Australia’s mandatory sustainability reporting regime – starting with climate – commences on 1 January 2025. To satisfy their reporting obligations, in-scope entities will need to comply with the disclosure requirements prescribed by Australian Sustainability Reporting Standards, specifically AASB S2, the climate disclosure standard. Here are a few key things to know to help you get started with your climate-related financial disclosures.

What is ASRS?

Australian Sustainability Reporting Standards (or ASRS) are the standards under which entities captured by Australia’s mandatory sustainability reporting framework will assess and disclose information about their sustainability-related risks and opportunities. They are issued by the Australian Accounting Standards Board (AASB), the standard-setter that also issues Australian Accounting Standards.

To date, there are two ASRS standards that have been issued:

The above standards are aligned with their international counterparts, IFRS S1 and IFRS S2, with only a few differences.

AASB S1 has been made as a voluntary standard. That is, it has not been issued by the AASB for purposes of the Corporations Act 2001 and entities caught by the new climate reporting framework will not have to comply with AASB S1 when preparing their sustainability reports under local requirements. However, they can choose to do so voluntarily if they wish to report on sustainability matters beyond climate which may serve as preparation for future mandatory standards.

AASB S2, on the other hand, has been issued as a mandatory standard. Reporting entities will therefore need to apply this standard when preparing their sustainability reports under the Corporations Act 2001. For this reason, many businesses are focussing their attention on AASB S2 for the immediate term as they gear up to start making climate-related disclosures to meet their expanded reporting obligations.

What climate information needs to be disclosed?

The disclosures contained in AASB S2 are structured around four core themes borrowed from the Taskforce on Climate-related Financial Disclosure (TCFD) recommendations. Examples of these disclosures are visually presented below.

TCFD’s four pillars horizontal

Where will the information be reported?

Under the new climate reporting rules, climate disclosures must be made in a sustainability report which will sit alongside its financial counterpart in an entity’s annual report.

The sustainability report will comprise of a climate statement, notes to the climate statement and a directors’ declaration about the statement and notes.

The directors’ declaration over the climate statement and related notes will confirm that the climate-related disclosures comply with the Corporations Act 2001 and AASB S2. It is therefore similar to, but distinct from, the directors’ declaration for the financial statements.

Is there any transitional or other relief?

There are proportionality mechanisms built into AASB S2 for certain of the required disclosures. These mainly relate to cost or effort considerations when gathering reasonable and supportable information, as well as the availability of skills, capabilities and resources.

In terms of transitional relief, entities are not required to disclose Scope 3 emissions until the second year of reporting. Furthermore, comparative information is not required for any period prior to the date of initial application.

How to prepare for AASB S2?

Just get started is the key message.

The type of information needed to make the required disclosures is different to what most entities are used to collating for reporting purposes. Entities will need to prepare adequately over coming years to ensure accurate and reliable data is available to comply with AASB S2 and that will withstand the scrutiny of audit.

Now is the time to:

  • Understand the applicability of the new climate reporting requirements to your business
  • Become familiar with the AASB S2 disclosures and identify gaps in current climate disclosures
  • Establish roles (including governance), as well as systems and processes, that will support and enable compliance
  • Educate directors and management on the new requirements
  • Develop a reporting timeline (see our example timelines for Group 2 and Group 3 entities) to ensure reporting readiness, including project milestones, workstreams and resourcing.

This article was first published in The Bottom Line, Issue 21.