Clifford Chance

On 31 March 2025, the Australian Securities and Investments Commission (ASIC) released Regulatory Guide 280: Sustainability Reporting (RG 280), designed to help reporting entities comply with the Australian sustainability reporting regime.

The objective of sustainability reporting is to improve the quality, consistency and comparability of climate-related financial disclosures to enable users of that information to make informed decisions.

RG 280 provides guidance for companies, registered schemes, registrable superannuation entities, and retail corporate collective investment vehicles among other entities that are required to prepare a sustainability report under Chapter 2M of the Corporations Act 2001 (Cth) (Act).

RG 280 provides guidance on areas such as:

• who must prepare a sustainability report under the Act;
• the content required in the sustainability report;
• disclosing sustainability-related financial information outside the sustainability report (such as in disclosure documents and product disclosure statements);
• the role of directors in relation to the sustainability report; and
• ASIC’s administration of the sustainability reporting requirements and what relief or exemptions are available.

RG 280 states that the sustainability report and annual financial report should be lodged at the same time and relate to the same reporting period: the sustainability report "is the fourth report required as part of a reporting entity’s annual report, alongside the annual financial report, directors’ report and auditor’s report".

Entities that are not required to prepare a sustainability report or keep sustainability records include:

• foreign companies registered under Div 2 of Pt 5B.2 and entities incorporated in a foreign jurisdiction;
• small proprietary companies with no Ch 2M reporting obligations;
• other entities that are not subject to Ch 2M, such as registered charities; and
• entities that have obtained relief from the requirement to prepare an annual financial report for the relevant financial year (further discussed below).

Feedback received by ASIC

RG 280 follows feedback received by ASIC on its draft regulatory guide for consultation, together with Consultation Paper 380, Sustainability reporting (CP 380), dated 7 November 2024.

That feedback highlighted several issues, including:

In response, ASIC has:

• added guidance on climate scenario analysis and disclosing scope 3 greenhouse gas emissions;
• included further guidance for directors of reporting entities, and how to apply reporting thresholds;
• reviewed its position on labelling of sustainability-related information in sustainability reports; and
• updated guidance on disclosing sustainability-related financial information outside of the sustainability report.

Directors' duties and declarations

ASIC initially proposed that directors should be regularly informed about significant climate-related risks or opportunities. It has since clarified that RG 280:

"…does not impose new obligations on directors and is intended to help directors of reporting entities understand their existing obligations in light of the sustainability reporting requirements".^[1]

RG 280 includes general guidance for directors, including that directors should:

a)  understand the entity’s sustainability reporting obligations;

b)  understand climate-related risks or opportunities affecting the entity’s prospects, including cash flows, finance access, and capital costs;

c)  establish systems to identify, assess, and monitor material financial risks and opportunities related to climate;

d)  establish controls, policies, and procedures for overseeing, managing, and preparing the sustainability report, including identifying responsible business units and employees, and obtaining climate-related data;

e)  establish controls, policies, and procedures for keeping sustainability records; and

f)  critically evaluate the proposed disclosures, questioning methodologies, inputs, assumptions, and completeness, and determine if additional information is needed.

A sustainability report must include the directors’ declaration about climate statements. For financial years commencing between 1 January 2025 and 31 December 2027, directors of reporting entities are required to declare that, in their opinion, the entity has taken reasonable steps to ensure the sustainability report (other than the directors’ declaration) is in accordance with the Corporations Act and AASB S2 (modified declaration).^[2]

The modified declaration reflects ASIC's expectation that the sophistication and maturity of a reporting entity’s controls, policies, procedures, and systems for sustainability reporting will evolve over time, along with directors' understanding, experience, and capabilities in relation to sustainability reporting.

Accordingly, the board of a reporting entity must have or promptly develop 'climate literacy' to understand sustainability reporting and manage climate risks and opportunities. Reporting entities should consider implementing a phased training program to meet ASIC’s increasing expectations.

Labelling and emissions

ASIC has provided flexibility for reporting entities wishing to disclose broader sustainability-related information in their reports. Entities may include additional sustainability information, provided that climate-related financial information required under the Corporations Act and AASB S2 is clearly identified and not obscured. ASIC suggests using an index table in a prominent location within the report to identify mandatory disclosures.

ASIC acknowledges the challenges in reporting scope 3 emissions, including financed emissions, and permits the use of estimation for these measurements. Entities can use both primary data (from value chain entities) and secondary data (third-party or industry-average data), or a combination of both, for measuring scope 3 emissions, with proportionality mechanisms applied to these disclosures.

Modified liability settings

Under the modified liability settings, no legal action other than criminal action, or action by ASIC, can be brought against a person in relation to ‘protected statements’ made in:

• the sustainability report; or
• the auditor’s report on the sustainability report

Protected statements include:

• statements relating to climate and, at the time it is made, is about the future during the modified liability period; and
• statements made about scope 3 greenhouse gas emissions, scenario analysis or a transition plan made during the modified liability period.

Statements in a sustainability report are only protected if they are made for the purposes of complying with sustainability standards. Statements made voluntarily will not be protected (including, for example, where a protected statement is reproduced in an investor presentation or in promotional material).

Further, the modified liability settings will not apply to statements included by cross-reference in the sustainability report; statements summarising or expanding on the content of a protected statement; nor statements updating or correcting a protected statement unless included in a revised version of a protected statement that is required to be made.

Approach to supervision and enforcement

ASIC will adopt a "proportionate and pragmatic approach" to supervision and enforcement as sustainability reporting requirements are implemented, thus recognising, as above, that reporting entities will continue to build their capabilities overtime as the sophistication and availability of data matures.

In that regard, ASIC will:

• consider how it can support reporting entities through guidance and continue to monitor practices;
• engage with reporting entities to understand the basis of disclosures in sustainability reports, where it identifies that a statement in a sustainability report is incorrect or misleading in any way. If concerns remain, ASIC may provide reporting entities with an opportunity to make changes or exercise its new directions power to direct the reporting entity to:
  
  
  • confirm that the statement is correct or complete;
  • explain the statement;
  • provide information or documents that substantiate or support the statement;
  • correct, complete or amend the statement; and/or
  • publish the corrected, completed or amended statement, or give the statement to specified persons, in accordance with the direction; and
• commence an enforcement investigation where it sees misconduct of a serious or reckless nature, or where a reporting entity fails to prepare a sustainability report.

Relief

ASIC has the discretionary power to grant relief to a reporting entity from the requirement to comply with its sustainability reporting and audit obligations.

In assessing whether to grant relief from the sustainability reporting and audit requirements, ASIC will consider the underlying policy objectives of the sustainability reporting requirements, the users of the sustainability report, and established policy and precedents in relation to sustainability reporting and financial reporting.

Specific considerations apply for some applications for relief, including those relating to extensions of time to lodge sustainability reports, consolidated sustainability reporting relief and audit relief.

Phasing

The sustainability reporting requirements are being phased in over three years across three groups of reporting entities (as set out in 'Table 2: Commencement of sustainability reporting requirements' of RG 280), with the first reporting cohort required to prepare sustainability reports for financial years commencing on or after 1 January 2025. The second and third reporting cohorts are required to prepare annual sustainability reports for the financial years commencing on or after 1 July 2026 and 1 July 2027 respectively.

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^[1] REP 809 Response to submissions on CP 380 Sustainability reporting. 31 March 2025

^[2] The Act, s296A(6) as modified by s1707C(2)