Property firms prepare for mandatory climate reporting

While many companies have already been tracking their direct emissions and some indirect emissions, such as the environmental impact of company vehicles and electricity usage, measuring the footprint of scope 3 emissions – which will be mandatory after the first year of reporting – will be challenging.

Scope 3 emissions refer to greenhouse gas emissions which occur outside a company’s direct control but are a consequence of their activities.

The framework will be phased in over the next three years across three groups of entities, with Australia’s largest companies and institutions at the forefront: those with a consolidated revenue of $500 million or more, end-of-financial year consolidated gross assets of $1 billion or more, and 500-plus employees.

The parameters around company revenue, gross assets and the size of their employee base will lessen each year during the three-year rollout, with reporting becoming compulsory for more and more Australian businesses with each stage.

It will be the nation’s largest property companies like Brookfield Properties, Mirvac and Stockland that will lead the charge on how a business reports its impact on the environment, demonstrating for smaller firms – some of which do not already have voluntary frameworks established.

When companies in group one are required to reveal their impact will depend on if their reporting cycle goes by the calendar or financial year, with the first round of reports coming in around February next year.

The Australian Securities and Investments Commission (ASIC) warned businesses to prepare for mandatory climate reporting in September last year, and to ensure they implemented appropriate government arrangements and sustainability record-keeping processes before it took effect in January.

“This is a significant reform that will have far-reaching implications for many of our key stakeholders,” ASIC commissioner Kate O’Rourke said at the time.

“ASIC recognises there will be a period of transition as organisations develop the capabilities required to comply. We will take a proportional and pragmatic approach to supervision and enforcement as industry adjusts to these new requirements.”

She added that as more people considered environmental sustainability when making financial decisions, disclosure would continue to grow in importance.

Climate disclosure reporting isn’t a new phenomenon in Australia’s business landscape. But in recent years, there has been a consolidation of international reporting structures surrounding sustainability and climate, and it has only now become mandatory.

A voluntary climate-related reporting framework was introduced in 2015 by the Financial Stability Board called the Task Force on Climate-Related Financial Disclosures (TCFD) at the request of G20 finance ministers and central bank governors, and in acknowledgement of the impact climate risk could have on the financial system.

The TCFD was then absorbed by the International Sustainability Standards Board (ISSB), established in 2021, and is a comprehensive global baseline of sustainability-related financial disclosures based on the needs of investors and financial markets.

Then came the changes to the Corporation Act in 2024, with the introduction of mandatory climate-related financial disclosure requirements for large businesses and financial institutions in Australia.

But Carolyn Pugsley, senior partner in corporate governance and ESG advisory at Herbert Smith Freehills Kramer, said the challenge of reporting scope 3 emissions will be around accuracy and the availability of data, for both large and small companies.

“There’ll be a lot of reliance still on estimations and people using estimates essentially as a proxy for actual data,” Pugsley told The Australian Financial Review. “That’s a big challenge, particularly for industries like real estate, where you’ve got a long value chain that goes from the raw materials all the way through to the actual construction of the commercial buildings.”

The larger property companies will set the benchmark for smaller players, but reporting will be based on the reasonable and supportable information available to each firm.

“[It will try] to take into account the different resourcing, frankly, and sophistication of different entities that are going to get caught by this regime,” she said.

“The hope is that the lead entities set a bar with their transparency and their work that they’ve done to actually quantify parts of their value chain that others can then leverage.”

Avani Solutions, a firm aimed at providing companies with data to minimise their environmental impact on their commercial real estate portfolio, is actively working with Brookfield’s real estate arm, Brookfield Properties which manages more than 1100 properties.

Nicolette Maury, chief executive at Avani Solutions, said they had worked closely with Brookfield Properties to build the infrastructure needed to comply with Australia’s evolving climate disclosure landscape.

“We’ve enabled centralised energy and emissions visibility across their portfolios, automated data collection from existing systems, and aligned reporting outputs with internationally recognised frameworks like ISSB and TCFD,” Maury told the Financial Review.

“This has allowed clients to shift from reactive, manual processes to real-time, auditable data streams which is critical not only for compliance but also for investor confidence.

“By integrating building automation, metering, and reporting tools into one platform, Avani has reduced the need for manual data entry, site inspections, and third-party consultants.”

Danny De Sousa, vice president of ESG and innovation at Brookfield Properties, said the company had already been reporting in line with the TCFD framework, meaning the introduction of mandatory climate reporting hadn’t meant wholesale change, but a refinement in certain areas of their broader approach to climate risks and opportunities.

“Given our developed approach to climate-related reporting, we’re well positioned to support our tenants with their own disclosure requirements,” De Sousa said. “The impact has been more about deepening the quality and rigour of existing disclosures than overhauling them.

“Australia’s mandatory climate disclosures formalise what has largely been best practice under TCFD – such as disclosure of governance structures, risk management processes, climate-related metrics, and scenario analysis.”

This has also prompted greater collaboration with their tenants, who include NAB, Allianz and BHP, with some now subject to their own climate reporting requirements.

“They increasingly require reliable base building emissions data and greater transparency to meet these obligations and further aligning our shared decarbonisation journey,” he said.

ASX-listed property development company Stockland is also making subtle changes to its ESG reporting off the back of these new requirements.

Petie Walker, the company’s sustainability and delivery executive general manager, said Stockland had been voluntarily reporting its climate risks and opportunities for more than 10 years, and was one of the first listed companies to adopt the TCFD framework in their reporting.

“The new mandatory reporting requirements enable a more consistent approach to climate-related reporting across the sector, and that helps to promote knowledge sharing to support a smoother, quicker transition,” Walker told the Financial Review.

“Our customers are most interested in tangible actions to reduce emissions, so we are focused on unlocking scalable and economically sustainable transition opportunities.

“An example is our partnership with Energy Bay, which uses renewable energy generated on the rooftops of our logistics and retail assets, to power our commercial buildings and land lease communities – this has an immediate impact on our ESG strategy and decarbonisation targets.”

Similarly, listed property group Mirvac is building on its existing voluntary climate-related disclosures.

“We have undertaken a comprehensive gap analysis to identify areas needing enhancement to align with the new standards,” they said. “[We have] prioritised internal readiness by investing time and resources into adapting processes and systems,” a Mirvac spokesperson said.

The company has also engaged with industry peers and peak bodies to work towards consistent methodologies especially around scope 3 emissions.

“Mirvac has a long-standing practice of reporting on climate-related risks and opportunities and has produced an annual Climate Resilience Update since 2019, which reflects a consistent commitment to climate-related financial disclosures,” the company said.