ASX stocks will need to Climate report from 2025: Is this a big deal?

Nick Sundich Nick Sundich, April 9, 2024

Like it or not, ASX stocks will need to Climate report from 2025. In other words, they will need to include climate-related information in their financial reports. In late March, amendments to the Corporations Act were tabled in parliament, facilitating this.

‘A rigorous, internationally‑aligned and credible climate disclosure regime will support Australia’s reputation as an attractive destination for international capital and incentivise investment in the energy transformation,’ Treasurer Jim Chalmers declared. But what do investors need to look out for? And will it make that big a difference to companies and people who invest in them? Those questions will be answered in this article.

 

ASX stocks will need to Climate report from 2025, but how will it work?

From January 1 next year, ‘large companies’ will need to make climate disclosures. Large companies are defined as a company with at least two of the following three characteristics: at least $500m in consolidated revenue, at least $1bn in gross assets or at least 500 employees. This was actually meant to happen after July 1 this year, but got delayed until January 1 2025. There are later stages from 2026-2028 when smaller companies (smaller as judged by being below the thresholds in the above metrics) will need to make certain disclosures, the specifics of which we’ll save for another report.

 

Sustainability reports

Large companies will need to prepare a sustainability report in compliance with ASRS (Australian Sustainability Reporting Standards) standards. They are comprehensive, but in a nutshell companies will need to disclose:

  • Governance processes used to monitor and manage climate-related risks
  • The strategy for managing risks and opportunities for the company’s business model and finances
  • The overall risk profile, including specific emissions and the percentage of assets vulnerable to climate-related risks and opportunities.

These will need to be lodged in conjunction with the company’s financial statements and annual reports – three months after the end of financial year for so-called ‘disclosing entities’ which should be most ASX stocks.

 

Will this be a big deal for the companies?

Maybe not for most companies. The Australian Council of Superannuation Investors has found that 70% of the ASX 200 was already reporting voluntarily under an international framework, although there may need to be some changes to apply with the standards enshrined in law.

We noted above that the timing is from January 1 next year instead of July 1 this year. The ASX submitted last year to a parliamentary inquiry that reporting starting on the previous date would impose ‘a significant burden on reporting companies’, given companies would need to work to meet reporting requirements. It will be interesting to see what requirements will apply to smaller companies and how long they’ll be given to catch up, although they will be given more time than larger companies to comply.

 

What about for investors?

Jim Chalmers declared that,’ Our changes will establish Australia’s climate risk disclosure framework, giving investors and companies the transparency, clarity and certainty they need to invest in new opportunities as part of the net zero transformation’.

‘A rigorous, internationally‑aligned and credible climate disclosure regime will support Australia’s reputation as an attractive destination for international capital and incentivise investment in the energy transformation’.

In our view, it won’t make too much of a difference. Anti-woke investors likely avoid ESG-friendly stocks anyway, and many companies reporting will retain their core operations. The Big banks will keep banking, the miners will produce commodities and the supermarket will sell groceries. It will just mean a little more work for the company’s auditors, although much of the blood, sweat and tears put in remains hidden from most investors, unless something goes substantially wrong, such as if reporting is delayed.

 

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