The Australian Accounting Standards Board has been given the power to develop sustainability standards for financial reporting, following the passage of an amendment to the ASIC Act. Treasury Laws Amendment (2023 Measures No.1) Bill 2023 passed both houses of Parliament yesterday, when the House of Representatives agreed to Senate amendments. The amendment also gives the Auditing and Assurance Standards Board power to formulate auditing and assurance standards for sustainability purposes, and the Financial Reporting Council power to oversee the process of developing sustainability standards. The AASB has already released exposure drafts of reporting standards it developed using the International Sustainability Standards Board’s inaugural sustainability-related and climate-related reporting disclosures, IFRS S1 and IFRS S2. The local standards will be called ASRS 1 and ASRS 2.  The ISSB’s IFRS S1 and IFRS S2 standards, which were finalised earlier this year, are designed to establish a common language for disclosing the effect of sustainability-related and climate-related risks and opportunities on a company’s prospects. IFRS S1 requires an entity to disclose information about all sustainability-related risks and opportunities “that could reasonably be expected to affect the entity’s cash flows, its access to finance or cost of capital over the short medium or long term”. It prescribes how an entity prepares and reports its sustainability-related disclosures, with general requirements for content and presentation. Entities will have to provide disclosures about their governance processes, controls and procedures they use to monitor, manage and oversee sustainability-related risks and opportunities. They will have to report on their strategies for managing those risks and opportunities. They will have to disclose the processes they use to identify, assess, prioritise and monitor risks and opportunities and they will have to report on their performance in areas such as progress towards any targets they have set or are required to meet by law or regulation. IFRS S2 is specifically about climate risks. Entities must disclose their exposure to climate-related physical risks and transition risks. Following the release of IFRS S1 and IFRS S2, the Australian government released a consultation paper, Climate-related Financial Disclosure, detailing the government’s commitment to ensuring large businesses and financial institutions provide Australians and investors with greater transparency and accountability when it comes to their climate-related plans, financial risks and opportunities. The AASB is proposing to limit the scope of disclosure requirements based on IFRS S1 to climate-related financial disclosures. In the development of ASRS 1, all references to “sustainability” in IFRS S1 have been replaced with “climate”. ASRS 1 includes requirements relating to core content disclosures of governance, strategy and risk management. ASRS 2 will cross-reference ASRS 1. The AASB is open to having just one standard and has asked for feedback. For banks, one important departure from the ISSB standards is that the requirement to disclose financed emissions has been relaxed. Banks, asset manager and insurers will be required to “consider the applicability of those disclosures related to its financed emissions”.