Introduction
With the establishment of mandatory climate reporting in Australia, many organisations are now complying to new disclosure obligations under the Corporations Act 2001 (Cth). However, for the not-for-profit sector, particularly charities registered with the Australian Charities and Not-for-profits Commission (ACNC), these mandatory requirements generally do not apply, raising questions about the role of sustainability reporting for their operations.
Despite this exemption, voluntarily adopting sustainability reporting offers significant strategic advantages that align directly with a charity’s core mission. This practice is increasingly vital for meeting stakeholder expectations, enhancing financial sustainability, strengthening governance, and improving operational efficiency, making it a powerful tool for long-term resilience and impact.
Understanding Australia’s New Sustainability Reporting Rules
Overview of Mandatory Climate Disclosures
In 2024, the Australian Government passed legislation that established a new mandatory climate reporting regime for Australian businesses. This framework, introduced through the Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill 2024 (Cth), requires certain entities to prepare an annual sustainability report alongside their financial reporting.
The new rules adopt a ‘climate-first’ approach, which means that while the legislation provides for broader sustainability reporting, only climate-related disclosures are compulsory at this stage. These disclosures are governed by the new Australian Sustainability Reporting Standards (ASRS).
Specifically, AASB S2 Climate-related Disclosures is the mandatory standard that outlines the requirements for:
- Reporting on climate-related risks
- Identifying opportunities
- Establishing metrics and targets
Exemptions for Australian Charities and Not-for-profits Commission-Registered Charities
A key aspect of the new sustainability reporting framework is understanding which organisations are required to report. For the not-for-profit sector, there is a crucial exemption that provides clarity and relief for many organisations.
Charities registered with the ACNC are not required to prepare a mandatory sustainability report. This exemption exists because:
- The new rules only apply to entities that lodge financial reports with the Australian Securities and Investments Commission (ASIC) under Chapter 2M of the Corporations Act 2001 (Cth)
- ACNC-registered charities are exempt from this requirement
- As a result, they fall outside the scope of the mandatory climate reporting regime
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Strategic Benefits of Voluntary Sustainability Reporting for Your Charity
Meeting Donor, Funder & Stakeholder Expectations
Engaging in voluntary sustainability reporting is a powerful way for a not-for-profit to build and maintain trust with its key supporters. Donors, funders, and community members increasingly expect transparency from the organisations they support, wanting to see a clear commitment to alleviating environmental and social harm.
By proactively reporting on sustainability performance, your charity can:
- Demonstrate accountability and transparency
- Meet growing stakeholder expectations
- Align with industry best practices
This practice is becoming more critical for securing funding. For instance, major funders like the Department of Foreign Affairs and Trade (DFAT) already have climate change reporting requirements for partners in their Australian NGO Cooperation Program. This information helps them classify funding and ensure their partners align with strategic goals.
Reporting on your charity’s sustainability initiatives can therefore enhance your attractiveness to donors and partners, signalling that you are a responsible and forward-thinking organisation.
Attracting Talent & Enhancing Your Reputation
A public commitment to sustainability can significantly enhance your charity’s reputation and make it a more attractive place for talented individuals. Many potential employees, volunteers, and board members actively seek to align themselves with organisations that share their personal values.
When your not-for-profit demonstrates a genuine focus on environmental and social responsibility, it stands out as an employer of choice. Voluntary sustainability reporting serves as tangible proof of this commitment.
This approach showcases your organisation’s values in action, helping to:
- Attract mission-driven talent
- Retain dedicated team members
- Foster stronger engagement with your cause
This alignment of values can create a more engaged team that is motivated by more than just a job description and is truly dedicated to your mission.
Realising Cost Savings & Improving Operational Efficiency
Adopting sustainability practices can lead to tangible financial benefits and contribute directly to the long-term financial sustainability of your not-for-profit. By systematically reviewing operations through a sustainability lens, charities can identify significant opportunities to improve efficiency and reduce overheads.
These cost savings can be realised in several key areas, including:
| Area of Saving | Description / Example |
|---|---|
| Reduced energy consumption | Implementing energy-efficient lighting and equipment can lower electricity bills. |
| Lower water usage | Adopting water-saving fixtures and practices reduces utility costs. |
| Improved waste management | Rethinking waste streams can decrease disposal fees and may even generate revenue through recycling programs. |
These operational improvements not only reduce expenses but also free up valuable resources that can be redirected towards core mission delivery, strengthening your organisation’s overall impact.
Strengthening Governance & Risk Management
Sustainability reporting serves as a vital tool for enhancing your charity’s governance and risk management frameworks. The process requires your organisation to identify, assess, and manage climate-related and other sustainability risks and opportunities, leading to more robust and informed strategic planning.
This proactive approach to risk management is a cornerstone of good governance. Furthermore, this practice aligns with the duties of responsible persons under ACNC Governance Standard 5, which obligates them to act with reasonable care and diligence in the best interests of the charity.
If environmental and climate issues pose a significant risk to your organisation’s:
- Operations
- Assets
- Reputation
It is prudent for the board to address and report on them. Integrating sustainability into your governance framework demonstrates a commitment to responsible stewardship and long-term resilience.
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Key Elements to Include in a Not-for-Profit Sustainability Report
Disclosing Climate-Related Information & Emissions
When preparing a voluntary sustainability report, your charity can look to the mandatory standards as a model for best practice. ASRS S2, Climate-related Disclosures, outlines the core components for climate reporting, which are structured around four key pillars. These pillars provide a comprehensive framework for disclosing how your organisation addresses climate-related matters.
The essential elements to include are:
| Pillar | Description |
|---|---|
| Governance | Details the processes and controls your organisation uses to monitor and manage climate-related risks and opportunities, explaining who has oversight and how they are informed. |
| Strategy | Describes the climate-related risks and opportunities your charity has identified and how they might impact your strategy and decision-making. |
| Risk Management | Focuses on the processes your not-for-profit uses to identify, assess, and manage its climate-related risks. |
| Metrics and Targets | Includes disclosing the data used to measure and manage climate performance, most notably greenhouse gas (GHG) emissions. |
A crucial part of climate reporting is detailing your organisation’s emissions. For a not-for-profit, these emissions are categorised into three types:
| Emission Scope | Definition & Examples for a Not-for-Profit |
|---|---|
| Scope 1 emissions | Direct emissions from sources your charity owns or controls, such as fuel used in organisational vehicles or natural gas for heating. |
| Scope 2 emissions | Indirect emissions generated from purchased electricity used to power your offices and facilities. |
| Scope 3 emissions | All other indirect emissions that occur in your value chain, including those from purchased goods and services, employee commuting, business travel, and waste disposal. |
Reporting Beyond Climate on Broader Environmental, Social, and Governance Issues
While the new mandatory sustainability reporting framework has a ‘climate-first’ approach, sustainability for a not-for-profit extends far beyond environmental concerns. Many charities find that social and governance issues are central to their core mission and objectives. Addressing these broader topics in your sustainability reporting can provide a more complete picture of your organisation’s impact.
ASRS S1, General Requirements for Disclosure of Sustainability-related Financial Information, serves as a voluntary framework for this purpose. It allows your charity to report on other material sustainability topics relevant to your stakeholders. This could include areas such as:
- Community engagement
- Employee well-being
- Ethical fundraising
- Supply chain management
By addressing these additional areas, your organisation can demonstrate a holistic commitment to Environmental, Social, and Governance (ESG) principles.
How Your Charity Can Prepare for Sustainability Reporting
Identifying What Matters Most with a Materiality Assessment
For a not-for-profit looking to begin its sustainability reporting journey, a key first step is to conduct a materiality assessment. This process is essential for identifying the ESG matters that are most important to your organisation and its stakeholders.
A thorough materiality assessment involves:
- Engaging directly with key groups such as employees, volunteers, and clients
- Asking what issues matter most to these stakeholders
- Determining which sustainability topics align with your core objectives
While climate change is a significant focus, sustainability for a charity often extends to social and governance topics that are central to its mission. The outcome of a materiality assessment will be unique for every not-for-profit, but it provides a clear direction, informing your organisation where to focus its efforts and resources for the greatest impact.
Creating a Clear Roadmap for Action
Once your charity has identified its most important sustainability issues, the next step is to develop a clear and structured plan. A roadmap is a vital tool that helps translate your sustainability goals into manageable actions.
Your roadmap should include:
- Specific initiatives to address your key sustainability issues
- Clear assignment of ownership to individuals or teams
- Established timeframes for completion of each action
Creating a time-bound plan is crucial for ensuring your organisation is prepared for sustainability reporting, even if it is voluntary. This structured approach allows you to methodically set up the necessary systems and processes, which is particularly significant for complex tasks like measuring your carbon footprint across Scope 1, Scope 2, and Scope 3 emissions. Ultimately, this ensures that your sustainability efforts are organised, accountable, and effectively integrated into your
Understanding Your Charity’s Indirect Reporting Pressures
The Impact of Scope 3 Emissions on Your Partnerships
Even if your not-for-profit charity is exempt from the new mandatory climate reporting rules, you may still face indirect pressures to collect and disclose climate-related data. These pressures often arise from your relationships with larger businesses and partners who are required to report.
Many small businesses and charities are integral parts of the supply chains of larger organisations. When a corporate partner has mandatory sustainability reporting obligations, they must account for their Scope 3 emissions – the indirect emissions that occur throughout their value chain.
To illustrate this concept:
- Your charity may partner with a large corporation that falls under the mandatory reporting regime
- That corporation will need to gather data from its suppliers and partners to accurately report on its own Scope 3 emissions
- As a result, they may request emissions data from your organisation
This creates a practical need for your charity to measure and report on its climate impact, even without a direct legal
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Conclusion
While mandatory climate reporting in Australia does not apply to most not-for-profit charities, voluntarily adopting sustainability reporting is a vital strategic tool for enhancing mission delivery and stakeholder trust. This practice strengthens long-term financial sustainability, improves governance, and aligns your organisation with growing community expectations.
If your charity is ready to explore the benefits of sustainability reporting, contact our team at LawBridge for specialised guidance. Our not-for-profit & charity lawyers can help you understand these opportunities with confidence, ensuring your organisation is strategically positioned to strengthen its impact and long-term resilience.
