Building Your Mandatory Climate Report — Session 3: Metrics & Targets Under AASB S2

What the webinar was about

Zach Greening, Director of NettZero Carbon, joined Afonso Firmo (co-CEO, NetNada) for session 3 of the 5-part series. The session is built around real examples from the first wave of group 1 reports already lodged, so you can see what auditors are accepting and where reporters are getting tripped up. It is aimed at sustainability, finance and climate leads preparing their first mandatory climate report — and walks through the metrics and targets disclosure requirements of AASB S2 (paragraphs 27 to 30).

Watch if you’re a CFO, sustainability manager, climate lead or company secretary at a Group 2 or Group 3 reporter preparing your first metrics and targets disclosure under AASB S2.

What’s covered

Boundary choice

AASB S2 lets you pick operational control or equity share. State your choice clearly and apply it consistently. Anything not under your operational control (for example, electricity drawn from the grid by a joint venture you don’t run) sits in Scope 3, not Scope 2.

The seven elements of a target disclosure

If you have set a target, AASB S2 requires all seven elements. Two trip people up most:

• Element 5 (type of target): absolute or intensity. Pick one, define it.
• Element 7 (progress in the current period): you cannot restate the target each year. You have to disclose where you are against it, including when you’re going backwards.

Targets vs ambitions

If you…	Then…
Have publicly committed to a target (net zero, science-based, anything circulated externally)	Disclose it as a target and report against it
Are a Safeguard Mechanism reporting entity	Disclose the legally required target
Have a directional aspiration but no formal commitment	Call it an ambition, not a target
Have nothing	Say so explicitly and point to the governance process

Absolute vs intensity targets

Type	Best for	Watch out for
Absolute (total emissions go down)	Scope 2 heavy reporters, especially if grid electricity dominates and renewable PPAs are an option	Has to keep going down even if the business grows or acquires
Intensity (emissions per unit of revenue, floor space, production, FTE)	Growing businesses, Scope 3 disclosures	Define the denominator clearly and apply consistently year on year

An intensity target does not replace your gross emissions disclosure. You report both.

Paragraph 29 additional metrics

Two metrics under paragraph 29 of AASB S2:

1. Internal carbon price. If you have one, disclose the price, what it covers, and the methodology. If not, say so.
2. Remuneration linkages. If a climate KPI is tied to executive pay, name it, quantify it, and explain how. “ESG considerations in remuneration” is not enough.

Silence on either reads as avoidance.

What good looks like: Pepper Money

A non-bank lender with nil Scope 1 emissions. Their disclosure works because they explain how they got to nil:

• Scope 1 broken into three categories (electricity generation, fugitive emissions, transport fuel), each explained and zeroed out separately
• Refrigerant registers checked with building managers in every office, confirming no top-ups in the period
• Manila office (Philippines has no government emissions factor) handled by averaging Vietnam, Malaysia and Thailand factors, with the methodological deviation documented
• Targets section handled cleanly: no internal carbon price, CFO with 15% of short-term variable remuneration tied to AASB S2 KPIs, no emissions target set, reference back to governance section 5

What good looks like: Viva Energy

Refines, imports or distributes around a quarter of Australia’s fuel. Big numbers, honest disclosure:

• Voluntarily disclosed Scope 3 (~41.9 million tonnes CO2-e of downstream combustion) in year 1
• Revised an older target rather than quietly dropping it, and explained why (new business division, Safeguard Mechanism obligations)
• Scope 1: intensity target of 0.138 tonnes CO2-e per kilolitre of feedstock processed by 2030 (14% reduction)
• Scope 2: absolute target of 40% renewable electricity by 2030 via a 10-year PPA
• Upfront that around $3.5M per year will go to ACCUs because no viable low-carbon alternative exists for coking coal and natural gas in the short term
• 2050 net zero clearly framed as an ambition, not a target

What not to do: AMP

A fund manager with around $60B under management. The metrics and targets section fits on one page:

• Emissions table has no methodological narrative; readers are sent to a separate document on the AMP website
• Target section heading exists but the content is blank, with no statement that no target is set
• Climate exposure characterised as immaterial, even though one specialist shares fund has 220,000 tonnes CO2-e of financed emissions per year, 12% directly tied to mining
• Strategy section acknowledges stranded asset risk and portfolio decarbonisation risk; the metrics section calls the same exposure immaterial without reconciling

Most of the underlying data exists. It just wasn’t brought into the report. Three sentences would have fixed the targets section.

Common pitfalls

• Using the Scope 3 relief provision as an excuse to do nothing on Scope 3
• Vague target language (“we aim to reduce emissions”) with no base year, scope or denominator
• Numbers scattered across five documents and footnotes instead of in the report text
• Calling exposure immaterial when the strategy section says otherwise

Action items

1. Decide and document your reporting boundary now
2. Download the Greenhouse Gas Protocol methodology
3. Start mapping Scope 3 categories, even if you’re using the year-1 relief provision
4. Collect Scope 1 and 2 source data (utility bills, fleet fuel reports, refrigerant top-up records) in one clearly labelled folder
5. Decide internally whether you want a target and what it will cost to achieve
6. Talk to your auditors early, before the first draft, to avoid an expectation gap

Key takeaways

Be proportionate and clear. State your boundary, source your methodology, disclose your targets or explicitly state you don’t have any. Connect every metric back to a risk or a strategy point so the report reads with one thread through it, not as five disconnected sections. Silence is worse than honesty. Pepper Money set the standard for proportionate disclosure under nil emissions. Viva Energy set the standard for heavy-emitter honesty. AMP shows what happens when you already have the data but leave it scattered.

FAQs

Do I have to set a climate target under AASB S2?

No. AASB S2 does not require you to set a target. But if you have one, including any publicly committed net zero, science-based or emissions reduction target, you have to disclose it and report progress against it. If you don’t have a target, say so explicitly and point to the governance process that would inform a future decision. Don’t leave the section blank.

What’s the difference between an absolute and an intensity target?

An absolute target is a reduction in total gross emissions, for example reducing Scope 1 and 2 emissions by 30% between 2020 and 2032. The number has to go down regardless of business growth or new operations. An intensity target is a ratio of emissions to a business metric, for example tonnes CO2-e per square metre, per kilolitre of feedstock processed, or per million dollars of revenue. Intensity targets are legitimate under AASB S2 but you need to define the denominator clearly and apply it consistently. An intensity target does not replace your gross emissions disclosure; you report both.

Can I combine my Scope 1, 2 and 3 targets into one?

Yes. You can set a single Scope 1 to 3 target, or split them out into separate targets. It depends on where your emissions sit and where you can reduce. Scope 2 is usually the easiest to reduce linearly through renewable PPA certificates. Scope 1 in heavy industries is harder, which is why some reporters set an intensity target for Scope 1 and an absolute target for Scope 2 (Viva Energy is a good example). Scope 3 in a growing business is usually best expressed as an intensity target.

Can I use carbon offsets to meet my emissions target?

It depends on the target. Offsets do not reduce your gross emissions; only direct reductions do. If your target is a gross emissions target, offsets won’t move the number. If your target is a net target (gross minus offsets), then yes, ACCUs and similar instruments can be used. Be explicit in your disclosure about whether the target is gross or net.

Do I need third-party assurance on my transition plan in year 1?

In year 1, assurance is limited and covers governance disclosures, parts of strategy, and Scope 1 and 2 emissions. Scope expands each year and reasonable assurance applies from year 4. Audit expectations for transition plan content are still settling. Different firms, and sometimes different branches within the same firm, are applying different standards. Bring your auditors into the conversation early, before the first draft, to avoid an expectation gap.

If we don’t set a target, will investors penalise us?

It depends on your investors and customers. If your major customers include federal government or other procurement teams with a net zero policy, aligning with that story makes commercial sense. If your investors don’t weight climate targets, setting one you struggle to meet creates more risk than it removes. The way to find out is a double materiality assessment. Survey your stakeholders, see what they actually weight, and decide accordingly. What you should not do is set a vague target to look good and then miss it.

What’s an internal carbon price and do I need one?

An internal carbon price is a dollar-per-tonne value you place on your CO2-e emissions to make carbon costs visible in business decisions: capital investment stress tests, hurdle prices for offsets, comparing emissions alternatives. Most reporters don’t have one. If you do, disclose the price, what it covers, and the methodology. If you don’t, say so. You don’t need an internal carbon price to comply with AASB S2.

How do I disclose remuneration linkages under AASB S2?

If a climate KPI is tied to executive pay through short-term or long-term incentives, AASB S2 requires you to explain how. A vague reference to “ESG considerations in executive remuneration” is not enough. A good example: “the CFO has 15% of their short-term variable remuneration tied to delivering on AASB S2 disclosures.” Named, quantified, unambiguous. If you don’t have a remuneration linkage in place, say so.

What if I have nil Scope 1 emissions, do I still need to disclose?

Yes. Don’t leave the section blank. Pepper Money’s disclosure is the model. They broke Scope 1 into three categories (electricity generation, fugitive emissions, transport fuel), explained why each was nil, and named their data sources. For fugitive emissions they collected refrigerant registers from every office and confirmed with building managers that no top-ups occurred in the period, therefore no leakage. That field work is what makes a nil figure defensible to an auditor.

How should I handle countries without published emissions factors?

Do what Pepper Money did for their Manila office. Take published factors from comparable countries, document the averaging methodology, and disclose the deviation transparently. The Philippines doesn’t publish government emissions factors, so they averaged Vietnam, Malaysia and Thailand. The result was a defensible methodological choice, not a gap or an omission.

When do I have to disclose Scope 3?

Scope 3 disclosure is required from year 2 under AASB S2. Year 1 has a relief provision but year 2 arrives faster than you expect. Don’t treat the relief provision as a reason to do nothing. Start mapping your Scope 3 categories now, especially if you have a complex value chain. Voluntary year-1 disclosure is also an option, as Viva Energy did, and can be a useful signal to investors that you are ahead of the curve.

What’s the single most common mistake in year-1 reports?

Leaving sections blank instead of explaining absence. The AMP example shows this clearly: the target section heading exists but the content is empty, with no statement that no target is set or why. Three sentences would have fixed it. Pepper Money set the standard: if you don’t have a target, an internal carbon price, or a remuneration linkage, state it directly and point to the governance section that owns the decision.

Resources

Zach Greening prepared a metrics and targets disclosure template for attendees: a workbook that maps each paragraph 27 to 30 requirement of AASB S2 to a guidance note and a report-ready output. Reply to the post-session email to request a copy.

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If you have any questions about the session, please email us at support@netnada.com.au