Following approval in September, the Australian Accounting Standards Board (AASB) has now published the Australian Sustainability Reporting Standards – AASB S1 and AASB S2.
This marks the country’s first mandated climate-related disclosure regime, with AASB S2 requiring mandatory disclosure and AASB S1 available for voluntary disclosure.
The regime is aimed at providing transparent, consistent, and comparable information on how climate change affects a company’s financial performance, operations, and long-term sustainability.
The disclosures allow end-users (i.e. stakeholders, including investors, regulators, customers, and the public) to understand a company’s exposure to climate-related risks and opportunities and assess how well the company is managing those challenges.
The standards are in close alignment with the Taskforce for Climate-related Financial Disclosures (TCFD) – an international framework for reporting – as well as New Zealand’s mandatory Climate-related Disclosures (‘CRD’) published by the External Reporting Board (‘XRB’) and in force since January 2023.
The AASB standards are divided into the general requirements of reporting sustainability-related financial disclosures more broadly across a range of possible sustainability topics, including climate-related financial disclosures (S1); and the specific climate-related disclosure obligations and the general requirements that underpin them (S2).
- AASB S1: General Requirements for disclosure of sustainability-related financial information, including guidelines for the structure and minimum requirements.
Available for voluntary adoption.
- AASB S2: Climate-related Disclosures – climate-related risks and opportunities that could reasonably be expected to affect an entity over the short, medium or long term, along with general requirements including conceptual foundations for reporting such information, the location of disclosures, the timing of reporting and disclosures relating to judgements, uncertainties and errors. Note that some of the requirements are also included in S1.
Available for mandatory adoption.
Who needs to report and when?
The standards will be applied to mandated entities via a staggered approach. Certain entities are required by the Corporations Act 2001 to apply AASB S2 for annual periods beginning on or after 1 January 2025 (Group 1), while Groups 2 and 3 are affected at later dates (1 July 2026 and 1 July 2027, respectively).
There is expected to be 6,000+ Australian entities reporting against the regime by 2030.
- Reporting entities which meet 2 out of 3 of the following criteria:
- $500 million + consolidated revenue
- $1 billion+ EOFY consolidated gross assets
- 500+ employees
- Reporting entities which are registered corporations under the NGER (National Greenhouse and Energy Reporting Scheme) Act which are above the NGERs’ publication threshold.
Group 2 – 1st July 2026
- Reporting entities which meet 2 out of 3 of the following criteria:
- $200 million+ in consolidated revenue
- $500 million+ in EOFY consolidated gross assets
- 250+ employees
- Reporting entities which are registered schemes, registrable superannuation entities or retail CCIVs where the value of assets at the end of the financial year (including entities it controls) is equal to or greater than $5 billion.
- Reporting entities which are registered corporations under the NGER Act (National Greenhouse and Energy Reporting), regardless of publication threshold.
Group 3 – 1st July 2027
- Reporting entities which meet 2 out of 3 of the following criteria:
- $50 million+ in consolidated revenue
- $25 million+ in EOFY consolidated gross assets
- 100+ employees
- Group 3 entities only need to report under AASB S2 if they determine they have material climate-related risks and opportunities. However, a statement of ‘no material climate-related risks and opportunities’ still needs to explain the reasoning for this conclusion and be subject to a director declaration and mandatory audit requirements.
What do the standards include?
There are two Australian climate standards to report against. The disclosures cover four key pillars based on the Taskforce for Climate-related Financial Disclosures (TCFD) framework: Governance, Strategy, Risk Management and Metrics & Targets.
An overview of some of the inclusions in each standard can be found below:
AASB S1 – General Requirements
This Standard applies to reporting sustainability-related financial information across a range of possible sustainability topics, including climate-related financial disclosures. The main principles and guidance relate to:
- Identifying the objective of sustainability-related financial information.
- Setting out the conceptual foundations for sustainability-related financial information, to help ensure its relevance and that the information disclosed is a faithful representation of what it purports to represent.
- The core content that would be expected to be disclosed in respect of a particular sustainability topic, including on governance, strategy, risk management, and metrics and targets.
- Sources of guidance on disclosing sustainability-related financial information.
- The location of sustainability-related financial information disclosures.
- The timing of sustainability-related financial information disclosures.
- The disclosure of comparative information in the sustainability report.
- Judgements, uncertainties and errors affecting sustainability-related financial information.
Additionally, the standard also includes (but is not limited to) requirements as it relates to:
- Fair Presentation: Requires complete, neutral, and accurate presentation of sustainability-related risks and opportunities.
- Materiality: Information is considered material if its omission could influence decision-making by stakeholders, especially investors.
- Statement of Compliance: An entity must provide an explicit statement of compliance if its sustainability-related financial disclosures meet all requirements of AASB S1 and cannot claim compliance unless all requirements are fulfilled.
AASB S2 – Climate-related Disclosures
This Standard requires entities to disclose useful information about climate-related risks and opportunities that affect their cash flows, access to finance, or cost of capital over the short, medium, and long term.
- Governance: 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.
- The governance body(s) or individual(s) responsible for oversight of climate-related risks and opportunities.
- Management’s role in the governance processes, controls and procedures used to monitor, manage and oversee climate-related risks and opportunities.
- Strategy: The approach the entity uses to manage climate-related risks and opportunities. This includes (but is not limited to):
- Climate-related risks and opportunities and their current and anticipated effects.
- Impact on the business model and value chain.
- Strategic planning and decision-making processes.
- Financial effects of risks and opportunities.
- Use climate-related scenario analysis to assess and report the resilience of the strategy and business model in responding to climate-related risks.
- Risk management: The processes the entity uses to identify, assess, prioritise and monitor climate-related risks and opportunities.
- The processes and related policies to identify, assess, prioritise and monitor climate-related risks and opportunities, including information about whether and how the entity uses climate-related scenario analysis to inform its identification of these.
- The extent to which, and how, the processes for identifying, assessing, prioritising and monitoring climate-related risks and opportunities are integrated into and inform the entity’s overall risk management process.
- Metrics and Targets: Enable users of general purpose financial reports to understand an entity’s performance in relation to its climate-related risks and opportunities, including progress towards any climate-related targets it has set, and any targets it is required to meet by law or regulation.
- Metrics: An entity shall disclose information relevant to the cross-industry metric categories of GHG emissions; the amount and percentage of assets or business activities vulnerable to climate-related transition and physical risks and aligned to opportunities; capital deployed towards climate-related risks and opportunities; internal carbon price; and, remuneration linked to climate-related considerations.
- Targets: An entity shall disclose quantitative and qualitative climate-related targets it has set to monitor progress towards achieving its strategic goals, and any targets it is required to meet by law or regulation; approach to setting and reviewing each target and monitoring progress, performance and analysis of trends; and use of carbon credits.
How Tadpole can help
Tadpole has already spent over 1.5 years supporting Kiwi businesses in disclosing against the mandatory New Zealand Climate Standards, published by the External Reporting Board.
We know what to expect – we have extensive experience having worked with multiple large and medium businesses and have an in-depth knowledge of sector specific climate-related risks and opportunities, as well as the skill to identify how these relate to your enterprise.
If you or your business would like guidance on developing your climate-related disclosures, Tadpole can help. Please check out our website and contact our Australian office here. Alternatively, contact Allan Birch on +64 21 930 992 or allan@tadpole.co.nz.