TRANSITION RISK: Property companies are about to be hit with reporting requirements on how they are prepared for climate impacts. The demand for help is huge and growing and it’s time for many to stop putting their heads in the sand.
Joshua Martin is a busy man. Partly, it is running Foresight Consulting, a business that has grown from one person to 30 in three years, after a career at EY and Net Balance. Partly, it is the volume of companies asking for help as they realise how unprepared they are for the ASRS reporting regime.
The Australian Sustainability Reporting Standards were demanding enough for the largest Group 1 entities, Martin says, but the net has now widened.
Group 2 captures entities meeting at least two of three tests: at least 250 employees, consolidated gross assets of $500 million or consolidated revenue of $200 million.
This is where a large share of property owners and developers will sit, more so in Group 3, which kicks off on 1 July 2027 for entities with at least 100 employees, gross assets of $25 million or revenue of $50 million.
Capture is a function of size, not exposure, Martin tells The Fifth Estate in an interview on Tuesday ahead of his presentation at the Transition Risk masterclass in both Melbourne and Sydney.
An entity is pulled in by the thresholds or by its NGER registration, regardless of how material its climate risk turns out to be, he says. But for property, the two tend to arrive together.
“Most owners and developers of any scale are going to be captured…they cannot just bury their heads in the sand.”
“They will have to start meeting ASRS reporting either next year or the year after; they cannot just bury their heads in the sand.”
And disclosure obligations arrive in full from year one.
This means addressing governance, strategy, risk management, and metrics and targets, and that means a Scope 1 and Scope 2 greenhouse gas inventory, a climate risk assessment and a scenario analysis – all in the first year.
“If they haven’t done a climate risk assessment, that will also have to be done. They will have to do a scenario analysis.”
The single disclosure concession is Scope 3, which AASB S2 permits an entity to omit in its first reporting period, so for most entities Scope 3 lands in year two.
What is genuinely phased is the assurance, not the disclosure. Under the AUASB’s ASSA 5010, limited assurance applies first to Scope 1 and Scope 2 emissions and the governance disclosures, then extends year by year to scenario analysis and climate resilience, transition plans, risk management, and eventually metrics, targets and Scope 3.
All climate disclosures move to reasonable assurance for financial years commencing on or after 1 July 2030.
That distinction is where Martin sees entities misreading their own timeline. The requirements do not ramp up. The level of assurance applied to them does.
Nor is scenario analysis open ended, and the constraint does not come from the standard. AASB S2 requires scenario analysis but does not prescribe the scenarios. It is section 296D of the Corporations Act that sets the floor: at least two scenarios, one in which the increase in global average temperature well exceeds 2°C above pre-industrial levels, and one in which it is limited to 1.5°C, anchored to the targets in the Climate Change Act 2022.
Disclosure, not a performance standard – yet
Martin is careful about what the law actually asks for. The regime does not impose a minimum standard of climate performance. It requires disclosure, and that includes disclosing whether the entity has a transition plan at all.
“If you disclose that you don’t have a transition plan, that may attract attention in a negative way,” he says.
The questions that follow can range from why there is no plan to how the entity compares with its peers, and they can come from AGMs and other forums.
“You’re going to start getting a lot more questions.”
Martin argues that disclosure works by creating transparency, and transparency creates visibility over performance. That leads in two directions.
One response to the transparency can be internal, with the opportunity to adjust how the entity is actually performing, and how it compares to its peers.
A second is policy. A market that discloses consistently gives government an evidence base it has not previously had and can form the grounds on which performance focused policy gets built, Martin says.
That distinction is where Martin sees entities misreading their own timeline. For property, he can see that playing out through standards that will need to be met on energy efficiency, renewable electricity and embodied carbon.
- See our Carbon Triggers debate on Tuesday next week, which will focus on the mounting pressures around embodied carbon and construction.
Martin says: “Standards will inevitably evolve, because I think they have to. If we don’t do those sorts of things, and we don’t pursue those policies, we won’t be able to achieve what we are setting out to achieve on emissions reductions, or even meet the Australian government’s existing domestic and international commitments.”
Outperformers and underperformers
How has Group 1 reporting tracked so far?
Martin says some of the clearest evidence sits in the Purpose Bureau Climate Risk Series, produced with Monash Business School and with Foresight as a technical partner. Its ASRS state of the market analysis covers more than 230 Group 1 entities and more than 1100 Group 1 and Group 2 companies.
The analysis captures how many entities completed quantitative scenario analysis rather than qualitative, how many engaged assurance providers, the categories of risk disclosed, how many set out an actual transition plan, and how many took up the first year relief on Scope 3 emissions available under AASB S2.
Entities taking the Scope 3 relief, Martin notes, are the ones most likely to treat the exercise as compliance and to do the “minimum that we have to”.
Then there is underreporting, driven mostly by a fear of being caught out for greenwashing if results do not match stated goals.
But others are more ambitious.
“We see some organisations buck that trend and go a little bit further, but it tends to be much larger organisations that have been doing TCFD [Task Force on Climate-Related Financial Disclosures] and are much more comfortable with voluntarily reporting, because it’s already been elevated up through the executive and the board for two or three years prior.”
One of the elements that has tripped up some of these companies, though, is the difficulty of tackling expected risks and opportunities “in a quantified way”.
A problem is that there’s no standard that says, “well, this is how you should approach quantification”.
It is where his team, blending climate science with chartered accounting, can make a difference.
But it’s not easy.
The lack of communication between the climate science and accounting
While those in the climate science space have a level of comfort in working with uncertainties, that’s not the situation with accounting, which is “very robust and rigorous” – a case of “this is just how it’s done, these are the rules, and this is what it says.”
Martin says it’s a case of putting people in a room and saying: “Hey guys, you have been talking different languages for a long time, but now you have to work together and you have to figure this out.”
And while much of the regime is being framed as a financial reporting problem, the questions Martin hears from chief financial officers are about scope and sequencing: where do I even start, and what does this mean for us?
They are fair questions, he says.
This is not a gap in the CFO’s capability; it is a gap between two disciplines that have had little reason to work together, and the separation is long standing. Even at EY, where Martin led the climate practice, there was little interaction between his team and the accountants.
And the volume of work is stretching the consulting industry enormously, he says.
Extensive, but manageable
Martin’s answer is a digital platform that moves past conventional carbon accounting tools to “full-scale compliance reporting that does risk, scenario analysis, Scope 1, Scope 2, Scope 3 and governance”.
What he pictures is a tool that captures business strategy, value chain, business model and governance, then layers in risk assessment, carbon accounting and scenario analysis.
“I think AI will change the nature of reporting, hopefully in a good way.”
Get tickets to see Joshua Martin at the Transition Risk Masterclass Intensive.
