Australia’s plans to introduce stringent rules on climate disclosures are driving up concerns among businesses about compliance in one of the world’s biggest per-capita emitters.

More than 6,000 companies including listed and unlisted firms, financial institutions and asset owners will eventually fall under the auspices of mandatory rules being rolled out from January.

Because Australia is a larger market, that will impact more companies than in New Zealand, Hong Kong and Singapore, all of which have been seen as standard-setters so far in Asia, according to data from Bloomberg Intelligence.

Fresh rules promise to move Australia from a laggard on climate policies to among the first jurisdictions globally to implement reporting in line with new International Sustainability Standards Board guidelines.

However, concerns about complying with the regulations have “paralyzed some Australian organizations,” said Kate Hart, Asia Pacific co-lead for sustainability at Kearney, a consultancy.

“There is definitely some hesitance in the business sector regarding how do they make sure that these requirements aren’t burdensome and are actually seen as enablers for reporting and progress,” she said.

Authorities estimate the average cost of compliance to be A$1 million (US$655,550) but some large organizations calculate the total is likely to be above A$3 million, said Jillian Button, head of climate change at law firm Allens.

The Australian Accounting Standards Board is set to finalize new standards next month, with the rules being implemented in phases across three groups through 2027. Eventually all those covered will need to report on Scope 3 emissions, a process often seen as the most difficult as it involves detailing climate impacts across supply chains.

Only about 10% of the country’s listed firms - typically large firms like BHP Group Ltd. and Telstra Group Ltd. - currently make fully comprehensive disclosures that include climate scenario analysis and adopt Task Force on Climate-Related Financial Disclosures principles, Bloomberg Intelligence analysts Lu Yeung and Cindy Lam wrote in a note.

Currently, more than 40% of Australia’s benchmark S&P ASX/200 index is comprised of heavy emitting sectors, and includes some of the world’s biggest miners.

Research conducted by the Australian Council of Superannuation Investors found that two-thirds of the benchmark gauge’s members have made a net zero commitment. However, only 29% currently disclose how climate change is considered when evaluating financial performance, and the use of carbon offsets often remains opaque, according to the organization.  

The new disclosures are seen as likely to help companies engage with funds interested in financing their decarbonization goals, and the changes could also benefit firms with global operations and obligations under multiple climate reporting systems. For instance, the European Union’s Corporate Sustainability Reporting Directive will apply to some Australian firms that are listed in the region or derive revenues from it.

“A lot of the smaller entities within Australia and around the region are going to be impacted,” as additional requirements are introduced, said Emma Jones, a sustainability analyst at Goldman Sachs Group Inc. “Not just from a disclosure perspective in terms of climate reporting, but climate-related regulation, carbon import tariffs and other regulation that we’re seeing emerge offshore.”

Even with the changes, new disclosure rules alone won’t offer investors a complete understanding of a company’s climate impact.

Institutional investors tend to examine issues such as biodiversity, waste reduction or recycling, and supply-chain due diligence, which aren’t included in the Australian regulations, said Elena Lambros, partner for risk advisory at law firm Ashurst.

  - Bloomberg