SLR Responds to Treasury Consultation: Making climate reporting more efficient

Treasury is consulting on changes to Australia’s climate reporting requirements, including the transition to reasonable assurance, reflecting a legitimate concern that assurance costs and effort could outpace the decision-usefulness of the information being assured. However, improving the value of climate disclosures does not require a fundamental overhaul of the reporting framework. Instead, we believe targeted refinements and guidance in terms of practical implementation can enhance both efficiency and decision-usefulness while preserving the integrity and intent of the existing requirements.

At SLR, we have contributed to preparing 35+ Australian Sustainability Reporting Standards (ASRS) Sustainability Reports over the past 12 months. We welcome the consultation but believe its outcomes should preserve the purpose of climate reporting: to provide useful, credible information about how climate could affect a business’s financial outlook.

That means ensuring the standard is applied consistently well, making it proportionate, and ensuring assurers have the capability to deliver it, focusing on what matters to report users.

Based on our experience, we see four areas where targeted improvements could make the framework more effective without comprising its intent:

1. Make Assurance Count

Assurance gives investors, lenders and other users confidence that climate-disclosures are complete and evidence based. Limited assurance already gives that initial independent seal of approval.

Reasonable assurance goes further, testing that reported figures reconcile to source records and that processes work as described. That matters most where users rely on the numbers, such as emissions and the financial effects of climate-related risks. For other qualitative disclosures, proportionate reasonable assurance may look much like limited assurance does today.

Assurance is also one source of discipline among several. The modified liability period is winding down, and the Australian Securities and Investments Commission (ASIC) has signalled a more active approach, with the Directors' duties, investor and insurer scrutiny, and the Australian Competition & Consumer Commission’s (ACCC) attention all applying regardless.

The concern about efficiency, resourcing and cost is acknowledged and we believe the answer is assurance that focuses on material information, is proportionate to risk, and is delivered by qualified teams. Traceable data, documented methods, and testable controls are worth building because they give users confidence, not just to satisfy the assurer.

2. Make assurance proportionate to materiality and risk

We have observed significant variation in how assurance providers approach climate disclosures, including the depth of scrutiny and the nature of evidence requested. These experiences have raised understandable concerns about the workload, cost and uncertainty businesses could face as they move to reasonable assurance.

Reasonable assurance should be grounded in an assessment of materiality and the risks of material misstatement. The nature and extent of assurance work should reflect those judgements, with work tailored to factors such as the complexity of the disclosure, the maturity of underlying data and controls, the availability of supporting evidence, and the significance of the reported information to users' decision-making.

This requires judgement about individual disclosures, emissions categories and underlying assumptions, including how errors or omissions could collectively affect report users’ decisions. The significance of each will differ between businesses, and assurance effort should reflect those differences.

Applied properly, this approach should keep the work required for reasonable assurance proportionate to the information’s significance and the assessed risks. Businesses should expect rigorous scrutiny where it is warranted, with a clear rationale for the evidence requested. More consistent application of materiality, supported by practical guidance and capable assurance teams would help reduce avoidable work while maintaining reporting credibility.

3. Require properly qualified assurers

Capability, interpretation and levels of scrutiny vary widely between assurance teams. We have spent disproportionate time responding to questions that reveal gaps in understanding of climate topics and, in some cases, basic AASB S2 requirements.

ASSA 5000 (the Australian standard setting out general requirements for sustainability assurance engagements) already requires relevant sustainability competence at both engagement-leader and collective team level. The issue is how consistently that competence is demonstrated in practice.

Assurance teams need the expertise to assess climate information, understand its relevance to the business and exercise informed judgement about the evidence required. Stronger monitoring of training and competence, evidence of appropriate experience, and practical support and guidance would help improve consistency and reduce unnecessary demands on reporters.

4. Focus on what matters to report users (financial quantification)

AASB S2 Climate-related Disclosures has a clear objective. It requires entities to give primary users of general-purpose financial reports useful information about climate-related risks and opportunities that could reasonably be expected to affect the entity’s cash flows, access to finance or cost of capital over the short, medium and/or long term.

The consultation has over-indexed on GHG emissions, particularly Scope 3. Whilst this is an important area where most companies are still maturing, it may not be the most critical information for users seeking to understand a company’s financial exposure to climate impacts.

Guidance on financial quantification deserves greater attention. In our review of >200 public ASX-listed reporters (as of 2nd October), only 7% put an absolute number on anticipated climate-related financial effects. This points to a need for greater guidance and support on acceptable approaches to financial quantification, including how climate scenarios and business planning horizons should inform assessments.