSIC industry classifications rather than Industry-based Guidance on Implementing IFRS S2
  • Nominating the global warming potential (GWP) values used by NGER Scheme legislation being derived from the Intergovernmental Panel on Climate Change (IPCC) 5th assessment report, rather than the latest IPCC report (which is currently the 6th assessment report)
  • Nominating NGER measurement methodologies that are inconsistent with IFRS S2 which requires use of the Greenhouse Gas (GHG) Protocol, a widely accepted standard that is globally understood. For example, certain gases referred to in the GHG Protocol are not included in NGER requirements
  • Not requiring commercial banking and insurance entities to disclose Scope 1 and Scope 2 emissions disaggregated by industry and asset class (because this information is not determined when using NGER Scheme legislation)
  • Inflated levels of carbon credits because non-Kyoto Australian carbon credit units (ACCUs) are not uniquely serialised.

Drafting conventions

We also note that ED SR1 has been compiled on the basis of Option 3, which removes duplication in [Draft] ASRS 2, and requires the user to continually cross-reference to [Draft] ASRS 1 to find ‘missing’ disclosures, potentially causing a cumbersome and time-consuming process for users. It also has the potential to create additional work in the future as each new sustainability standard is published. In addition, this drafting convention is not consistent with IFRS S1 and IFRS S2.

A lesson from history

In 2005, when developing the Australian equivalent to the IFRS® Accounting Standards, various accounting options were removed, making them more restrictive than IFRS Accounting Standards issued by the International Accounting Standards Board. These changes were eventually unwound over several years, with key stakeholders wanting Australian Accounting Standards to be consistent with IFRS® Accounting Standards. Could the divergence between IFRS S1 and S2 and Australia’s proposed Sustainability Reporting Standards see us heading down the same path? Only time will tell.

How BDO can help 

Our sustainability reporting experts can help you to understand what this might mean for your organisation.

Contact us today.