AASB S2: Mandatory Climate-related Financial Disclosures
Under Australia's new sustainability framework, large businesses and financial institutions must prepare a sustainability report each year. AASB S2, adapted from international IFRS S2 standards, applies to annual reporting periods starting 1 January 2025.
Effective from: 1 January 2025
Overview
AASB S2 establishes mandatory requirements for climate-related financial disclosures in Australia. The sustainability report is positioned as the fourth component of annual reporting, alongside financial, directors', and auditor's reports. Parliament prioritized mandatory climate disclosures, making climate the initial focus of sustainability reports. These reports cover how organisations manage climate risks and their financial impacts. Future sustainability topics may be added. The Australian Securities and Investments Commission (ASIC) administers compliance under the Corporations Act, emphasising investor confidence, market integrity, and stakeholder decision-making.
Key Points
- Mandatory for large businesses and financial institutions from 1 January 2025
- Adapted from international IFRS S2 standards with Australian-specific modifications
- Covers climate-related risks, opportunities, and their financial impacts
- Directors must personally sign off on climate disclosures
- Phased implementation based on company size
Disclosure Pillars
Key areas of disclosure required under AASB S2
Governance
Disclosure of processes, controls, and procedures for monitoring climate-related risks and opportunities. Focuses on governing body responsibilities and management roles enabling stakeholder understanding.
- Board oversight of climate-related matters
- Management's role in assessing and managing climate risks
- Integration into corporate governance structure
- Skills and competencies for climate governance
Strategy
Disclosure enabling understanding of organisational strategy for managing climate risks and opportunities, including effects on business model, decision-making, and financial position.
- Identified climate-related risks and opportunities
- Effects on business model and value chain
- Financial position, performance, and cash flow impacts
- Climate resilience assessment through scenario analysis
Risk Management
Information about identifying, assessing, prioritising, and monitoring climate-related risks and opportunities, including integration into overall risk management.
- Processes for identifying climate risks
- Assessment of nature, likelihood, and magnitude
- Integration with enterprise risk management
- Monitoring and review processes
Metrics and Targets
Performance disclosure against climate-related risks and opportunities including progress toward targets and greenhouse gas emissions.
- Scope 1, 2, and 3 greenhouse gas emissions
- Climate-related transition and physical risks metrics
- Climate opportunities and capital deployment
- Internal carbon pricing and executive remuneration linkage
Implementation Timeline
Key dates and milestones for AASB S2 compliance
Group 1 Reporting Begins
Large entities begin mandatory reporting: Revenue >$500M, assets >$1B, or >500 employees
Limited Assurance Phase 1
Limited assurance required on Scope 1 & 2 emissions, governance, and risk disclosures
Group 2 Reporting Begins
Mid-size entities begin reporting: Revenue >$200M, assets >$500M, or >250 employees
Group 3 Reporting Begins
Smaller entities begin reporting: Revenue >$50M, assets >$25M, or >100 employees
Limited Assurance Phase 2
Limited assurance on full climate report including Scope 1-3 emissions
Reasonable Assurance
Full audit-level reasonable assurance required on all climate disclosures
Who Must Report
AASB S2 applies to a phased rollout based on entity size. The thresholds use a 'meet any two of three' criteria approach.
Group 1
1 January 2025- Revenue exceeding $500 million
- Gross assets exceeding $1 billion
- More than 500 employees
Group 2
1 July 2026- Revenue exceeding $200 million
- Gross assets exceeding $500 million
- More than 250 employees
Group 3
1 July 2027- Revenue exceeding $50 million
- Gross assets exceeding $25 million
- More than 100 employees
Entities Included
- Large proprietary companies
- Listed companies
- NGER reporters
- Responsible superannuation entities (>$5B AUM)
- Commonwealth public sector entities
Key Benefits
Why organisations choose to comply with AASB S2
Investor Confidence
Standardised disclosures help investors make informed decisions about climate-related risks and opportunities.
Risk Management
Systematic identification and management of climate risks protects long-term business value.
Global Alignment
AASB S2 aligns with international standards, facilitating cross-border investment and comparison.
Regulatory Compliance
Meeting mandatory requirements avoids penalties and demonstrates corporate responsibility.
Competitive Advantage
Early compliance positions organisations as sustainability leaders in their industry.
Stakeholder Trust
Transparent reporting builds trust with customers, employees, and communities.
Key Stakeholders & Institutions
AASB
Issues Australian Sustainability Reporting Standards
ISSB
Developed baseline IFRS sustainability standards
ASIC
Regulatory enforcement and compliance monitoring
GHG Protocol
International greenhouse gas measurement standards
IPCC
Climate science assessments and projections
APRA
Remuneration disclosure oversight
Frequently Asked Questions
Common questions about AASB S2 compliance
Key Terminology
Scope 1 Emissions
Direct greenhouse gas emissions from sources owned or controlled by the reporting entity.
Scope 2 Emissions
Indirect emissions from the generation of purchased electricity, steam, heat, or cooling consumed by the entity.
Scope 3 Emissions
All other indirect emissions that occur in the entity's value chain, both upstream and downstream.
Climate Resilience
The capacity of an entity to adjust to climate-related changes, developments, or uncertainties.
Scenario Analysis
A process for identifying and assessing a potential range of outcomes of future events under conditions of uncertainty.
Transition Risk
The risk of financial loss from policy, legal, technology, market, and reputational changes associated with the transition to a lower-carbon economy.
Physical Risk
The risk of financial loss from the physical effects of climate change, including acute events and chronic shifts.
Financed Emissions
The portion of greenhouse gas emissions of investees or counterparties attributed to an entity's investments and lending activities.
Ready to Meet Your AASB S2 Obligations?
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