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The questions Group 2 and 3 reporters should be asking about their disclosures — Transcript

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0:01But I don't think the role [music] of
0:02the board is evolving.
0:04>> Certainly more recently with how
0:06artificial intelligence has evolved.
0:07>> The budget did introduce several
0:09measures aimed at supporting industrial
0:11[music] decarbonization.
0:13>> It is our 10th edition of the deal
0:14tracker.
0:14>> growth and investment or sale process.
0:18>> Welcome back to Beyond the Numbers with
0:20Grant Thornton, a podcast unpacking
0:22marketplace shifts in today's dynamic
0:25business landscape. I'm Rebecca Archer
0:27and today I'm joined by sustainability
0:30reporting advisory partners John Askem
0:33and David Pitts. As group one
0:35organizations release their reports and
0:38group two already have started reporting
0:40as of the 1st of July 2026, there's a
0:43valuable opportunity to learn from the
0:46challenges and lessons emerging so far.
0:49With Australia's first wave of statutory
0:51sustainability reports now out,
0:54organizations still preparing should be
0:56paying attention to the outcomes and
0:58asking questions beyond the technical
1:01elements. Welcome John and David.
1:04>> Thanks Rebecca, pleasure to be here.
1:06>> Thanks Rebecca.
1:07>> All right, so let's go back to basics.
1:09First off, why are businesses needing to
1:13report?
1:13>> In summary, the new requirements are
1:15coming from the Corporations Act which
1:17was modified a couple of years ago
1:19to mean that effectively every business
1:21that has to lodge financial reports with
1:23ASIC will also at some point have to
1:25lodge a statutory sustainability report.
1:27And in summary that report will contain
1:29a mix of qualitative and quantitative
1:32information related to climate change
1:34and the the potential financial impact
1:36on the business. So that includes how
1:39climate-related risks and opportunities
1:41are governed within the organization,
1:43information about what the organization
1:45is doing about those risks and
1:46opportunities,
1:47what is its strategy, how does it manage
1:49risk. So a lot of narrative information
1:51that organizations
1:53might not be used to disclosing to users
1:55of financial statements. That report is
1:57really supposed to be uh an a complement
2:00to the existing financial report. It's
2:02intended to provide additional
2:03information to investors and lenders
2:06about the climate-related risks and
2:07opportunities. The requirements relate
2:09to climate only, so not other
2:11sustainability topics that might
2:12previously have been voluntarily
2:14reported on, like nature or biodiversity
2:16type issues, and only those aspects of
2:19climate that might have a financial
2:21impact on the business.
2:22>> And are there any particular areas of
2:24concern when it comes to this reporting
2:26that you're finding?
2:27>> I think the most obvious or common area
2:29of concern is probably the data required
2:32that underpins the report. So, a lot of
2:34organizations are quite concerned about
2:35the the data required, particularly for
2:38measuring greenhouse gas emissions,
2:39which is which is one of the
2:41requirements. It is just one aspect of
2:43the reporting, and it's true that it
2:44probably is the area that involves
2:46gathering the most data,
2:48but the emission disclosures are
2:49actually a very small part of the
2:50eventual reporting, and there are some
2:52other
2:53particularly technical areas that aren't
2:55well understood yet, around, for
2:56example, quantifying the impact of some
2:58of these risks and opportunities or
3:00undertaking a scenario analysis or or
3:03doing a scope three emissions
3:04measurement. Capability in those areas
3:06is is going to take a bit longer to to
3:07increase, I think.
3:09ASIC, though, has released some guidance
3:11clarifying the requirements in those
3:12areas in particular, focusing on what it
3:14calls a proportionate and pragmatic
3:16approach. So, they recognize essentially
3:18the skills are developing, and it it
3:20will take some time for them to reach a
3:21certain level of sophistication.
3:23>> I think one of the challenges and one of
3:24the sort of misconceptions
3:26is just the fact that it's called a
3:28sustainability report. Now, companies
3:30have been preparing sustainability
3:32reports for for decades, where they they
3:35talk about their impacts on communities,
3:38on the environment. This isn't that.
3:40What this is is really a it's a it's a
3:42climate risk report. So, it's it's all
3:44around risk management. It's about
3:46understanding the climate-related risks
3:48on an organization. And so, we've had a
3:51number of our clients talking to us
3:53saying actually
3:54we've been doing sustainability report
3:55for years and now we're being told that
3:57we have to prepare this sustainability
3:58report. So, what do we do with the old
4:00version? And so, I think I think there's
4:02probably just been a little bit of
4:04confusion in in the terminology because
4:06really this is all about it is a climate
4:09set of climate risk disclosures rather
4:10than a traditional sustainability
4:12report.
4:13>> It's an important distinction and and I
4:14wonder too, David, who actually owns
4:17sustainability reporting internally?
4:20>> Good question. It always used to be
4:22sustainability and and where
4:24sustainability sat would be different
4:27for different organizations. So,
4:28historically when sustainability was was
4:31seen as more of a marketing exercise,
4:32you would see sustainability sometimes
4:34sitting with with corporate comms. Now,
4:37I think the role is really should be
4:39spread between finance and
4:41sustainability teams. The sustainability
4:44professionals are the ones that have the
4:46experience the historic experience of
4:48really sort of telling the story the
4:50narrative around things like climate
4:52risk and greenhouse gas emissions. And
4:55you know, these disclosures there are
4:56numbers in them, but really they are
4:58kind of narrative focused and finance
5:01teams are you know, more used to to
5:03dealing with with the numbers. But as
5:05well, they are climate related financial
5:06disclosures. So, you you can't do them
5:09without the link to finance. And so, I
5:11think the answer, not wanting to sit on
5:13the fence, but I think the answer is the
5:14responsibility sits between both finance
5:16and sustainability.
5:18>> What if a team isn't big enough to have
5:20dedicated sustainability experts?
5:23>> And I think that is probably the case
5:24for for lots of organizations out there,
5:27especially as we get towards the group
5:30two cohort which are traditionally
5:32smaller. So, I think there are a lot of
5:34organizations that are grappling with
5:36these disclosures for the first time
5:37that don't have sustainability
5:39expertise. Similarly, lots of quite
5:42large global businesses that we're
5:44working with where they do have
5:46sustainability expertise, but often it
5:49sits within head office, so it sits
5:50offshore for Australia. And so the
5:52Australian team that are having to
5:53prepare Australia-specific climate
5:56disclosures don't have that sort of
5:58historic experience. So I think that the
6:00role of finance teams is really
6:03expanding at the moment and the role of
6:04the CFO in particular is really
6:07broadening to include climate. And as
6:10we're saying, you know, it is it is risk
6:12and it is they are financial
6:13disclosures. And so I think the
6:15expectation is that the role of finances
6:17is really expanding. And we also we get
6:20asked a lot whose responsibility it is
6:22within an organization and that because
6:24of the nature of the disclosures that
6:25John touched on, you need to involve
6:27risk. If you have risk expertise within
6:30business, you'll need to involve legal
6:31because there are governance disclosures
6:33that that touch on the legal side.
6:35Though one of the first things that we
6:37recommend to all of our clients to do is
6:38to really kind of work out where the
6:40roles and responsibilities sit within
6:42the organization for preparing the
6:44information and preparing the
6:45disclosures.
6:46>> I might just add to that point on the
6:48sort of coming together of finance and
6:50sustainability teams. There's been a
6:51real interesting clash in some cases of
6:54people coming from different backgrounds
6:56with different views on sustainability.
6:57So typically a sustainability team
7:00understands the the the climate science
7:02and the the physical things that happen
7:04in the climate, whereas accountants and
7:07auditors like to standardize things and
7:08put things into that sort of a
7:10standardized reporting format. It's very
7:12hard to do that and keep that technical
7:14engineering level of accuracy sometimes.
7:16So
7:17a lot of our engagements are sometimes
7:18translating between those two different
7:20teams and different views of the world,
7:22which is which has been interesting.
7:24>> Group one reports have been out for a
7:25while and we know that you have both
7:28digested first thoughts. In summary,
7:31what does good look like for you when it
7:34comes to this?
7:35>> From the ones we've seen, so it's
7:37actually quite a a limited cohort so far
7:39being the December year-end group ones
7:42that are publicly available. I think
7:44it's fair to say mixed is the initial
7:47reaction when when we looked at at the
7:49those that have been lodged so far, a
7:50mixed bag really. Some are very long and
7:52and very wordy and some are more
7:53succinct, and that doesn't necessarily
7:56correlate to the to the size of business
7:57we're talking about. So, some very large
7:59businesses have put out quite short
8:01reports and some smaller businesses have
8:03put out quite long but often repetitive
8:05content sometimes. So, it's been really
8:08hard to compare, which is normal I think
8:10because it's a new requirement. Uh a lot
8:12of people are getting to grips with this
8:13for the first time. So, I I suspect the
8:15comparability will increase over time,
8:17but for the first few years that there's
8:18really going to going to be some
8:20diversity in how these reports look.
8:22>> Yeah, John, I I think that you nailed it
8:24with the word comparability and I I find
8:27it really helpful to zoom out and to
8:28consider why this requirement exists in
8:31the first instance. And And the reason
8:33that Australia has introduced this
8:35requirement and why it's being
8:36introduced all over the world is to
8:39provide a comparable framework for
8:42financial decision-making for investors
8:45and um financial stakeholders. And so,
8:48that really is the is the key. Now, I
8:50think what we saw in the first wave of
8:53group one reporters from December was
8:55that there was still a huge amount of
8:56variability. But, to steal some some
8:59words from Kate O'Rourke, who's the the
9:02ASIC commissioner, she did a speech
9:04recently where she she talked about
9:06before these standards were introduced,
9:09we were comparing apples and oranges,
9:10and so we didn't have that comparability
9:12and and investors weren't able to make
9:15they they didn't have decision-useful
9:16information to make investment decisions
9:18with. We now have apples and apples, but
9:20they're all sort of different shapes and
9:22sizes. You know, she compared it to to
9:25to being an orchard with lots of
9:26different variations of apples. I think
9:29of it as sort of the the odd bunch
9:30packets of misshapen fruit you get in
9:32the supermarket. So, so the
9:34comparability
9:35is happening, and we will certainly see
9:38a a convergence and an improvement over
9:41the course of time.
9:42>> What's your recommendation for group two
9:45and three reporters?
9:46>> I mean the first recommendation is to is
9:48to get started early, not to leave
9:50things to the last minute because some
9:53of the work that's required to be done
9:55does take quite a long time. So, I think
9:57it's it's really worthwhile getting
9:59started early. You know, certainly that
10:03piece around working out the roles and
10:05responsibilities within an organization.
10:08Then, I think some of the first steps
10:09that we often see clients taking are
10:11working out what the governance
10:13framework is going to be over their
10:15climate risks and opportunities. That is
10:17one of the disclosure areas within the
10:20framework. It's also one of the areas
10:21that gets assured in the first year. So,
10:24I think being really clear up front
10:26about what that governance structure
10:28looks like, I think is is really
10:29important. It's a climate risk standard
10:32and so another one of the first bits of
10:33work that organizations need to do is to
10:36understand their climate-related risks
10:38and opportunities. That informs a number
10:40of workstreams down the track that
10:42they'll need to to complete. And so,
10:44actually having that clear view about
10:46what are your physical and transition
10:48climate risks is a really important
10:50first step. And then, for those that
10:51haven't historically been gathering
10:52greenhouse gas emissions data,
10:54considering what your reporting boundary
10:56is up front, which means that you then
10:58have a really clear idea about what data
11:00you need to gather through the course of
11:02a year. And I think if you if you put
11:04those pieces in place at the start of
11:07your reporting cycle, then I think
11:08you'll be in a really good position for
11:11for the rest of the year.
11:12>> Just one other practical point for group
11:14two and group threes, there might be a
11:15tendency to think that by the time they
11:17have to report enough group ones will be
11:19out there to to essentially copy or take
11:22some inspiration from some reports or
11:23out that are out there. And while that
11:25might be true in certain areas, say it
11:27might give you some ideas of how to
11:29present the information, for example,
11:31really the the purpose of the report is
11:32to be as specific to your organization
11:34as possible. So, it's very it's very
11:35difficult to standardize or boilerplate
11:38these disclosures. They are subject to
11:40audit or they will eventually be subject
11:41to to audit and the auditability of that
11:44information will be really important.
11:45So,
11:46copying another another report or
11:48thinking that an AI tool might be able
11:50to generate the whole report for you
11:51based on something that's already been
11:52published is probably not quite
11:55accurate. It might give you a a good
11:56starting point, but it's really
11:57important to make sure that whatever you
11:58do produce is based on fact and and your
12:01individual circumstances.
12:03>> According to the standards, are there
12:04things that businesses don't have to
12:07disclose?
12:08>> Yes, there are. So, in the first year of
12:11reporting, there are a couple of reliefs
12:13available for first-time reporters. So,
12:15the two big ones are relief from the
12:17requirements from having to disclose
12:19scope three emissions data, which can be
12:22quite a quite a daunting exercise
12:24particularly for for small and
12:25medium-sized businesses. So, scope three
12:27emissions involve estimating emissions
12:30that occur outside of your control. So,
12:32from your supply chain and
12:34through the use of your products and and
12:36services by customers, which is which is
12:37quite challenging. So, I think in
12:39recognition of that, the relief exists
12:41for from having to do that in the first
12:43year of reporting. The other one that's
12:44available is not having to disclose
12:46comparative information in the first
12:48year. So, not having to
12:50disclose the prior year information,
12:51which
12:52to be honest, virtually all first-time
12:54reporters are taking both of those
12:56reliefs that that we're working with.
12:57So, that I think relieves quite a
13:00significant burden in in the first year
13:02of reporting.
13:03The other thing I would encourage
13:04everybody to consider is the overarching
13:07concept of material information. So,
13:10materiality kind of underpins the whole
13:12the whole report and really material
13:15information is is information that is
13:17useful to whoever is using that report
13:19and that might change their decisions
13:22about whether to invest in you, to to
13:24lend money to you.
13:25It's different to the to the idea of
13:27traditional financial materiality, but
13:30it's not what you might think of as
13:32double materiality, which is another
13:33concept that that is often conflated
13:36with this idea of material information.
13:38We're still focused on an investor and a
13:41financial audience. So, it's information
13:43that might be material to them, but it's
13:45slightly different to the to to a strict
13:47dollar threshold that that exists in
13:49financial materiality.
13:50>> All right. So, what would your advice be
13:52for businesses when it comes to building
13:54something scalable?
13:56>> It's interesting. One of the things that
13:58we get asked a lot by clients grappling
14:01with the requirements in their first
14:02year is what system should I use? What
14:05carbon accounting platform should we
14:07use? And while there's nothing wrong
14:09with doing that in the first year, it's
14:11also not necessary. So, I think the most
14:14important thing in the first instance is
14:16to make sure that you really understand
14:20the disclosures you're preparing and and
14:21the work that sits underneath them and
14:23that the disclosures are auditable. So,
14:25they're supported by a robust trail of
14:28evidence. They will clearly mature over
14:31time and I think following that maturity
14:34curve, I would expect widespread
14:36adoption of carbon accounting platforms.
14:39But in the first year, there's
14:40absolutely nothing wrong with doing
14:41things in spreadsheets. I think
14:42especially the main area where that's
14:46really relevant is over greenhouse gas
14:47emissions. And there are lots of
14:49platforms out there at the moment that
14:51will help that process. But we similarly
14:53we see really we see lots of large
14:56organizations who are still gathering
14:57their emissions data for now in
14:59spreadsheets and there's no problem with
15:02that. It helps organizations to to
15:04understand how the information comes
15:06together and it helps auditors as well
15:08when they need to to perform their
15:10assurance.
15:11>> I'm assuming that to now auditor
15:13involvement has been limited, but will
15:15increase in years two to four of
15:18reporting. What needs to to considered
15:20here?
15:21>> Yeah, there's deliberately been a
15:23gradual phasing in of the assurance
15:25requirements in Australia. So, the first
15:27year's scope is just a limited assurance
15:29scope over a selected number of
15:32disclosures in the report. And so,
15:34limited assurance that the nature of the
15:37work you do as an auditor is focused on
15:40analytical reviews and understanding
15:43processes. When that increases to
15:45reasonable assurance, the testing
15:47becomes much more extensive and requires
15:51review of systems, processes, controls.
15:54And so, there's much greater scrutiny
15:55under the reasonable assurance.
15:57That's not applied until 2029 and
16:00beyond. So, there's a there's a few
16:02years for organizations and auditors
16:04because everyone's learning how to do
16:06this all at once. So, there's a few
16:07years where we're we're operating under
16:09limited assurance to enable reporters
16:13and auditors to understand and to to
16:17move along that that kind of growth
16:18curve, if you like. Having said that,
16:20there is an increase in the scope of
16:22assurance. So, the first year is just a
16:25limited scope of assurance. The second
16:26year covers everything in the
16:29sustainability report. So, all the
16:31disclosures around resilience, around
16:34scope three emissions is included in the
16:37second year assurance scope. So, there
16:39is a much broader scope of work to be
16:42covered in the second year. But, the key
16:44message is that and this applies for the
16:46assurance it provide applies to the
16:48disclosures, the expectation is that in
16:51the first year, what is being reported
16:53will necessarily be quite rudimentary
16:55for for the vast majority. And that
16:57maturity will improve and will increase
17:00over time. Remembering that assurance
17:03providers are learning how to do this
17:05work at the same time. There's been a
17:07vast upskilling program of financial
17:09auditors in order to to perform all the
17:12work that is now out there in in
17:14sustainability assurance. And so,
17:16there's a there's a really kind of large
17:18upskilling going on across industry and
17:21uh across the assurance practice.
17:23>> So, beyond all of the technical
17:25questions, what are group two and three
17:28reporters not asking yet, but very much
17:31should be?
17:32>> I think one of the first things that
17:35businesses should perhaps consider is
17:37how might the climate risks and
17:38opportunities they've identified affect
17:40their actual strategic business and
17:43decision-making. So, one of the big
17:45pillars of disclosure is around the
17:47strategic response to the identified
17:49risks and opportunities. So, if you
17:50think your business is particularly
17:52exposed to a physical climate risk or
17:55transition climate risk, what are you
17:56actually doing about that? And the
17:58answer might be nothing, or it might be
17:59that we're in the early stages of
18:01considering a response. It's fine to
18:03disclose that. So, the point of the the
18:05disclosures is really to be factual
18:07about how your business is responding.
18:09And if you've considered a risk or
18:11you're only just beginning to consider a
18:12risk, it's far better to disclose that
18:14factually than try and over-engineer a
18:17response that doesn't exist yet. And so,
18:20our methodology when we're working with
18:21clients is really about not
18:23over-engineering those disclosures and
18:24keeping it factual. So, if you don't
18:26have a sustainability committee or you
18:28don't have a an appointed person looking
18:30after these risks and opportunities yet,
18:32again, it's fine to disclose that. It's
18:34a factual disclosure about arrangements
18:35that currently exist. So,
18:37I think that's one area. Another area,
18:39when we think about the actual purpose
18:40of the report, is what might this
18:42reporting actually look like to an an
18:45investor or a potential investor. One of
18:47the overarching aims of this whole
18:49regime is to provide
18:50investors and lenders, or potential
18:52investors and lenders, with information
18:54that allows them to compare reports from
18:56from different businesses. So, when
18:57they're deciding which business to
18:59invest in or lend to,
19:01uh which of those has a a better climate
19:03change response or one that aligns more
19:05with what the investor might be looking
19:06for. So, two businesses in a similar
19:08industry with similar climate-related
19:10risks that approach them in very
19:11different ways might be viewed
19:13differently by an investor looking to
19:15put funds into into one of them. So, I
19:17think thinking about what that reporting
19:18might look like is really important.
19:20>> I guess the only things that I would
19:22add, we know that lots of first-time
19:25reporters are seeing this as a as a
19:26compliance exercise, and it is a lot of
19:28work. It's a heavy lift to to go through
19:31from nothing as a lot uh to to a fully
19:34compliant first-year report. I think the
19:36ones that will benefit the most are the
19:37ones that in the second and third year
19:39will will go, you know, we've got this
19:41really now rich reporting and this great
19:43data. We understand our risks and our
19:45opportunities. What are we going to do
19:46with it? Are we going to continue to see
19:48this as a compliance exercise, or are we
19:50actually going to to use this
19:51information strategically? So, that's
19:54that's what I'd hope to see, and I think
19:56that's a real opportunity for reporters.
19:58The other thing that I think we'll see
20:00over time, and this this comes back to
20:02the um the the speech from ASIC
20:04Commissioner Kate Oro, the expectation
20:06will be that as we've as we've sort of
20:08said already, the sophistication and
20:11maturity will increase over time. So,
20:13the quote was that we don't expect the
20:15baseline to become the benchmark. We
20:17know that the sophistication of
20:18reporting will increase over time, and
20:20so constantly thinking about how you
20:22improve the reporting from year on year.
20:24>> I think we've certainly seen that in the
20:26the first-year reporters that we've
20:27helped over the line in this first year,
20:30the message really has been that what
20:31gets you over the line this year might
20:32not stand up to scrutiny next year. And
20:34as a business, you you'll want to avoid
20:37painful manual processes to bring this
20:39report together in a scramble at the end
20:40of the year or having to engage uh
20:43external consultants, frankly, to to do
20:45this for you year on year is not not
20:47palatable to to many businesses. So,
20:49we're really focused on educating our
20:50clients so that they don't have to do
20:52that, and that they can put the proper
20:53governance in place for for the full
20:55year, where possible.
20:56>> John and David, thank you so much for
20:59coming on to the show once again.
21:01For those listening who would like to
21:04connect and maybe delve deeper into the
21:06work that you do or explore ways that
21:08you can potentially assist them. What's
21:10the best way for them to reach out and
21:12get in touch with you?
21:14>> I think we're we're very happy to
21:15connect on LinkedIn or for people to
21:18have a look at the Grant Thornton
21:19website. Uh David and myself are part of
21:22a team of
21:23a team of specialists and all of our
21:24contact details are there. So, we're
21:26very happy to um to set up a call or a
21:28meeting if anybody is interested.
21:29>> If you enjoyed this episode, make sure
21:31to follow Grant Thornton Australia on
21:34Apple Podcasts or Spotify so you never
21:36miss new insights. Do you have a burning
21:39question or a challenge keeping you up
21:41at night? Drop us an email. We'd love to
21:44hear from you. Our experts are here to
21:46break down the business, tax, advisory,
21:48and consulting landscape so you can
21:51focus on building your business. I'm
21:53Rebecca Archer. Thanks for listening.
21:58>> I like to move at pace.
21:59>> We've been talking about tax reform for
22:01many years.
22:02>> You would have seen the square meter
22:03rates rise. Results from that
22:05>> most recent survey.
22:06>> So, I was trying to basically tell you
22:07the trends to sectors what they need to
22:09do to comply.

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