.png)
Under Australia’s new sustainability reporting regime including AASB S2, large businesses and financial institutions must prepare a sustainability report each year.
AASB S2 is based on the international IFRS S2 standard but has been adapted for the Australian legal and institutional context and applies to annual reporting periods starting on or after 1 January 2025, with earlier adoption permitted for some entities as mandated by the Corporations Act 2001.
This sustainability report now joins the financial report (1), directors’ report (2), and auditor’s report (3) as the fourth component of annual reporting for these entities.
The Australian Parliament has taken a climate-first approach by prioritising mandatory climate-related financial disclosures. This means the initial focus of the sustainability report is on climate—how organisations manage climate risks and opportunities, and how these factors may affect their financial health and long-term viability.
Over time, Parliament may add other sustainability topics (such as biodiversity or social impacts) to these mandatory reporting requirements.
The Australian Securities and Investments Commission (ASIC) administers these new laws under the Corporations Act, ensuring that entities meet the legislative requirements around sustainability reporting. This regulatory oversight is intended to promote transparency, maintain market integrity, and increase investor confidence in Australia’s capital markets.
Sustainability reports prepared in line with these legal requirements are vital for:
As a signatory to the Paris Agreement, Australia has a legal and economic obligation to:
This commitment was cemented into law under the Climate Change Act 2022, which legislated Australia’s emission reduction targets and created a policy framework for sustainability reporting.
Investor Demand for Greater Transparency
Beyond policy obligations, investor pressure played a critical role in Australia’s decision to mandate climate disclosures.
As a result, Australia moved towards mandatory, rather than voluntary, reporting to ensure consistency, comparability, and accountability in sustainability disclosures.
Australia’s ASRS (Australian Sustainability Reporting Standards) is designed to align with global sustainability disclosure frameworks, ensuring that businesses report climate-related financial risks and opportunities in a consistent and comparable way.
The Australian Accounting Standards Board (AASB) developed the ASRS to mirror the International Financial Reporting Standards (IFRS) Sustainability Disclosure Standards, commonly referred to as ISSB Standards. These standards provide a global baseline for sustainability-related financial disclosures, covering:
The ASRS also builds on the foundation set by the Task Force on Climate-related Financial Disclosures (TCFD), which as we mentioned in the previous lesson, was widely recognised as the standard for corporate climate reporting before the ISSB was established.
Australia’s decision to align ASRS with ISSB standards ensures that Australian businesses remain competitive and compliant with international best practices, making it easier for investors and financial markets to compare climate disclosures across different jurisdictions.
All of these frameworks work together to create a structured, reliable way for businesses to report their climate-related financial data.
The AASB then translated these global standards into the Australian context, creating the ASRS.
Not all companies are required to start reporting at the same time. To help businesses adjust, the government has phased in the requirements over several years, starting with the largest corporations.
The first step in determining whether your organisation is subject to mandatory climate-related financial disclosures under ASRS and AASB S2 is understanding which type of entity you fall under and whether you meet the reporting criteria for Group 1, Group 2, or Group 3 entities.
Entities Subject to Mandatory Reporting
The following entities are required to assess and disclose their climate-related risks and opportunities in a Sustainability Report:
If your organisation meets one of these categories, it is required to start reporting based on the phased implementation timeline.
Mandatory reporting is being rolled out in three phases, based on company size and emissions criteria:
Group 1: Large Companies (Reporting from 1 January 2025)
Companies that meet any of the following criteria:
✔ Revenue above $500 million
✔ Assets exceeding $1 billion
✔ More than 500 employees
Group 2: Medium-Sized Companies (Reporting from 1 July 2026)
Companies that meet any of the following criteria:
✔ Revenue above $200 million
✔ Assets exceeding $500 million
✔ More than 250 employees
Group 3: Smallest Companies in Scope (Reporting from 1 July 2027)
Companies that meet any of the following criteria:
✔ Revenue above $50 million
✔ Assets exceeding $25 million
✔ More than 100 employees
For each group, mandatory reporting begins on or after the relevant start date, meaning the first full financial year that starts after that date is the first reporting period.
Example:
Why a Phased Approach?
If your company falls outside these thresholds, you are not legally required to report, but voluntary reporting is encouraged. Many businesses choose to start early to meet investor expectations and align with industry trends.
AASB S2 reporting is not just about listing emissions numbers—companies must provide detailed information on how they are managing climate-related risks and opportunities.
This represents a significant shift as previously, while entities might have disclosed some climate-related information, there was no specific Australian standard requiring comprehensive reporting on this topic.
Here's how AASB S2 impacts Australia sustainability corporate reporting:
AASB S2 Climate-related Disclosures sets out disclosure requirements for entities to provide useful information about climate-related risks and opportunities that could reasonably be expected to affect the entity's cash flows, access to finance, or cost of capital over the short, medium, or long term. The main climate-related financial disclosure requirements relate to the following core elements:
Entities must disclose information about the governance processes, controls, and procedures used to monitor, manage, and oversee climate-related risks and opportunities. This includes disclosing information about the responsibilities of the governing body(s) or individual(s) and management's role in these processes. The objective is to enable users to understand the oversight and accountability for climate-related matters.
Entities must disclose information about their processes to identify, assess, prioritize, and monitor climate-related risks and opportunities, including how these processes are integrated into the entity's overall risk management process. This includes details about the inputs and parameters used, the use of scenario analysis, the assessment of the nature, likelihood, and magnitude of risks, prioritization relative to other risks, monitoring processes, and any changes compared to the previous period.
Entities must disclose information to enable users to understand the entity's strategy for managing climate-related risks and opportunities. This includes disclosing:
Entities must disclose information to enable users to understand the entity's performance in relation to its climate-related risks and opportunities, including progress towards any climate-related targets set by the entity or required by law or regulation. This includes disclosing information relevant to the cross-industry metric categories, which are:
Now that we’ve covered what businesses must report under AASB S2, let’s talk about accountability. Climate-related financial disclosures aren’t just about transparency—they must be verifiable, auditable, and legally sound.
That’s where mandatory assurance comes in. Just like financial statements, sustainability reports will require independent assurance to ensure accuracy. On top of that, company directors will have to personally sign off on climate-related disclosures, increasing the legal and reputational stakes for businesses.
There’s a lot to unpack in this lesson, we’ll cover:
Assurance is an independent verification process that ensures a company’s sustainability report is accurate, credible, and aligned with financial disclosures.
Under AASB S2, climate-related financial disclosures must be assured by an independent auditor, just like a company’s financial statements.
The AUASB is responsible for setting the assurance framework, and on 28 January 2025, they released ASSA 5000 General Requirements for Sustainability Assurance Engagements, which aligns with international sustainability assurance standards.
ASSA 5000 (Australian Sustainability Assurance Standard 5000) is the new assurance standard for climate and sustainability reporting in Australia. It replaces ASAE 3000, the current framework for verifying non-financial information, and aligns with global assurance standards like ISSA 5000 from the International Auditing and Assurance Standards Board (IAASB).
Why Was It Introduced?
As climate disclosures become mandatory, investors and regulators need consistent, reliable, and comparable sustainability information—just like financial statements. ASSA 5000 was developed to:
What Does ASSA 5000 Cover?
ASSA 5000 sets out how auditors should verify sustainability reports, including:
The ASSA 5000 is designed for auditors, but what does this mean for your business?
Understanding the ASSA 5000 will help your company align your sustainability reporting with financial reporting to pass assurance audits. And because ASSA 5000 increases the level of scrutiny, it is very crucial to have robust data collection and internal controls.
By 2030, climate disclosures will face the same scrutiny as financial reports, meaning companies must have strong data management and internal controls in place.
Limited assurance in the early years acts as a trial run, allowing companies to refine their reporting before full audits are required.
Year 1 (2025–2026)
Years 2-3 (2027–2029)
Year 4 (from 1 July 2030)
The below list provides a structured overview of the key elements and stakeholders involved in the AASB S2 Climate-related Disclosures standard based on the provided source material.
Australian Accounting Standards Board (AASB): The Australian body responsible for issuing Australian Sustainability Reporting Standards, including AASB S2. They develop these standards considering international standards (like IFRS S1 and S2) and Australian-specific needs.
International Sustainability Standards Board (ISSB): The international body that developed IFRS S1 and IFRS S2, which served as the baseline for the Australian standards.
Primary Users of General Purpose Financial Reports: The main audience for climate-related financial disclosures. These include existing and potential investors, lenders, and other creditors who use the information to make decisions about providing resources to the entity. For not-for-profit entities, this also includes parliaments, taxpayers, donors, and recipients of goods and services.
Reporting Entity: The entity that is required to prepare and disclose climate-related financial information according to AASB S2.
Management: The individuals or management-level committees responsible for the governance processes, controls, and procedures used to monitor, manage, and oversee climate-related risks and opportunities within the reporting entity.
Governance Body (or Individual): The body or individual(s) (e.g., board of directors) that oversees the entity's strategy, decisions on major transactions, risk management processes, and the setting of climate-related targets.
Greenhouse Gas Protocol: A widely used international standard that provides frameworks and guidance for measuring and reporting greenhouse gas emissions, including the Corporate Accounting and Reporting Standard (2004) and the Corporate Value Chain (Scope 3) Accounting and Reporting Standard (2011).
Intergovernmental Panel on Climate Change (IPCC): A scientific intergovernmental body that provides comprehensive assessments of climate change. Their assessment reports are used to determine global warming potential values for greenhouse gases.
Treasury (Australian Government): The government body that issued the policy position statement on mandatory climate-related financial disclosures, influencing the timeline for industry-based metric disclosures.
Australian Securities and Investments Commission (ASIC): The Australian regulatory body mentioned in the context of relevant legislation (Australian Securities and Investments Commission Act 2001).
Australian Prudential Regulation Authority (APRA): The Australian regulatory body mentioned in the context of remuneration disclosure requirements for APRA-regulated entities.
Commonwealth Scientific and Industrial Research Organisation (CSIRO): An Australian government agency that provided information to the AASB regarding the materiality of nitrogen trifluoride (NF3) emissions in Australia.
Global Industry Classification Standard (GICS): A standard used to classify counterparties by industry, relevant for the disclosure of financed emissions by financial institutions.
What is the primary objective of climate-related financial disclosures on governance according to AASB S2?
The primary objective of climate-related financial disclosures on governance is to enable users of general purpose financial reports to understand the governance processes, controls, and procedures an entity uses to monitor, manage, and oversee climate-related risks and opportunities.
Describe the difference between climate-related physical risks and climate-related transition risks as outlined in AASB S2.
Climate-related physical risks result from the physical effects of climate change, such as extreme weather events and sea-level rise. Climate-related transition risks arise from the societal and economic shifts towards a lower-carbon economy, including policy changes, technological advancements, and changes in market sentiment.
According to AASB S2, what key information should an entity disclose about the time horizons it uses when assessing climate-related risks and opportunities?
For each identified climate-related risk and opportunity, an entity must specify the time horizon (short, medium, or long term) over which the effects are expected to occur. They must also explain how they define these time horizons and how these definitions link to their strategic decision-making planning horizons.
Under what circumstances does AASB S2 permit an entity to not provide quantitative information about the anticipated financial effects of a climate-related risk or opportunity?
AASB S2 permits an entity to not provide quantitative information about the anticipated financial effects of a climate-related risk or opportunity if those effects are not separately identifiable, or if the level of measurement uncertainty is so high that the resulting information would not be useful. Additionally, an entity need not provide this information if it lacks the necessary skills, capabilities, or resources.
What are the three categories of absolute gross greenhouse gas emissions that an entity is required to disclose under AASB S2?
The three categories of absolute gross greenhouse gas emissions are Scope 1 greenhouse gas emissions (direct emissions from owned or controlled sources), Scope 2 greenhouse gas emissions (indirect emissions from purchased or acquired electricity, steam, heat, or cooling), and Scope 3 greenhouse gas emissions (all other indirect emissions that occur in the entity’s value chain).
According to AASB S2, what standard should an entity generally use to measure its greenhouse gas emissions, and are there any exceptions?
An entity should generally measure its greenhouse gas emissions in accordance with the Greenhouse Gas Protocol: A Corporate Accounting and Reporting Standard (2004). An exception exists if a jurisdictional authority or an exchange on which the entity is listed requires the use of a different method.
Explain the difference between location-based and market-based Scope 2 greenhouse gas emissions as discussed in the Basis for Conclusions.
Location-based Scope 2 greenhouse gas emissions reflect the average emissions intensity of the grids from which an entity draws energy. Market-based Scope 2 greenhouse gas emissions reflect emissions from electricity that an entity has contractually chosen, often through the purchase of renewable energy certificates or specific supplier agreements.
What is the significance of the 15 categories outlined in the Greenhouse Gas Protocol Corporate Value Chain (Scope 3) Accounting and Reporting Standard for AASB S2 disclosures?
The 15 categories of Scope 3 greenhouse gas emissions, as defined in the Greenhouse Gas Protocol Corporate Value Chain (Scope 3) Accounting and Reporting Standard (2011), provide a comprehensive framework for entities to consider all indirect emissions across their entire value chain. AASB S2 requires entities to disclose which of these categories are included in their Scope 3 emissions disclosures.
What is "financed emissions" as it relates to Scope 3 greenhouse gas emissions and which category it falls under.
Financed emissions represent the portion of gross greenhouse gas emissions of an investee or counterparty that is attributed to the loans and investments made by an entity to that investee or counterparty. These emissions are classified under Scope 3 Category 15 (investments) as defined in the Greenhouse Gas Protocol Corporate Value Chain (Scope 3) Accounting and Reporting Standard (2011).
According to AASB S2, what information should an entity disclose about its climate-related targets, including greenhouse gas emissions targets?
For each climate-related target, including greenhouse gas emissions targets, an entity must disclose the metric used, the objective of the target, the part of the entity to which it applies, the time period, the base period, any milestones, whether it is absolute or intensity-based (if quantitative), and how international climate agreements have informed the target. They must also disclose their approach to setting, reviewing, and monitoring progress against the target.
Absolute gross greenhouse gas emissions: The total amount of greenhouse gas emissions generated by an entity during a reporting period, without accounting for any offsetting activities.
Carbon credit: An emissions unit issued by a carbon crediting program that represents an emission reduction or removal of greenhouse gases.
Climate resilience: The capacity of an entity to adjust to climate-related changes, developments, or uncertainties, including managing risks and benefiting from opportunities.
Climate-related financial risk: A risk of financial loss or negative impact on an entity’s financial performance and position resulting from climate-related physical risks or climate-related transition risks.
Climate-related financial opportunity: A potential positive effect on an entity’s financial performance and position resulting from climate-related changes, such as new markets, resource efficiency, or innovation.
Climate-related physical risks: Risks arising from the physical effects of climate change, which can be event-driven (acute) or longer-term shifts (chronic) in climate patterns.
Climate-related scenario analysis: A process used to explore and assess the potential implications of different plausible future climate-related conditions and developments on an entity's strategy and business model.
Climate-related transition risks: Risks arising from the societal and economic shifts towards a lower-carbon economy, including policy and legal changes, technological developments, market changes, and reputational impacts.
CO2 equivalent: A universal unit of measurement used to indicate the global warming potential of different greenhouse gases relative to carbon dioxide.
Cross-industry metric categories: Climate-related metrics that are relevant across different industries, such as greenhouse gas emissions, climate-related risks and opportunities, and capital deployment.
Financed emissions: The portion of an investee’s or counterparty’s greenhouse gas emissions attributed to the reporting entity’s loans and investments.
General purpose financial reports: Reports that provide financial information about a reporting entity that is useful to primary users in making decisions about providing resources to the entity. This includes financial statements and sustainability-related financial disclosures.
Global warming potential: A factor describing the radiative forcing impact of one unit of a given greenhouse gas relative to one unit of CO2 over a specific time horizon (typically 100 years).
Greenhouse gases: The seven gases listed in the Kyoto Protocol: carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), nitrogen trifluoride (NF3), perfluorocarbons (PFCs), and sulphur hexafluoride (SF6).
Indirect greenhouse gas emissions: Emissions that are a consequence of an entity’s activities but occur at sources owned or controlled by another entity (includes Scope 2 and Scope 3 emissions).
Location-based Scope 2 greenhouse gas emissions: Scope 2 emissions calculated using average emissions factors for the grid region where the entity consumes electricity.
Market-based Scope 2 greenhouse gas emissions: Scope 2 emissions calculated based on contractual instruments (e.g., energy attribute certificates, supplier-specific emission rates) that reflect the emissions from the electricity the entity has chosen to purchase.
Scope 1 greenhouse gas emissions: Direct greenhouse gas emissions from sources that are owned or controlled by the entity.
Scope 2 greenhouse gas emissions: Indirect greenhouse gas emissions from the generation of purchased or acquired electricity, steam, heat, or cooling consumed by the entity.
Scope 3 greenhouse gas emissions: All other indirect greenhouse gas emissions that occur in the entity’s value chain (both upstream and downstream), excluding Scope 2 emissions.
