Australian Sustainability Reporting Standards (ASRS): Climate-related disclosures under AASB S2
Australia's mandatory climate reporting regime has fundamentally transformed corporate disclosure obligations, introducing comprehensive requirements that align with international best practices. At the heart of this transformation lies the Australian Sustainability Reporting Standards (ASRS), specifically AASB S2 Climate-related Disclosures, which represents one of the most significant changes to corporate reporting in decades.
Overview of the ASRS framework
The ASRS comprises two distinct standards working in tandem to address sustainability reporting needs. AASB S1 provides general requirements for voluntary disclosure of sustainability-related financial information, while AASB S2 establishes mandatory climate-related disclosures. This dual approach allows companies to provide comprehensive sustainability information while ensuring critical climate-related risks are consistently reported across the market.
The mandatory reporting requirements apply to financial years beginning on or after 1 January 2025, with a phased implementation targeting entities with Corporations Act Chapter 2M reporting obligations that meet prescribed thresholds. This staged rollout ensures larger companies lead the transition while providing smaller entities time to develop necessary capabilities.
AASB S2 as the core climate disclosure standard
AASB S2 establishes comprehensive climate-related financial disclosure requirements covering four fundamental pillars: governance, strategy, risk management and metrics and targets. These requirements ensure companies provide stakeholders with detailed information about how climate-related risks and opportunities affect their business model, strategy and financial performance.
The standard requires companies to disclose material climate-related risks and opportunities that could reasonably be expected to affect their cash flows, access to finance or cost of capital over the short, medium and long term. This forward-looking approach represents a significant departure from traditional historical financial reporting, requiring companies to assess and communicate their climate resilience and adaptation strategies.
Governance requirements
Under AASB S2, companies must provide comprehensive disclosures about their governance processes, controls and procedures for monitoring and managing climate-related risks and opportunities. This includes detailed information about board oversight responsibilities, management's role in climate governance and how climate considerations are integrated into strategic decision-making processes.
The standard requires transparency in how management communicates with the board, establishing regular and evidence-based reporting mechanisms that ensure sustainability influences all levels of decision-making. Companies must demonstrate that climate-related considerations are embedded throughout their governance structures, not merely addressed as isolated compliance requirements.
Governance disclosures must detail the board's oversight of climate-related risks and opportunities, including the frequency of board discussions on climate matters, the expertise and experience of board members in climate-related issues and how climate considerations influence executive compensation and performance evaluation.
Strategy disclosures
The strategy component of AASB S2 requires companies to provide detailed information about their climate-related risks and opportunities and how these factors influence their business model, strategy and resource allocation decisions. Companies are expected to disclose climate-related risks and opportunities that will impact their business prospects over the short, medium and long term.
Companies must identify and assess both transition risks (such as policy changes, technology shifts and market preferences) and physical risks (including acute weather events and chronic climate changes) that could affect their operations. This assessment must extend beyond direct operational impacts to include value chain considerations and broader systemic risks.
Strategic disclosures must also address how companies plan to adapt their business models to address identified climate risks and capitalise on emerging opportunities. This includes information about capital allocation decisions, product and service development strategies and operational changes designed to enhance climate resilience.
Risk management framework
AASB S2 mandates comprehensive disclosure of risk management processes used to identify, assess and manage climate-related risks. This requires information on governance and risk management processes, controls and procedures, demonstrating how climate risks are integrated into overall enterprise risk management frameworks.
Companies must describe their processes for identifying climate-related risks, including the methodologies used to assess risk significance and the criteria for determining materiality. The standard requires disclosure of how frequently risk assessments are conducted and how the results influence business planning and strategic decision-making.
Risk management disclosures must also address how companies monitor and manage identified climate risks, including the specific controls and procedures implemented to mitigate potential impacts. This includes information about scenario analysis and stress testing used to assess climate resilience under different future conditions.
Metrics and targets
The metrics and targets pillar of AASB S2 requires companies to provide quantitative information about their climate-related performance. This includes detailed information about Scope 1, Scope 2 and Scope 3 greenhouse gas emissions, as well as scenario analysis requirements.
Emissions reporting under AASB S2 follows internationally recognised methodologies, requiring companies to disclose their direct emissions (Scope 1), indirect emissions from purchased energy (Scope 2) and other indirect emissions throughout their value chain (Scope 3). This comprehensive approach ensures stakeholders have complete visibility into a company's carbon footprint.
Companies must also disclose climate-related targets and key performance indicators used to assess progress toward strategic objectives. This includes information about the methodologies used to set targets, the timeframes for achievement and regular progress reporting against established benchmarks.
Scenario analysis requirements
AASB S2 requires climate resilience assessments underpinned by scenario analysis, representing one of the most technically challenging aspects of the new reporting requirements. Companies must conduct scenario analysis to assess their resilience to climate-related risks and opportunities under different future climate scenarios.
Scenario analysis must consider at least one scenario consistent with limiting global warming to 1.5°C and one scenario that represents a higher level of climate change. Companies must explain the scenarios used, the key assumptions underlying their analysis and how the results inform their strategic planning and risk management processes.
Implementation challenges and support
In March 2025, ASIC published Regulatory Guide 280 Sustainability Reporting to support the implementation of the mandatory climate-related disclosures regime. This guidance provides practical support for companies in meeting the detailed requirements of AASB S2 and helps ensure consistent application across different industries and business models.
The transition to mandatory climate reporting requires significant investment in data collection systems, analytical capabilities and governance structures. Companies must develop new processes for identifying, assessing and managing climate-related risks while building internal expertise to support comprehensive disclosure requirements.
Schlussfolgerung
AASB S2 represents a fundamental shift in how Australian companies must approach climate-related disclosure, moving from voluntary, inconsistent reporting to comprehensive, standardised requirements. The standard ensures stakeholders receive consistent, comparable information about climate-related risks and opportunities while driving companies to more deeply integrate climate considerations into their strategic planning and risk management processes.
The success of this mandatory reporting regime will ultimately depend on companies' commitment to providing high-quality, decision-useful information that enables stakeholders to make informed assessments of climate-related risks and opportunities. As the framework continues to evolve, it will play a crucial role in supporting Australia's transition to a more sustainable economy while maintaining the transparency and accountability that modern capital markets demand.
