2023 A KEY YEAR FOR SAFEGUARD REFORM AND SUSTAINABILITY DISCLOSURE Ilona Millar and Emily Morison – Gilbert + Tobin
There is no doubt that 2023 has been a significant year for climate law and policy reform, both in Australia and overseas. For Australian businesses, few reforms have been more noteworthy than the introduction of long-awaited changes to the Emissions Reduction Safeguard Mechanism, and the ongoing development of global and domestic climate, sustainability and nature-related risk disclosure standards.
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ere, we recap these key developments and what they mean for Australian businesses as we approach the end of the year.
Safeguard Mechanism reforms commence Following months of consultation, 1 July 2023 saw the commencement of reforms to the Safeguard Mechanism established under the National Greenhouse and Energy Reporting Act 2007 (Cth) (NGER Act) and National Greenhouse and Energy Reporting (Safeguard Mechanism) Rule 2015 (Cth). Under the reforms, the baselines for designated large facilities will decline on a trajectory aligned with achieving Australia’s updated emission reduction targets of 43% below 2005 levels by 2030 and net zero by 2050. This decline rate is set at 4.9% per year to 2030 for most facilities, with particular trade-exposed facilities eligible to apply for a discounted rate. Other important features of the reforms include the introduction of ‘Safeguard Mech-
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anism Credits’ (SMCs), which facilities may automatically generate for below-baseline performance. These units can be banked on an unlimited basis until 2030, and may be traded and surrendered for compliance purposes, along with Australian Carbon Credit Units (ACCUs). Although the reforms have commenced, there are a number of important elements of the scheme that are still under development, including the ‘international best practice benchmarks’ that the government will apply for the purposes of setting a baseline for new facilities, and the emissions intensity values of production variables that will be used for baseline calculations. The reforms should prompt existing Safeguard Mechanism facilities — and those looking to develop emissions intensive new or expanded facilities — to consider opportunities to optimise onsite decarbonisation. Facilities should also consider the utility of a procurement strategy for ACCUs and SMCs — including opportunities to generate SMCs for below baseline performance in the
near term to support longer-term compliance — and potential funding opportunities to support adaptation to the reforms, such as the Safeguard Transformation Stream of the Powering the Regions Fund.
ISSB launches sustainability and climate disclosure standards and government consults on mandatory climaterisk disclosure framework In June 2023, the International Sustainability Standards Board (ISSB) published its much anticipated first two global sustainability disclosure standards: ‘IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information’ (IFRS S1) and ‘IFRS S2 Climate-related Disclosures’ (IFRS S2). IFRS S1 requires companies to disclose information about their sustainability-related risks and opportunities that is useful to investors when making decisions about providing resources to these companies. Meanwhile,