Gallagher releases guide to navigate Australia's climate reporting rules

Gallagher has released guidance for insurers and brokers to help their business clients navigate Australia’s new climate reporting rules.

Under the Treasury Laws Amendment Bill 2024: Climate-Related Financial Disclosure, large companies and financial institutions are required to disclose climate-related risks, strategies, and emissions data. The mandatory disclosures align with global sustainability frameworks and are intended to enhance transparency in financial reporting.

Gallagher’s guidance highlighted the key compliance steps businesses need to take, the challenges they may encounter, and the role of insurance in mitigating climate-related risks.

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Navigating climate reporting obligations

As of Jan. 1, affected businesses must report climate-related risks and emissions data in their financial disclosures, submitting reports to the Australian Securities and Investments Commission (ASIC). These reports must align with frameworks such as the Task Force on Climate-related Financial Disclosures (TCFD) and integrate with financial statements to ensure consistency.

Gallagher advised insurers and brokers to support their clients by helping them understand the key components of compliance, which include:

• identifying and assessing climate-related risks that could impact business operations
• measuring and disclosing greenhouse gas emissions, including Scope 1 (direct emissions), Scope 2 (indirect emissions from energy use), and Scope 3 (emissions from the supply chain)
• developing and implementing strategies to manage climate risks and transition to lower-emission business models

Challenges businesses may face in climate reporting

According to Gallagher, businesses are likely to encounter several challenges as they implement the new reporting requirements, including:

• compliance costs associated with data collection, reporting systems, and expert consulting
• difficulties integrating climate-related data into existing financial reporting frameworks
• gaps in expertise, particularly in measuring and verifying Scope 3 emissions, which require supply chain cooperation

Insurance brokers can play a role in supporting businesses by connecting them with sustainability consultants, risk management experts, and technology solutions that streamline climate reporting processes.

The role of insurance in climate risk management

Gallagher’s guidance also highlighted the role insurance plays in managing both physical risks – such as extreme weather events – and transition risks, including regulatory changes that may impact financial performance.

Directors and officers (D&O) liability insurance is becoming increasingly relevant, as executives could face legal action for misstatements or non-compliance with climate disclosure rules. Gallagher suggested businesses review their insurance policies to ensure adequate coverage against emerging climate-related liabilities.

Opportunities for insurers, brokers, and businesses

While mandatory climate disclosures present compliance challenges, Gallagher noted that they also create opportunities for businesses to improve investor confidence, enhance risk management strategies, and position themselves as sustainability leaders.

For insurers and brokers, the regulatory shift provides an opportunity to expand advisory services, develop specialised insurance solutions, and assist clients in adapting to climate-related financial risks.

As the business landscape increasingly prioritises sustainability, companies that proactively integrate climate reporting into their operations may gain competitive advantages in the evolving market.