Historically, the Australian agricultural sector has engaged with sustainability schemes and reporting on a voluntary
basis. However, on 1 January 2025, the Australian Government introduced mandatory climate-related financial
disclosure reporting, called the Australian Sustainability Reporting Standards (ASRS) AASB 2 (referred to as ASRS
in this report for brevity). The ASRS are standards for assessing and disclosing information about an entity’s climate
and sustainability-related risks and opportunities. Only one of the ASRS standards is mandatory at this stage, ASRS
AASB 2, and is the focus of this report.
The introduction of the ASRS means that many large companies and institutions, including farms, which meet certain
criteria around revenue, gross assets, or number of employees are, or will be, required to report their greenhouse
(GHG) emissions data under a new framework. This includes scope 1 and 2 emissions initially, followed by scope 3
emissions. Smaller entities that are not required to report directly may need to supply their GHG emissions data to
third parties within their supply chain, so that their supply chain can meet their scope 3 emissions requirements.
Supplying scope 3 emissions data to reporting entities is likely to have the largest effect on cotton farming businesses
in the immediate future, especially in relation to banks (and potentially insurers), who have a direct line of sight to
their clients. Limited and complex cotton supply chain traceability will likely result in, for example, brands and retailers
relying on secondary data, such as industry averages, in the first instance rather than farm-specific primary data for
their scope 3 emissions reporting. The development of a robust, Australian-specific cotton emissions intensity
database in line with emerging guidance is needed to keep Australian cotton competitive in world markets.
A survey of the rural lenders and farm insurers revealed strong activity from the banking sector on engaging their
farming clients in collecting farm-specific GHG emissions data. All the bankers and finance brokers surveyed reported
discussions with farmers linked to ASRS compliance. In contrast, the insurance industry brokers, and farm
underwriting representatives, had no awareness and were not conversant in understanding the ASRS reporting
requirements. The bankers surveyed were also aware of voluntary Taskforce on Nature-related Financial Disclosures
(TNFD) reporting and obligations, however respondents alluded to the recent “Trump effect” of railing against
environmental regulation which inferred TNFD as regulatory overreach. Banks, when asked if ASRS reporting
requirements were likely to create a “price on sustainability” in the future, a mixed response ensued with almost half
of responses claiming, “it’s already happening” to “the credit market is already too competitive to draft discounts and
premiums among clients”. A small survey sample of cotton brands and retailers suggested that scope 3 reporting in
the cotton supply chain remains likely, although limitation and usefulness of industry data exists until a trusted
traceability scheme can be implemented to track the source of fibre to farm. Large companies in this sector affected
by ASRS were content to use secondary data to fulfil ASRS requirements. Demonstrating biodiversity stewardship
was also mentioned as a key sustainability metric for brands and retailers. Supply chain requirements remain an area
of more detailed future research.
As the irrigated cotton industry experiences a shift to more resilient systems, introducing bankless irrigation that can
adapt to extreme weather conditions, reduce inputs without compromising yield, and produce higher output per labour
unit there may result in small benefits for agriculture finance and ASRS strategy reporting. A minority group of banks
had plans or finance products in place to offer more competitive credit for investing in more efficient irrigation
infrastructure if environmental gains could be proven. Separately, bankless irrigation does satisfy the main criteria as
a strategy for specifically dealing with several risks under the AASB S2 core topics.
A survey of specialist property valuers and irrigators found the flow on monetary gains to asset valuation following the
installation of bankless systems can be in the range of $500 to $2,000 per hectare, with access to labour as the
primary driver. An economic analysis using a Whole Farm Modelling (WFM) approach sensitivity tested these
valuation uplift scenarios with two installation cost outcomes ($600/Ha and $4,200/Ha) each investigating 400 Ha and
782 Ha of development respectively. The overall equity position of the farm, considering a 20% water saving and
$230/Ha labour saving under the new operating scenario, the WFM was a very resilient system with a strong asset
and earning base. Only in the high cost ($4,200), low valuation (+$500/Ha uplift) and the whole-of-farm development
did return on assets and return on equity erode considerably, owing in-part to the relatively conservative Debt/Equity
ratio of 82%. Current day assets and earnings were applied to the WFM. These results are exploratory only and
should be viewed as a snapshot at a particular location at a particular point in time. It may be inaccurate for farms
with markedly different soil type, climate, and resources to those of the Lower Namoi Valley representative farm.
