Webinar — Sustainability reporting in 2026: What's changing and what's expected

[00:00:00] Speaker 1: everybody and welcome to our first sustainability webinar for 2026 and in this webinar we're looking at sustainability reporting in 2026 what's changing and what's expected now we've got a few changes or a couple of changes for 2026 first of all you are lucky enough that you will not have to listen to only me this year i've got some fellow presenters that will be joining me um i feel as if the attendees have been long suffering listening to only me for a number of years so i'm very excited to welcome um claudia ramona and natalia who are all senior managers in our sustainability reporting team in melbourne so excited to welcome them um we will take turns to present during the year it would usually be me with one of them or all of them or a combination of them so good morning claudia ramona and natalia and welcome to our sustainability webinars [00:01:04] Speaker 2: thanks [00:01:07] Speaker 1: bdo acknowledges the traditional custodians of country throughout australia and their connections to land sea and community and we pay our respect to their elders past and present and extend that respect to all aboriginal and torres strait islander peoples now you've registered for the first one um but we want to flag that there's 12 for the year one every month usually the last wednesday of the month and this is an overview of the schedule for the year um so in january we're looking at what's changing and what's expected in february we're looking at making the case for sustainability and why should ceos and board boards care about sustainability including sustainability reporting and then basically for the rest of the year we go back to our now beloved double asbs to climate related disclosures and we try and unpack and help you to get ready for mandatory sustainability reporting now some of you are group one clients um or entities and you are getting ready to report maybe you've had this 31 december year end and you are getting ready to report maybe a march year in maybe june year end so this is very relevant for you what do you have to do to get ready for mandatory reporting shortly if you are feeling that there are topics that we're discussing later on the year but you actually need it now you can go back to our recorded sustainability webinars from previous years because in 2025 in particular we covered most of the requirements of double asbs too we are revisiting all of those um mainly for the benefit of group 2 and group 3 um entities then we also do monthly ifrs and corporate reporting webinars and now the big thing in ifrs world at the moment is the new ifrs 18 looking at the format of your profit and loss so quite a bit of changes to the presentation in profit and loss or your old income statement so you can see we've scheduled a number of webinars unpacking ifrs 18 if that's of interest to you um we are also very proud to announce and it actually is going out on the website today um that um bdo is partnering with um the financial review and sustainable to present sustainability leaders um so it is um we've partnered with australian financial review we are the presenting and the methodology partner for the 2026 and 2027 sustainability leaders program and through that program and the afr and bdo are trying to recognize organizations delivering delivering measurable sustainability impact so if you want to find out more about that program um videos role and in particular whether your organization could be an entrant into that um competition uh please do so and there's a link for you you can read all about it very proud to to work with the afr on this then um we have last year recorded a number of short videos sustainability essentials for financial leaders or professionals it's available on the quich platform um i think a nice thing about this is a lot of of board members executives or broader staff members in some of our clients are asking you know how can we learn about sustainability short sharp um five short videos we get cpd credits for it and it gives us a good baseline understanding then we also run our quarterly carbon accounting master classes it's a virtual global master class and the dates for 2026 and the first one on the 11th of february so quite shortly believe it or not you can register use um using that green button and we would love for you to register for any of these carbon accounting master classes it's a full day carbon accounting master class nine to five you receive our video global carbon accounting methodology which i guess is around 200 pages you get access to 26 case studies as well as the solutions and obviously all the powerpoint slides and and i'm presenting those master classes now for those of you have who have in the past attended our carbon accounting master class um we've created an alumni group and the reason for that is you might have attended the master class three months ago two years ago and things have changed and things are constantly changing and therefore we want to circle back to you and provide an update on changes since you've attended the carbon accounting master class so this one is complementary it's only for people who have previously attended the carbon accounting master class so this is a quarterly top up on latest developments again the dates available the first one is already on monday the 9th of february and the other thing that we've got available to help you to get ready for mandatory sustainability reporting we've got a double asbs 2 um disclosure checklist 150 disclosures where you can do a self-assessment to what extent you're ready to do the disclosures and we can also help you to do that and we are actually more interested in helping you address the problems um after you've had a look at that checklist in the checklist um it's not just four pillars in australia it's the normal four pillars governance strategy risk management and metrics and targets but also in order for double asbs 2 to work we need some paragraphs from double asbs 1 31 of them and they've been included in appendix d of double asbs 2 so double asbs 2 is a standalone self-sufficient standard and we've just embedded those paragraphs that we use and you also have to comply with with them they are mandatory paragraphs um in december last year bdo global together with bdo australia our team worked on this um published our model accounts or our illustrative sustainability report and there's a link there where you can download this illustrative sustainability report so there's a disclosure checklist and if there are gaps there's also illustrative sustainability report very important your illustrative sustainability report should be read together with our illustrative financial statements because the two of them sit side by side and that's also how it will be for your organization sitting side by side within your annual report so quite a lot of resources training opportunities collaboration opportunities available for you in 2026 i also want to say if there are any specific needs ideas please feel free to reach out to us and we consider that now earlier i said we're making a couple of changes to the webinars this year the first one is it's not just me we've got four presenters um the second one is at the end of every webinar we'll also have a q a session unfortunately with the technology a live q a is not possible so what we've said is as you register for the webinars there's an opportunity to log questions if you've got particular questions on your heart um and in the webinar we will address each and every one of them um also um during this session you can log questions um it's hard for me to access that while i'm presenting and respond etc so what we'll do at the end of the webinar we'll take all those questions you've raised um and either address it in next month's webinar in the q a session or we'll include include it in an article in our corporate reporting insights that go out every month or sustainability news um so that's the two i would say new things for 2026 um latest developments as you know we always start these monthly sustainability webinars with the latest developments because we try and come up with the topics we think is suitable but then things happen and and we have to discuss them if you've missed our december 2025 webinar please go back and watch the recording you can get it on our website as well as the powerpoint slides because there were slides and slides and slides and slides and slides of latest developments which i don't have the time to repeat today um so please have make sure you've considered all those latest developments but for today um i think big news is on the 21st of january so only last week um the australian auditing and assurance standards board issued um illustrative corporations act sustainability assurance reports um and and audit reports um so really important that you can look at those illustrations on the right hand side they've got four illustrations so the first one is for year one where we have the auditors doing a review report of specified sustainability disclosures prepared in accordance with the corpse act so it's a compliance framework to what extent did the client comply with the specific requirements and so they only look at certain of the disclosure requirements and they don't have to express and appear a conclusion on everything um the second illustration is um where there is an audit and a review report of these specified disclosures so an example would be some clients would say i want an audit of my scope one and two emissions and and and that is going above and beyond the mandatory requirements but i want a review of the other items so how does a report look like where there's an audit opinion and an assurance conclusion so that's the other illustration illustration illustration two illustration three is looking at years two and three um for your organization so that is where in years two and three we need a review report on a sustainability report that is prepared in accordance with the corpse act but now it is all the requirements of the corpse act and all the requirements of double asbs two so it becomes a fair presentation framework so in year one it's just complying with the specific requirements in scope two doesn't give us fair presentation we look holistically at double asbs two and the corporations act and then an illustration for year four year four onwards this is where we need an audit of the sustainability report um and and and that will also be a fair presentation framework when you look at these illustrations year one year two year three year four means your entity's first year second year third year of reporting which will obviously be later for groups three than for our current clients reporting under group one um so there's a link to the auditing assurance standards board website uh you can uh look at all these illustrations and these are snippets that i i wanted to flag with you on the next few slides you can see a little bit of an extract on that illustration one so that is the report we expect for most entities in the first year where there is a review conclusion on very specific disclosures some on governance a few sub paragraphs on strategy risk and opportunities and then also scope one and two emissions so here you can see what does the review conclusion look like we have conducted a review of the following specified sustainability disclosures in the sustainability report of abc company for the year ended let's say 31 december 2025 as required by assa 5010 and under the corporations act um and and and and it's issued by the auditing assurance standards board and there you can see a list these are the specified disclosures that the auditors are expressing a review conclusion on so if it's a review it's a conclusion if it's an audit it's an opinion so here it's just a review it's a conclusion um and then they say you can see in the little block at the bottom we have not become aware of any matter in the course of our review that makes us believe that the sustainability disclosures specified in the timel above do not comply with division one of part two and three of the corporations act so it is a conclusion it's um negative assurance nothing it's uh we've not become aware of anything so that's the kind of report we're expecting to see um then i just want to flag this as well lower on in the report don't overlook this there's a paragraph there's a paragraph on other information and this is important because all the other requirements of double asbs to have to be included in your mandatory sustainability report with the exception of scope 3. um so what about all that other information in the mandatory sustainability report what would auditors do about those now here they explain in this report the directors of the company are responsible for the other information and the other information comprise and then they describe the information so everything required by double asbs to a strategy risk management metrics and targets our conclusion on the specified disclosures does not cover the other information and we do not express any form of assurance conclusion on the other information however in connection with our review of these specified sustainability disclosures our responsibility as auditors assurance providers is to read the other information identified above and in doing so consider whether the other information is is materially inconsistent with the specified sustainability disclosures or our knowledge obtained when conducting the review or other but otherwise appears to be materially misstated if based on the work we've performed we conclude that there's a material misstatement of this other information we are required to report that fact we are nothing we have nothing in report to report in this regard if they haven't seen anything so you can see in a very subtle way the auditors will look at all the disclosures around double asbs too and if there's anything in there that they think is a material misstatement although it's not the scope of the assurance they have to report that now in practice and claudia and ramona and natalia will agree with me in practice when we do advisory work and this assurance being provided um by other firms including oh sorry video firms as well we know that they are not just asking our clients and us for information about governance climate risk and opportunities in scope one and two the auditors are actually asking for all the information all the supporting information and it's because of this paragraph they have to read it they have to assess whether it's materially misstated or not so i think it's important um to just read that paragraph a number of times and many of you would already experience that um in practice and then they also talk about responsibilities for the specified sustainability disclosures they make it very clear the directors are responsible for the preparation of the disclosions in the in accordance with the act and the directors are responsible to design implement and maintain internal controls necessary to enable the preparation of this report that's that's the job of the directors um it's similar to what we see in financial statements um you know in an audit report over financial statements they are these are the responsibilities of the directors these are the responsibilities of the auditors and then obviously there's an opinion so i think it would be um worth your while to have a look at those illustrations so that's the first new development the second thing as you know in europe there's been a lot of activity and so the european parliament have approved uh simplified sustainability reporting and due diligence rules so finally approved it's taken them a while um it's it's captured in omnibus one there's a link to an article by video global on that so if you look at the simplified sustainability reporting and the reduction in scope um only eu companies with over a thousand employees on average and a net annual turnover exceeding 415 million euro will be required to report on sustainability so they've really raised the bar really high um they also said and i think that's more important for our australian entities is the same turnover threshold of 450 million euro generated within the eu will apply for non-eu companies and to their subsidiaries and branches generating net annual turnover of over 200 million within um the eu and so i think that's important to have a look at that sector specific reporting will be voluntary similar to double asbs2 where we don't have sector specific disclosures and then smaller companies with under a thousand employees will be protected from being required to provide additional data beyond the voluntary set of sustainability disclosure standards so they've got a voluntary standard for smes um and that's a requirement that could potentially be mandated so there's some protection against that um and then also the eu will launch a digital a portal offering templates and guidelines um so we're really trying to uh water down um the quite extensive european sustainability reporting standards um at the moment the watered down european sustainability reporting standards of are closer to ifr s1 ifr s1 s1 and s2 in the past european sustainability reporting standards there were 12 of them were way above um so i think there's more alignment as a result of this there's also adjustments around corporate corporate due diligence um and due diligence obligations will apply only to eu companies with over 5000 employees and net annual turnover of more than one and a half billion euros so some information about that for you as well then i wanted to flag with you that a video global has published um our 31 december 2025 sustainability reporting update there's a link to that update in that update there's an update on what's happening in europe australia japan all the different countries gri um tnfd etc so very good um round up if you want to have a look at that especially outside australia the other thing that i wanted to talk about is the task force on nature related financial disclosures the international sustainability standards board that's published ifr s s1 and s2 have in there or have at the december meeting in 2025 decided to officially put on their work plan on their work plan the development of a um ifr s s3 um based on the requirements of the task force on nature related financial disclosures um so looking at nature i think the title at the moment is around biodiversity um um but that will be ifr s3 they've done a lot of research and now it's officially on the work plan and they've also said they expect that very shortly officially on their work plan um will be the development on of an exposure draft um for the workforce ifr s s4 just coming back to you know tnfd and they will be basing ifr s3 on the tnfd disclosure requirements similar to how ifr s2 was based on the tcfd and so you can see the tnfd have similar pillars we've got governance strategy risk management metrics and targets they call it risk and impact management but you can see similar four pillars uh similar high level recommended disclosures at the moment but this will now be codified into ifr ss3 um i've listened to a podcast where the deputy chair of the issb said they expect an exposure draft during 2026 now usually there will be an exposure draft usually quite significant period to provide feedback then it will turn into a standard so i'm guessing now let's say a standard in 2027 and then usually an implementation date or recommended implementation date another year or two further so i'm thinking we're looking at 28 29 and then australia has to decide whether we're going to adopt it and mandate it in australia and i think the australian government has made it clear that they want to focus on climate first they want to focus on making sure double asbs2 is well embedded in um for group one two and three before they add additional standards but but that's a possibility um and they they moving fast ahead the other thing i want to touch on is the video global sustainability survey and many of you have been kind and have completed the survey and we really appreciate that so we wanted to share some of that so first of all you can get look at the report which was finalized in october which you can download there but a few key things so one of the the positives that we've seen out of the survey and it was a global survey um but a lot of participation from australia so just thank you again but positives um sustainability remains in focus um 87 of companies um include sustainability in their business strategy um and companies are clearly motored motivated by the need to run sustainable businesses so that's fantastic and the second thing is um sustainability creates business value 83 percent of respondents view sustainability as a competitive advantage motivating increased or at least stable budgets and continued reporting despite political or regulatory setbacks and these regulatory setbacks backs is like talking about what's happened in europe many entities in europe because they see the competitive advantage that continue to do reporting and then budgets sustainability budgets are largely intact um so those entities haven't lost budgets despite trends towards deregulation and regulatory delays in europe and obviously in the us um on the right hand side some of the negatives um there are cost and investment barriers and investment barriers and that's the top challenge globally um alongside regulatory uncertainty um especially for smaller companies you know it adds complexity so we have a regulatory certainty in australia but we do have cost and investment barriers um then also a negative developing the business case and regulatory changes can be a hindrance for some companies um and we're going to talk about developing that business case for ceos and boards next month and then also resource constraints so smaller companies struggle with limited resources and expertise and making it hard to implement um sustainability plans effectively so 83 percent of respondents say that sustainability provides a competitive advantage yet only 25 percent of these companies have a mature sustainability program so i think there's a lot of work to do and then on the right hand c side you can see we've looked and asked for the top we've looked and asked for the top challenges when implementing a sustainability strategy and if you look at asia pacific obviously where australia sits the highest challenge cost and investment barriers and then regulatory and compliance complexity as well as insufficient resources change management internal resistance yes we see that and finally short-term pressure versus long-term goals and i think that's all very valid um what we're seeing in the market and then some regional insights um you know some quotes that i've provided to the report um and you can see the countries participating with australia china india japan the philippines and singapore um and then in asia pac um we are leading the way on mandatory sustainability reporting reporting so you can see 47 percent of respondents have published a sustainability report this is a voluntary sustainability report which is a bit lower than europe 36 percent of respondents are primarily focused on compliance because we've got mandatory regulate regulatory requirements and then 31 percent are integrating sustainability into business operations so a bit of an overview of what we've seen from our global survey and the report was published in october so what's changing in 2026 um earlier this month um i've published an article or we've published an article that i've written and it's in the accounting times and it was the reporting evolution that's accelerating into 2026 in australia um and and we said you know in 2024 um that's when sustainability reporting gathered momentum in australia and 2025 was the year that it became part of mainstream reporting so yes in 2025 the foundations were led but in 2026 is really the year where businesses will start building structures that sit on top of those foundations because mandatory annual sustainability reporting is is now a thing and we have to get ready to do that more efficiently and effectively not just building the foundations in year one but how do we repeat it going forward so that's an article that you could have a a bit of a a look at so what's changing so what's expected now this i'm going to do really fast and this is a recap for those of you are attending the webinars for the first time and don't know whether you are group one group two or group three and therefore what that means for mandatory sustainability reporting believe it or not we still get this question are we group one two and three when do we have to report when do we have to start um so there are three criteria criteria one the size threshold if you meet that or if you meet criteria two or if you meet criteria three you could fall in a particular group if you look at criteria one the size threshold if you meet two of the three um you will meet that criteria so that's a bit of an overview very important and i just want to highlight this again the threshold question if you are new to this the threshold question is is your entity lodging a financial report with asset as required by part 2m of the corpse act so if you have a group of entities the first question is which of those entities are lodging with asset and why are they lodging with asset if they're lodging under part 2m because they are large private disclosing listed etc they are within this regime if our logic under part 7 because they have an afsl license and that's the only reason they're lodging they are not within this regime so that's the first thing the second thing is if you've got a group with subsidiaries um they're trying to make it easier for subsidiaries to not have to do their own sustainability report um so it's not like financial reporting it's not about having deeds of cross guarantee in place it's got nothing to do with that um and you don't have to meet the class order requirements it merely is is the entity that you're looking at a subsidiary whose ultimate australian parent prepares and lodges a consolidated sustainability report with asic and if you say yes that subsidiary still have to lodge a financial report with asic but they don't have to do a separate sustainability report this is a bit of an overview of the previous slide and how the different criteria work together to work out whether you are scope one or whether you are group one two or three reporting timeline um if you group one it's for years beginning on or after one january 2025 group two years beginning on or after one july 2026 and group three years beginning on or after one july 2027 and we've got a table explaining that a little bit more really important to know that there are special rules from an assurance perspective for group one entities where the years started between one january and 30 june so it's only for group one it's only if their years have started between one january and 30 june so for example if we've got a group one with the 31 the 31 december 2025 year end and the special rule for them is that they've got two years where they have limited assurance over only a small number of things three things and then they go to another two years of limited assurance of limited assurance over everything and then only by 31 december 2029 their fifth year of reporting do they need reasonable assurance so normal audit um so that's a special rule for those group one entities your other group one entities where their years begin between one july and 31 december you can see they don't have that long runway and they have one year of limited assurance over only three things two years of limited assurance over everything and then reasonable assurance in the fourth year that they're reporting so special rules there now what we've previously done is we flagged with you a best practice roadmap and recently we've tweaked it a bit um and our best practice roadmap for group one entities we've got three project streams and the one is on carbon the other one on the rest of double asbs2 and the gray one is gray out it's it's voluntary is double asbs1 so if you look at mandatory reporting it's the top two streams um each one have five projects in that stream um and the one that we've tweaked in project stream two we've added establish or improve appropriate governance and risk management structure um we've added that at the start of that project stream so you can see there's now five projects in project stream one five projects in project stream two together ten projects in red i've marked the projects that will be explicitly subject to assurance but all the other projects and the outcome of the other projects will also be subject to the order to having a look at it the only exclusion obviously there's scope three because we only include scope three in the next year and then targets you're not forced to set a target but you could potentially set a target or um already in your first year a little bit slower for group two entities and i've put a red block around strategic focus because sometimes a group two and group three entities are saying we don't have to do mandatory reporting but strategically um you know it's it's time for us to do something because our clients are asking for this information we thought it's a good idea in the 25 minutes left to give you a bit of a run we're going to be a bit of a run over very high level of project streams one two and three and the different projects in that because people often say a letter you've got the proposed roadmap what goes into each one of them what do you do within each one of them so claudia will be looking at project stream one uh around carbon accounting over to you claudia [00:36:53] Speaker 2: thanks the letter um and thank you again for having me so project stream one carbon accounting um it's definitely forms part of the metrics disclosure within your sustainability report but we separate it out because they're it's subject to a different set of measurement frameworks and it therefore deserves its own attention to make sure that you are ready for assurance at the end of the process so project number one is develop a boundary setting policy um for those of you that aren't new to the webinars you will have heard about this before so rather than going through exactly what that involves we wanted to answer some of the questions that we're seeing come through so in terms of the key things that you need to consider when you're developing a boundary setting policy the first one is the consolidation approach so in the same way that you need to consider which businesses need to be consolidated into your financial reporting entity when you're preparing your financial statements the same process applies here so there are three consolidation approaches and you need to be able to justify why the one you've selected is appropriate for your business that can be done in a local context based in australia it can relate to the global context whether you have a parent entity or operations overseas but it's important that you select the right one for your business when you do that you then consider the whole group structure all of your investments your subsidiaries all of your different connections um within a group entity that you're that you're operating so when you do that it's important that it is complete and it's documented appropriately so that you can then show your assurance provider your auditor the process that you've gone to to identify what your organizational boundary is once you've done those steps the operational boundary step number three step number three if you will is to then classify all of the different sources of emissions within that operation the the organizational structure that you've defined so making sure that you're not missing any product streams and that you are really capturing all of the different sources of emissions um to make sure that your policy is as complete as possible it's really important that you you consider your whole value chain at this step because if you try to limit your policy to scope one and two it means that you might miss things which will cause issues down the track so the key thing to note here is always always always focus on completeness which is a key word that i know that everyone who listens to webinars is very useful so that's the boundaries boundary setting policy project number one where it all begins project number two then takes the boundary setting policy to develop a basis of preparation for actually then going through scope one two and three and the reason it's important to go through scope one two and three again just like that the boundary setting policy is to make sure that if the source of emissions isn't captured in scope one we know exactly where it does go for completeness purposes so a key question that we get is what goes into this basis of preparation and i think logically what an auditor will expect to see in your basis of preparation is a description of the source of emissions that you need to measure so for each different source of emissions there should be a section addressing that source of emissions a description of the activity data that you're using and this is really important because obviously internally you want to be able to efficiently repeat this process year on year or more frequently depending on your needs and then you need to be able to appropriately assess the quality of that data so the greenhouse gas protocol gives us five quality indicators reliability temporal appropriateness geographical appropriateness technological appropriateness and the most important completeness again a theme our favorite theme if you're listening to webinars regularly that data quality assessment is absolutely critical because if you compare it or if you follow your organizational boundary you'll be able to see whether you have any data gaps that need assessing or addressing and all of those data gaps whether it's the fact that you can't collect data for a certain entity or you've never collected data for a certain type of emission before that's exactly the kind of issue that that process helps you identify where you need to allocate your resources next so those gaps in or to address those gaps sometimes you can make assumptions sometimes you need to estimate perhaps using extrapolation but for a lot of the people on the call who are chartered accountants it's a good thing that we are in the business of being of making reasonable assumptions and so for that reason once you've gone through that data quality assessment you're often really well equipped to apply the tools in your toolkit to fix those data gaps once you've done that that's when you can then clearly articulate how your measurement is actually going to occur which measurement methodology you're selecting and how you're applying it to your activity data and also confirming which emission factor database you're using and which emission factors you're applying so that's your basis of preparation you know in a nutshell um and all of those things come from the greenhouse gas protocol in AAASVS2 so then when you actually measure scope one and two you already have or you're equipped to do that really effectively because you know exactly what to do based on your basis of preparation with scope one and two it is subject to assurance and reporting from year one so it is important that if there are any data gaps identified there is a strategy to improve your data quality over time in terms of scope three it's understood that there'll be the largest data gaps here there is one year of relief from a reporting perspective and then also from assurance but while it is possible to measure scope three at the same time as scope one and two we usually find that it's more effective to measure them sequentially so then when you have a full carbon carbon footprint scope one two and three has been measured and documented in your basis of preparation you can also then choose to set targets setting targets is not mandated by AAASVS2 however when you choose your strategy for disclosure in mandatory sustainability reporting it's important to note that even though not setting a target releases you from certain target setting disclosures under paragraph 33 and 34 of the standard it's really important to consider the market perception of that non-disclosure so some entities will calculate the scope one and two and consider the best way to minimize those scope one and two emissions and therefore set targets over those and then and then perhaps choose to revisit scope three targets later but it's really important that all businesses understand that when these mandatory sustainability reports are published they will be accessible to many more stakeholders than they've ever been accessible to before and on that note the letter I might hand back to you for work stream too oh before we get there sorry assurance expectations so so at the end of that process from your boundary setting policy basis of preparation scope one two three measurement and target setting what is your assurance provider going to be most interested in and the answer is that when they review a boundary setting policy they're going to want to know how it can how your reporting entity for greenhouse gas emissions measurement purposes compares to your financial reporting entity so having that strong organizational boundary comparison and documentation is going to be really important for this step and making sure that if there are differences those are justified and documented accordingly in terms of the basis of preparation there is there is a difference between or there are some differences between the greenhouse gas the greenhouse gas protocol measurement principles and what is required for AASB S2 so making sure that AASB S2 requirements are appropriately considered when preparing for your mandatory sustainability report are going to be critical to your assurance provider if you're interested or if you are an anger reporter the basis of preparation is the most appropriate place to document which measurement you're leaning on from an anger reporting perspective and what aspects of your measurement you have to top up in order to be compliant not just with the greenhouse gas protocol but the incremental requirements of AASB S2 so if that's applicable to you that's going to also be a critical of the overall aspect of your audit and then in terms of actual measurement and the activity of calculating crunching the numbers making sure that those are reconciled to financial data and making sure that in accordance with the boundary setting policy that your business has created it's complete that's going to be a key area of focus all of the arithmetic accuracy per usual when financial statements are reviewed as well [00:46:59] Speaker 1: thank you very much Claudia looking at project stream two where we look at climate related disclosures or the other climate related disclosures because absolutely the carbon footprint that Claudia talked about is part of metrics and targets it's part of the report but all the other things we look at governance and risk management it's the new project we've added let's start there make sure we've got governance processes in place let's make sure we've got a risk management framework a risk register risk appetite all of that in place and you know if we look at this part for governance there's only nine disclosure requirements for risk management only nine disclosure requirements so we are heavily guided by what those disclosure requirements are and this is from our AASB S2 checklist so we really look at this is what we have to disclose do we have it in place if we don't have an in place let's create it or it is in place but it's not been updated let's help you to update it and get it ready for assurance so those are the nine disclosure requirements around governance and there's another nine disclosure requirements around risk management risk management links to the next project in order to your climate risk and opportunity assessment we use your risk management framework and that leads us to the next project project seven all together and that is to conduct a climate risk and opportunity assessment this is the absolute foundation of everything we're going to do within double AASB S2 double AASB S2 is focused on climate related risk and opportunities and disclosing those so we have to start by looking at what are your climate risk and opportunities have you picked up everything and have you picked up everything and how we look at it is we we consider the climate science and we consider climate policies and and climate policies not just where you are located in Australia but across your value chain climate policy is not just where you are located in Australia but across your value chain climate policy is not just where you are located in Australia but across your value chain climate policy is not just where you are located in Australia but across your value chain climate policy is not just where you are located in Australia but across your value chain value chain climate policies where your customers are and also your suppliers the same with climate science the physical risks maybe suppliers are subject to physical risk but you in Australia are not subject to physical risk so we have to look across the whole value chain and we're looking for physical risks in particular and so that's where we've got changing climate conditions extreme weather events in Melbourne yesterday 45 degrees and it was sweltering and transition risk that is policy changes which we see in Australia mandatory reporting target setting we see technological innovation we see social adaptation and all of that is businesses transitioning to a low carbon or low emissions economy we've got an extract of climate related risk or a diagram these are the physical risks the transition risks that are outlined within the TCFD and also incorporated within AASVS2 so this gives us a framework on how we think and consider and assess climate related risks there's also in the TCFD an overview of climate related opportunities again it gives us a framework not all of them might exist in your business but it's a framework on things to consider so our approach on climate related risk and opportunity assessment you can see our approach on the left hand side and the outcomes at the end we have an assessment report usually around 60 pages with all our research academic references we do executive and board education based on based on that validation and we update the risk register of clients if you want to look at how we do it in particular you know we start with mapping the value chain we get information requests up we ask the client for questions we do our own research across the value chain we look at risk and opportunities we have a draft report a draft risk register and then together with a client we look at that inherent risk assessment assessment and time horizons lining up with their risk management framework we do a client workshop to validate that we update the risk register and finally we have a final report and a register so this is quite an extensive process that climate risk and opportunity assessment um it usually takes six to eight weeks because there's a lot of to and fro there's workshops there's research required project eight is where we look at conducting a scenario analysis. So you have to identify your climate risk and opportunities first and only then can you move on to scenario analysis. So Ramona, this is where I hand over to you. [00:52:19] Speaker 3: Thanks Aletta. So as Aletta said, after the risks and opportunities have been identified and assessed, that's a key input into conducting a scenario analysis. The first point we wanted to raise in relation to this is that there is different types of a scenario analysis. And so for this project and the purpose of the disclosures, we're looking at scenario analysis to assess climate resilience. And to do this, we use exploratory scenarios. So we're looking at a path to a potential future outcome and exploring what that looks like and how those risks and opportunities may impact your business under these different potential futures. This is different to scenario analysis that's used to identify and assess climate risks. So an example would be stress testing where you look at a very high warming scenario maybe greater than 4 degrees and see how particular physical risk might eventuate under that scenario. So it's the exploratory scenario analysis that we're looking at for the climate resilience disclosures. So as I said, the specific climate resilience disclosures of the standard are in in paragraph 22 and what we're looking to make disclosures about is the climate resilience of the entity's strategy and business model when taking into consideration the risks and opportunities. So a very specific type of scenario analysis is required for this disclosures. The unique situation in Australia is included in the Corporations Act. And so that's where the requirement to use a high warming scenario, so greater than two and a half degrees and a low global warming scenario limited to one and a half degrees and a low global warming scenario limited to one and a half degrees. So those requirements in the Corporations Act and that needs to be incorporated into the exploratory scenarios that you develop to inform the climate's resilience disclosures. So the way that we go about that, we closely follow the guidance that the TCFD has released for scenario analysis. So going through this process where once the governance is in place, we look at the external environment and the risks and opportunities that you've identified. And then moving through the process to developing focal questions and defining your time horizons, and then looking at the driving forces behind those different risks and opportunities to draft these narratives of those specific required scenarios. So the one and a half degree and the two and a half degree at a minimum, then moving through the process, you look at quantifying some of those variables and assessing quality to finalise the scenarios, and then draw conclusions from there. From that, the strategic value can then be incorporated where potential strategy options and identifying metrics for monitoring future developments are steps that can be addressed once we have drawn the conclusions and and done the analysis. And so it's really that analysis that informs the disclosures, but then can also inform strategy moving forward. So the scenarios that you develop, again, distinguishing between external scenario sources that are at a global level, so climate goals where warming's limited to one and a half degrees. You then need to take those global scenarios and refine them down to specific narratives for your organisation. As I said, we look at different external scenario sources to help inform that and so some of the external sources we use and the specific scenarios that they have developed that can be useful in developing scenarios for your organisation are the IPCC scenarios, so the SSP 2-4.5, which aligns to the RCP 4.5. scenario for those of you that are aware of the previous scenarios for those of you that are aware of the previous scenarios, and then the low warming scenario, the 1.5-degree scenario, which doesn't have a previous scenario developed by the IPCC, so data can be quite limited on that one, but that is the only IPCC scenario that aligns with the 1.5-degree requirements in Australia. We also look at the NGFS scenarios, so current policies and net zero scenario that align with those required scenarios in Australia, and also, in some instances, the IEA scenarios are very informative for specific entities in specific sectors, and key to note for them, a recently released new scenario in the World Energy Outlook that was released in November last year, so the current policy scenario that is new that aligns quite closely with the high warming scenario aligns quite closely with the high warming scenario, and it's useful for that purpose as well. So, I think, over to Natalia to talk about the financial modelling. [00:57:33] Speaker 4: Thank you, Ramona, so with the steps taken, as Ramona mentioned before, we can then move into financial modelling. We use the DCFD to assess the financial implications across the entity's financial position. And the financial impact is driven by the exposure to the exposure to climate risks and opportunities, the entity's strategic response, and also the entity's appetite for seizing opportunities. So the standard requires an organisation to assess these risks and opportunities, both from a historical and forward-looking perspective. Therefore, we use a financial modelling assessment that is performed across different time horizons, and we consider at least three scenarios. One is your business as usual that considers today's policies, and your current strategy, any expenditure associated with your strategy to limit transitional and physical risks. And then we move into scenario analysis that aligns with what Ramona was just saying. The 1.5-minute scenario explores mostly changes in carbon prices or any other transitional risks from the energy transition or low-carbon economy. And on the other hand, the high warming scenario explores mostly impacts on physical climate change, so impacts on your facilities, any expenditure or additional expenditure to limit these impacts or build resilience, physical resilience. And finally, finally, the way we approach this is building a model that aligns with your financial statements, raise understanding what the model is supposed to answer based on the scenario analysis and the climate risk assessment. We co-build the model, which means we define what are the assumptions of the model, what information is in place, what external climate scenarios or data points are available, like NGFS, IEA. And so on. And finally, we have a handover session where we explain to the clients how to update the inputs in the future and update any other climate implications as science and regulation progress in the future. And I'll hand over to you. [00:59:55] Speaker 1: Thank you very much, Natalia, and thank you to Ramona as well. I just want to go back to this financial modelling. I think it's really important to understand that the resilience disclosures, which Ramona talked about, are the modelling around the scenarios, which is on the right hand side of the slide. Paragraph 22 of the standard on the left hand side, the business as usual disclosures are captured in paragraph 16 and 17, where they ask about what have you experienced expenses, etc. And during the current reporting period and then also what do you anticipate over the short, medium and long term. So on the left hand side, your business as usual or your base case disclosures are, you know, paragraph 16, 17. And then the right hand side, your scenario analysis, paragraph 22, which is a resilience disclosure. But the financial modelling covers all of this. And they actually work hand in hand. And then finally, we get to project number 10, where we prepare the mandatory sustainability report. And I think here it's important to understand that once we get to the mandatory sustainability report, we have to consider materiality. And there's been some misconceptions around materiality. And that is that there's actually a two step approach. There's a part A where you look at your climate risk and opportunity assessment and you don't apply materiality there. You consider prospects, you consider the risks and opportunities that could reasonably be expected to affect the entity's prospects. And what do we mean by prospects? Cash flows, access to finance, cost of capital over short, medium, long term. Nowhere there do we see the word materiality. It's all about prospects could reasonably expected to impact prospects. And if it meets the cut, if we've got client related risk and opportunities that could reasonably be expected to impact prospects. We then consider the information in respect to those risks and opportunities. And then we consider whether that information is material or not, because there could be a lot of information, too much information. So materiality is applied in that part B. I have included a slide that looks at that. I call PRAT a prospects assessment, right? It's not a materiality assessment. So we want to identify risks and opportunities that could reasonably be expected to affect the entity's prospects. So that could reasonably be expected is an assessment of how likely it is that your prospects could be affected. So it's a likelihood assessment. And then when you get to prospects, it's cash flows, access to finance, cost of capital over short, medium, long term. Very important is this is a market perspective. If the market look at your business, what prospects, what risks and opportunities do they think would reasonably be expected to affect your prospects? So it's not just your view. It's what would the market expect? And if the reality is different, disclose why your reality is different to what they expect. So a materiality assessment, the ISSB published a materiality assessment document for sustainability, which you can see on the right hand side, the various steps, and it's aligned with the materiality document that we also use for financial statements. The same four steps, as I've said earlier in the presentation, we have prepared an illustrative sustainability report that you could use, and it should be read with your financial statements. The two go hand in hand, and that's what we do within our final step in the project. We bring together materiality together with the report, and the prospect step will be considered when we do the climate risk and opportunity assessment. When we get to project stream three, this is the strategic voluntary disclosures or voluntary stream. What I'm finding is a lot of group one clients are saying, we're doing all this work, all this effort for compliance purposes, but we want to get strategic commercial value out of it. We want to make sure we get access to capital or cheaper capital, debt and equity. We want to make sure we get access to markets, to customers, get access to people to work in our business. So there's a strategic reason too, and they want to explore that. Group two and group three entities are starting to speak to us, and we're working with a number of them. We're saying we thought this is a problem for 2027-2028, but we can't get access to our customers if we don't have certain things in place, and we can't get access to capital without it. So there's definitely a push. So if you want to look at sustainability from a strategic perspective, the best way to do it is start with what do we have in place? And that we focus on stakeholder needs because this is all voluntary, and then we commit to fill the gaps if there's gaps between what we have and what they want. We measure and we measure and we could voluntary report, and that will put you on a good journey towards mandatory reporting as well, because I know your customers, your stakeholders will want your carbon footprint. They will want targets, and they will want progress against targets, so you tick Project Stream 1 at the same time. From a Q&A perspective, I know we've run over time, but people who have to leave early can watch the recording. From a Q&A perspective, I've had six questions come in before this webinar, and the one is around what are the current penalties under the safeguard mechanism. The second one is around discussions on TNFD and the expected timelines for when it will come into legislation. We've already discussed that earlier in the webinar. How to best prepare for assurance on climate disclosures and sustainability reporting. I think we've dealt with that by giving you a best practice roadmap. Claudia talked about what your auditor will be looking at from an audit perspective. But I think the roadmap, to have a roadmap and to maybe break it down into month by month or week by week, what you're going to do, and making sure you've got documentation of everything you do is my best advice. You know, ASIC always says not documented, not done. The same applies to sustainability reporting. The question four is, does sustainability reporting apply to privately held entities in Australia who are SGEs? The requirement in Australia is, as I've said earlier, is based on size and predominantly, and therefore, whether you are privately held or not, whether you listed or not, doesn't matter. It's about size. It's about size. It's looking at a combination of, if you meet two of the three criteria around revenue, gross assets and number of employees, you could be subject to mandatory sustainability reporting. So there could be SGEs that are privately held that meet the size criteria and therefore are captured. So important to consider that. Then also, fifth question is similar. Are there any plans for not-for-profits to be added to this reporting? Just to be very clear, not-for-profits are already added. If you are a not-for-profit and you're lodging financial statements with ASIC, remember that's the first question. Is your entity lodging financial statements with ASIC? Many of our not-for-profit clients lodge financial statements with ASIC. So tick, they in. Then those not-for-profits have to look at the size criteria, whether they are group one, two or three. So not-for-profits are already in. If you're a not-for-profit not lodging with ASIC, or if you're a privately held company not lodging with ASIC, yes, then you're out. So the threshold question is, is the entity lodging financial statements with ASIC as required by part 2M of the CORPS Act? And then the last one is, what are the potential Australian market and reporting impacts of the scope to proposed changes by the GHG protocol? So I'll come back to question 1 and 6. As we went through, I've addressed questions 2 to 5. So question 1 is talking about the safeguard mechanism. There's a link to the website where you can find out more about the safeguard mechanism. But it applies to facilities that emit more than 100,000 tonnes of carbon dioxide equivalent in a year. And it sets legislated limits known as baselines on the net greenhouse gas emissions of these covered safeguard facilities. In 23, 24, there were 219 safeguard facilities. And so quite a bit of information available. Going to the penalties on that same website, I found the following around civil penalties. So this is updated from time to time. And here they saying the maximum civil penalty is set at one penalty unit per tonne of excess emissions per year. And the infringement notice charged at one third of that maximum civil penalty to an absolute maximum of 150,000 penalty units. So the last time there was a value assigned to penalty units were in November 24, and that was $330 per penalty unit. So you can do the calculation. If you've got the maximum penalty units of 150,000 at $330, we're talking about quite a big civil penalty. If we look at scope 2, I think the key thing here is that it's around the location and market-based reporting methods. In Australia, under AAASPS 2, we're only required to report under the location-based. You can voluntarily report market-based as well. The central feature of this proposal is an hourly matching and deliverability requirement for market-based reporting. So if you're just doing location-based reporting for AAASPS 2, you know, I don't think there will be an extensive impact on you. However, if you want to voluntarily do market-based reporting, you have to now look at hourly matching and deliverability in order to use the market-based reporting. And that will be very complicated. There's a lot of different methods approved. We are currently working through it and working on a comment letter on behalf of BDO Global. The other thing that's important, when I listened to the podcast by Sue Lloyd of the ISSB, she did say, we shouldn't assume that these changes to scope 2 will automatically be included in AAASPS 2 or IFRS 2. So they were very specific in IFRS 2 to say that IFRS 2 is based on the corporate value standard of the GHG protocol, just that one. And all the other guidance, et cetera, can be considered, but they only mandate the corporate standard. And therefore they could decide to not mandate this scope 2 guidance. There is close cooperation between the two bodies. I'm sure they'll be looking at it, but she said it's not an automatic. So that was interesting to hear. I thought it's an automatic, to be honest. So how BDO can help our national partners. I'm in Melbourne, but I also am the national leader. So I work across the country, Kevin in Sydney, Tommy in Brisbane and Ashley in Perth. Ramona, Claudia and Natalia work with me. And we've got clients right across the country from Perth, Brisbane, Sydney, everywhere. So please feel free to reach out to us. And the other way to stay connected is you can register and subscribe for our monthly corporate reporting insights, which has IFRS accounting standards and sustainability information. But you can also subscribe for sustainability insights, which is only focusing on sustainability. And so that's a way to stay connected. Please feel free to reach out if we can assist you. So Ramona and Claudia and Natalia, thank you very much for joining me today. I'm sure the attendees was happy to hear a non-South African accent for a part of the webinar. So thank you very much for joining. And we'll see you again next month. And thank you all our attendees for joining us today. We appreciate your support. Thank you. Thank you. Thank you.