Australian business groups have called for a delay in the implementation of the new mandatory climate disclosure laws, for fear of potential litigation. 

The laws, initially set to commence in July, require companies to report on climate-related risks and strategies. 

This comes after the federal government's release of an exposure draft on January 12, with responses due by February 9.
The legislation compels businesses to disclose short, medium, and long-term climate-related risks, including scope 3 emissions from customers and suppliers.

Under the new regulations, companies with an annual turnover of $500 million are expected to begin reporting from July 1, 2024. The requirements extend to smaller companies and asset managers over the next few years, reaching those with a $50 million turnover by 2027. 

Interestingly, a survey by South Pole, a Swiss climate consultancy, found that approximately 28 per cent of Australian companies have reduced their external communication on climate goals, a phenomenon known as ‘greenhushing’.

The Treasury, aiming to alleviate these concerns, has included a clause in the draft whereby only the corporate regulator, and not class action firms or private litigators, can initiate legal action against companies in the first three years of the regime. 

However, the Australian Institute of Company Directors (AICD) has identified a significant gap in this moratorium, noting that it does not fully protect against litigation related to a company’s climate transition plans during this period. 

This has led to calls for a possible six-month delay in the legislation's implementation.

AICD has expressed concerns over the short preparation time for such a complex legislation, emphasising the need for detailed correctness in the law, given its importance and necessity.

AICD chief executive Mark Rigotti says the potential risks of the current regime include the possibility of companies reducing their climate disclosures if the liability settings are not appropriately adjusted. 

He says there is an inherent uncertainty in these disclosures, given their reliance on external information, and the significant scrutiny directors would face in legally endorsing these reports.

The Treasury's policy statement says the government is committed to enhancing climate-related financial disclosures, to provide greater transparency for Australians and investors about a company's exposure to climate-related financial risks and opportunities. The regime is intended to align with international standards.

The climate-related financial disclosures are to be mandated through amendments to the Corporations Act 2001 (Cth) and related legislation. The Australian Accounting Standards Board (AASB) and the Australian Auditing and Assurance Standards Board (AUASB) are responsible for setting detailed sustainability and assurance standards.

Legal experts have analysed the draft legislation, noting that it will require large corporations and asset managers to make these disclosures in their annual reports from the financial year 2024-25. 

They say the legislation aligns with the government's previous proposals, with some key modifications. It confirms a phased introduction for entities required to prepare and lodge annual reports under the Corporations Act, with various exemptions and specific requirements outlined.