Auditors lambast mandatory climate reporting requirements

Almost 90% of surveyed auditors do not support the government's requirements to implement mandatory climate reporting and assurance on private companies, not-for-profits and companies limited by guarantee, according to a new survey.

The survey was conducted by Chartered Accountants ANZ (CA ANZ) between 12 and 17 April 2024 and found members were not happy about the new obligations.

"No one is denying the importance of material climate related disclosures, but it is a significant miscalculation for Group 3 entities to have to go to the significant expense, as well as the investment of time, to prove they have no material climate risk," CA ANZ reporting and assurance leader Amir Ghandar said.

"What's the point of subjecting Group 3 firms to such costs when the government has already indicated it expects that 95% of them will have no material risks or opportunities?"

Ghandar said CA ANZ members feel the government had "got it wrong" and are calling for the bill to be amended.

"Seventy percent of those surveyed believed it to be very or somewhat irrelevant to prepare an audited climate statement or statement of climate risks/opportunities for Group 3 companies," Ghandar said.

"And 84% of those surveyed strongly disagreed or disagreed that those Group 3 companies will have the capacity to prepare an auditable climate statement or assessment of climate risks and opportunities within the coming three years."

Ghandar said it was anticipated that audits for the mandatory climate reporting could cost anywhere between $20,000 and $50,000 and impact up to 8000 businesses.

He said this would be an enormous cost for businesses that should be focused on innovation, employment Australians and carefully framed actions that would actually support a low carbon economy.

"In our joint submission with CPA Australia to the government, we wrote that we support Treasury's efforts to establish legislation for a framework for climate related disclosures, but those in Group 3 don't appear to have been appropriately considered or consulted in the design of the package," he said.

"It is also going to put enormous strain on the audit profession at a time when we know many are facing burn out and there is a huge shortfall in auditors to complete existing tasks and requirements.

"We will continue to advocate to government about the importance of ensuring its recently introduced climate reporting Bill is fit purpose. I'm certain they don't want to send smaller business into unnecessary financial hardship as a result of these planned new reporting requirements."

Meantime, Australian Securities and Investments Commission (ASIC) chair Joe Longo said growing interest in environmental, social, and governance issues had driven the need for more thorough disclosure requirements but said the phased rollout should give companies ample time to prepare.

"This is a transformational issue for global markets, and we need to be ready to meet that change at every step of its development. To do that, we must maintain high standards of governance and disclosure," Longo said.

"We understand that there will obviously be a period of transition as industry works to build the capability required to meet these new obligations.

"For this reason, we support Treasury's phased approach to the implementation of the disclosure and assurance requirements. This allows time for the necessary uplift."

Longo said that while there will be a cost for entities to report, it will also bring benefits and opportunities to those doing the right thing.

"More reporting requirements mean you benefit from greater visibility of the physical and transitional risks. You can also benefit from climate-related opportunities of other entities in your value chain, and more visibility on these issues across the entire economy," he said.

"This will support companies to manage their own climate-related risk and opportunities over the short, medium and long term, in the best financial interests of the entity and its shareholders."

Longo said ASIC will develop and issue regulatory guidance on climate-related financial disclosures that will include a new regulatory guide for the climate reporting regime which will address its approach to relief from obligation as well as resources on its website for those who prepare and use sustainability reports.

These resources will be housed under a single dedicated page on ASIC's website dedicated to climate-related disclosures.

Longo urged entities to start preparing for the new disclosure obligations as soon as possible to make the transition easier.

"While it's too early to talk about enforcement strategy, that should not be taken to mean it's too early to be prepared," he said.

"This means considering and putting into place the systems, processes and governance practices that will be required to meet new climate reporting requirements. It means ensuring you adopt the necessary practices to avoid greenwashing."