No delay for climate reporting by Group 2 and Group 3 entities

On 27 March 2024, the Australian Government followed its promise to mandate climate reporting in Australia by introducing the Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill (Bill) into Parliament. The Bill mandates climate reporting for entities required to prepare and lodge financial reports with the Australian Securities and Investments Commission (ASIC) under Chapter 2M of the Corporations Act 2001. Significantly, the Bill delays the start date for Group 1 entities by at least six months, from 1 July 2024 to 1 January 2025 at the earliest.

Importantly, there is no change to the timeline for Group 2 and Group 3 entity climate reporting. Regardless of delays in climate reporting legislation passing through Parliament, Group 2 entities will still be required to prepare climate statements as part of their annual financial report for years beginning on or after 1 July 2026, and Group 3 entities for years beginning on or after 1 July 2027.

What are Group 1, Group 2 and Group 3 entities?

The Bill does not specifically reference ‘Group 1’, ‘Group 2’ and ‘Group 3’ entities. However, they are referred to as such in the Government’s proposed timeline for phasing in climate reporting, as outlined in its Policy Statement, and are now commonly used terms to denote which entities must report, and by when.

Here we summarise the criteria for Group 1, Group 2 and Group 3 when phasing in climate reporting.

	Large entities and their controlled entities meet at least two of three criteria (size threshold test)			National Greenhouse Energy Reporting (NGER) reporters	Asset owners (Registered schemes, registrable superannuation entities or retail corporate collective investment vehicles (CCIV)
	Consolidated revenue	End of financial year consolidated gross assets	End of financial year employees
Group 1 ^{Note 1}	$500 million or more	$1 billion or more	500 or more	Above NGER publication threshold	N/A
Group 2 ^{Note 1}	$200 million or more	$500 million or more	250 or more	All other NGER reporters	$5 billion assets under management or more ^{Note 2}
Group 3 ^{Note 1}	$50 million or more	$25 million or more	100 or more	N/A	N/A

Notes:

Registered schemes, registrable superannuation entities and retail CCIVs are not included in the first phase of climate reporting for Group 1 entities (section 1707B(2)(b) and 1707B(4)(c)). However, they can fall within any type of Group 2 or Group 3 entity.
Asset owners can only be registered schemes, registrable superannuation entities or retail CCIVs.

Group 2 entities

An entity is considered to be in Group 2, and will be required to prepare climate reports as part of the second phase, if any of the following apply:

It meets two out of three of the thresholds in section 296B(2) of the Bill, that is:
- It has consolidated gross revenue for the financial year of $200 million or more
- The value of its consolidated gross assets at the end of the financial year is $500 million or more
- The group has 250 or more employees at the end of the financial year
To be in Group 2, an entity cannot simultaneously meet the higher thresholds for a Group 1 entity.
At the end of the financial year, it is a registered corporation under the National Greenhouse and Energy Reporting Act 2007 (NGER Act), or it is required to apply to be registered under subsection 12(1) of the NGER Act
It is a registered scheme, registrable superannuation entity or a retail CCIV, and the value of its group assets at the end of the financial year is $5 billion or more (referred to as ‘asset owners’ in the table above).

Registered schemes, registrable superannuation entities and retail CCIVs can also be Group 2 entities if they meet the criteria in (a) and (b) above.

Group 2 entities with 30 June reporting dates will have to prepare their first climate statements for years ending 30 June 2027, and those with 31 December reporting dates, for years ending 31 December 2027.

Group 3 entities

Group 3 entities are the last to report in the third phase. They must meet two out of three of the thresholds in section 292A(3) of the Bill, that is:

Its consolidated gross revenue for the financial year is $50 million or more
The value of its consolidated gross assets at the end of the financial year is $25 million or more
The group has 100 or more employees at the end of the financial year.

Group 3 entities with 30 June reporting dates will have to prepare their first climate statements for years ending 30 June 2028, and those with 31 December reporting dates, for years ending 31 December 2028.

During this third phase-in period, all entities that reported in the prior year as Group 2 entities will continue to prepare climate reports, noting that all Group 1 entities automatically became Group 2 entities in the second year due to the lower Group 2 thresholds.

Beyond the phase-in period

When the phase-in period is complete, the ongoing climate reporting requirements set out in section 292A look like this:

	Large entities and their controlled entities meet at least two of three criteria (size threshold test)			National Greenhouse Energy Reporting (NGER) reporters	Asset owners (Registered schemes, registrable superannuation entities or retail corporate collective investment vehicles (CCIV)
	Consolidated revenue	End of financial year consolidated gross assets	End of financial year employees
Group 3 ^{Note 1}	$50 million or more	$25 million or more	100 or more	All other NGER reporters	$5 billion assets under management or more ^{Note 2}

There are three tests, being the size threshold test, the NGER reporting test and the asset owners’ test. Climate reporting is required if one of these is met.

It is interesting to note that some listed entities, unlisted disclosing entities and other public companies may never be mandated to provide climate disclosures if they do not meet the size threshold tests above and are not NGER reporters. Similarly, climate reporting may not be mandated for smaller registered schemes, registrable superannuation entities and CCIVs if they have less than $5 billion of assets under management.

Large private companies will always be required to produce climate reports because they meet the size threshold test.

How BDO can help

Our sustainability reporting experts can help you to understand what these new climate reporting requirements might mean for your organisation. We can also help you along your sustainability reporting journey.