What is the AASB? A recap
The Australian Accounting Standards Board (AASB) is the government body responsible for developing, issuing and maintaining financial reporting standards in Australia. The AASB’s role extends to both private and public sector entities, with a focus on promoting consistency, transparency and comparability across financial and sustainability reporting. The Assurance Standards Board (AUASB) works alongside the AASB to set assurance requirements for sustainability and climate disclosures.
In recent years, the AASB has expanded its remit to include sustainability-related financial disclosures in response to growing global and local demand for reliable climate data. The AASB aligns its standards with those set by the International Sustainability Standards Board (ISSB) to ensure global comparability. These disclosures are part of a broader movement to integrate environmental, social and governance (ESG) factors into financial reporting, helping to ensure that markets can properly assess long-term risks and opportunities.
Understanding AASB S1 and S2 under the Australian Sustainability Reporting Standards
In September 2024, the AASB issued the first two standards under the Australian Sustainability Reporting Standards (ASRS): AASB S1 addresses general sustainability reporting, while AASB S2 focuses on climate-related financial disclosures.
- AASB S1 General Requirements for Disclosure of Sustainability-related Financial Information (voluntary)
- AASB S2 Climate-related Disclosures (mandatory)
Both AASB S1 and S2 are based on IFRS S1 and S2, which are IFRS standards. ASRS compliance ensures alignment with these international frameworks.
AASB S1
AASB S1 is a voluntary standard that outlines the general principles and overarching requirements for disclosing sustainability-related financial information. It aligns closely with the International Sustainability Standards Board’s IFRS S1 and serves as the foundation for entities wanting to provide comprehensive general sustainability disclosures beyond climate.
While currently a voluntary standard, AASB S1 is essential for organisations looking to future-proof their reporting and align with international expectations.
AASB S2
AASB S2 is the mandatory standard that focuses specifically on climate-related disclosures. Based on IFRS S2, AASB S2 requires entities to report on governance, strategy, risk management, and metrics and targets related to climate change.
AASB S2 requires each entity to disclose 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 standard mandates the entity to disclose information about climate related matters that are expected to affect the entity’s financial year, including sustainability related risks and opportunities that could reasonably be expected to affect the entity’s prospects, capital over the short, medium or long term, and overall financial stability. Disclosures must address how these factors could affect the entity’s cash flows, access to finance, and cost of capital, and must be aligned with the applicable reporting period and the entity’s first reporting period under the new requirements.
Key components include:
- Identification and disclosure of climate-related risks and opportunities
- Climate scenario analysis using at least two prescribed scenarios
- Emissions reporting (Scope 1, Scope 2, and in many cases, Scope 3). Entities must report on 3 greenhouse gas emissions categories and describe their reporting processes for collecting and managing this data, including impacts across the supply chain.
- Transition planning, strategy and business model alignment, and climate targets
- Inclusion of disclosures in the sustainability report, which must be part of the annual report and submitted in line with annual reporting periods to ASIC
- Requirement to disclose climate statements as part of the sustainability report, including details on the reporting period and first reporting period
- Clear links to the entity’s financial statements and their potential impact on financial performance
5 key steps to compliance with AASB S2
Meeting the requirements of AASB S2 involves detailed preparation across multiple business functions. Failure to comply with AASB S2 may result in non compliance, exposing your organisation to non compliance penalties under Australian law. Here are five critical steps to help your organisation achieve compliance:
1. Determine your reporting obligations
Start by understanding whether your organisation falls within the scope of mandatory reporting under the Corporations Act. Entities are grouped into three categories, with Group 1 entities (large listed companies, asset owners, and major financial institutions) required to report first for periods starting 1 January 2025.
You should:
- Review your corporate structure, revenue, asset base, and emissions
- Confirm your reporting group (Group 1, 2 or 3)
- Align your compliance timeline accordingly
A directors declaration is required to confirm compliance with AASB S2, and climate-related disclosures must be submitted to the Australian Securities and Investments Commission to meet Australian securities regulations.
AASB S2 requires organisations to disclose both physical and transition risks as well as opportunities linked to climate change. Begin with a comprehensive assessment of how climate-related factors affect your operations, supply chains, customers and broader market.
It is essential to integrate risk management processes and strategic decision making into your climate risk and opportunity assessment. This ensures that sustainability-related risks and opportunities are embedded in your overall business strategy and support long-term value creation.
Your assessment should:
- Identify short, medium and long-term climate risks and opportunities
- Evaluate materiality from a financial and operational perspective
- Be informed by science-based methodologies and sector-specific data
One of the most technically challenging aspects of AASB S2 is the requirement to undertake climate scenario analysis. This involves modelling your organisation’s exposure and resilience to at least two different climate futures, including one aligned with limiting warming to 1.5°C.
To meet expectations:
- Select appropriate, recognised scenarios (e.g. from the IPCC or NGFS)
- Use quantitative and qualitative analysis techniques
- Involve finance, risk and strategy teams in scenario planning
- Document assumptions and methodologies for transparency
4. Establish emissions baselines and targets
Under AASB S2, organisations must report greenhouse gas emissions across Scope 1 (direct), Scope 2 (indirect from energy use), and in many cases, Scope 3 (indirect from value chains). Reporting entities must also disclose their transition plans and relevant targets.
To prepare:
- Develop or refine your GHG emissions inventory
- Define clear boundaries and measurement approaches
- Engage third-party experts if needed to ensure data accuracy
- Set emissions reduction targets in line with credible frameworks (e.g. Science Based Targets initiative)
In the initial years of mandatory climate reporting, limited assurance is required for greenhouse gas emissions disclosures. These assurance engagements must be conducted in accordance with the relevant Australian standards and regulations.
5. Prepare your governance and reporting framework
The success of AASB S2 compliance hinges on robust governance and internal systems that support accurate, timely reporting. Your sustainability disclosures must be integrated into your annual report and supported by governance structures that include board oversight and accountability.
Focus on:
- Assigning ownership of climate-related risks and disclosures
- Establishing internal controls and assurance processes
- Aligning with existing financial reporting systems
- Planning for phased assurance requirements (reasonable assurance from July 2030)
- Coordinating with your Australian auditing partners to align assurance scope with future requirements
- Implementing other measures to support compliance with AASB S2 and related standards
How ESG software can help
Given the complexity of AASB S2 compliance, many organisations are turning to ESG software solutions to streamline their reporting efforts. A well-chosen platform can help reduce administrative burden, improve accuracy, and ensure your disclosures meet regulatory expectations.
ESG software can support:
- Data integration: Centralising emissions, energy, and climate risk data from across your business
- Scenario analysis tools: Running climate models aligned with required standards
- Workflow automation: Simplifying the preparation of sustainability reports
- Audit readiness: Creating traceable records and audit trails
- Stakeholder engagement: Providing dashboards and reports for investors, regulators, and internal teams
Choosing the right ESG platform is essential for maintaining confidence in your disclosures and reducing long-term compliance costs.
Final thoughts
The introduction of AASB S2 is a landmark development in the evolution of reporting in Australia. By following these five key steps and leveraging ESG software tools, businesses can prepare effectively, reduce compliance risk, and position themselves as leaders in sustainable finance.
With the first reporting deadlines approaching, now is the time to act. Early preparation not only supports compliance but also builds resilience and trust in an increasingly climate-conscious market.
