Most farmers are unlikely to face onerous requirements – particularly in the short-term – as a result of mandatory climate-related reporting recently introduced for large Australian companies, according to new research by agribusiness banking specialist Rabobank.
In the report, How Australia’s climate-related financial disclosures could impact agriculture, the bank’s RaboResearch division says direct reporting requirements under the new climate-related financial disclosure (CRFD) regime – which commenced from January 1 this year – are limited to large companies, including those in food and agri, as well as “some very large agricultural operations” which may also meet the criteria to report.
While indirect impacts are expected to be felt at farm level – with the regime requiring reporting companies to look beyond their own operational emissions to the full value chain, including their agricultural suppliers – the report says “disclosure requirements are unlikely to drive widespread increases in emissions-related data requests from the supply chain over the short term”.
Report author RaboResearch sustainability analyst Anna Drake says the “scope 3” (indirect) reporting requirements of the regime – covering emissions along the value chain which are not directly owned or controlled by the reporting company – extend the reach of the new regime “in through the farmgate”.
“And what happens at the farm level will likely be a key focus for food and agriculture companies that are subject to the regime,” she said, “as agricultural production is often a highly-material source of greenhouse gas (GHG) emissions and climate risk within the food value chain.”
However, Ms Drake said, the current lack of formalised standards for GHG measurement and reporting for agriculture in Australia means there are challenges in consistently and accurately measuring farm emissions for the new disclosure regime.
“If direct farm-specific primary data cannot be obtained without undue cost or effort, reporting entities are permitted to use indirect, secondary data, such as industry averages, in order to fulfil their GHG measurement requirements,” she said. “This will likely limit near-term the widespread impact on farmers.”
Longer term though, the report says, farmers can “expect greater supply chain engagement on climate”.
“Reporting companies are expected to increasingly look to source relevant activity data from their supply chains to improve the accuracy of their scope 3 measurement over time,” Ms Drake said.
New regime
The report says while the main goal of the new disclosure obligations required by the CRFD regime is to improve transparency in relation to climate impacts, the broader intent is to encourage businesses to manage climate-related risk.
“According to the disclosure standard, entities over certain size thresholds are required to share information about climate-related risks and opportunities that could reasonably be expected to impact their cash flows, access to finance or cost of capital over the short, medium or long term,” Ms Drake said.
She said the regime’s disclosure requirements are globally aligned, based on international standards and have a dual focus, known as ‘double materiality’ – covering both the impacts of business on climate and the impacts of climate change on business activities.
Time frames for the introduction of the regime are staggered, beginning with the largest companies in 2025, with scope 3 emissions set to be reported from an entity’s second year of reporting onwards.
Future
Ms Drake said while the Liberal-National Coalition had announced it intended to wind back the CRFD regime if it was elected to government in the upcoming federal election, many large companies had already been voluntarily reporting in response to market and investor expectations.
“Many companies covered by the requirements have already been voluntarily reporting around the core disclosure pillars,” she said.
The report said work is underway to develop voluntary standards for agricultural emissions reporting, which could provide a consistent framework for measurement in the future.
Under the regime, the report said, scope 3 measurement and reporting will become much more widespread and reporting companies will likely develop engagement strategies with suppliers, including agricultural producers, to source relevant data.
“These strategies could include providing education, training and support to suppliers,” Ms Drake said. “They could involve requiring suppliers to set their own science-based emissions reduction targets and they could see the introduction of requirements to provide emissions data.”
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