AASB S2 Explained: What Australian Companies Need to Know Right Now
Australia’s mandatory climate reporting era has officially begun. With the first wave of large companies now completing their inaugural sustainability reports under AASB S2, and the next wave facing a July 2026 deadline, there’s no better time to get across what this standard actually requires — and what early reports are telling us.
What Is AASB S2?
AASB S2 Climate-related Disclosures is Australia’s mandatory standard for climate-related financial reporting. Developed by the Australian Accounting Standards Board (AASB), it closely mirrors the international IFRS S2 standard issued by the International Sustainability Standards Board (ISSB) in 2023, adapted for Australia’s legal and regulatory context.
The standard requires companies to disclose information about climate-related risks and opportunities that could affect their cash flows, access to finance, or cost of capital — in the short, medium, or long term. Critically, it sits alongside the financial report as a standalone sustainability report, making climate a fourth pillar of corporate annual reporting.
Who Has to Report, and When?
The regime is being phased in across three groups based on entity size:
Group 1 — Large entities with 500+ employees, $500M+ revenue, or $1B+ in assets (or significant NGER emitters). Reporting applies for financial years beginning on or after 1 January 2025. For December year-ends, that means reports were due in early 2026. For June year-ends, reports are due by September 2026.
Group 2 — Mid-sized entities with 250+ employees, $200M+ revenue, or $500M in assets. Reporting commences for financial years beginning on or after 1 July 2026.
Group 3 — Smaller entities with 100+ employees, $50M+ revenue, or $25M in assets. Reporting commences for financial years beginning on or after 1 July 2027.
What Does AASB S2 Require?
Disclosures are structured around four core pillars:
1. Governance — How does the board and executive team oversee climate-related risks and opportunities? Who is accountable, and how is performance measured?
2. Strategy — What climate-related risks and opportunities has the company identified, and how do they affect its business model, strategy, and financial planning? Scenario analysis is a key requirement here.
3. Risk Management — How does the company identify, assess, and manage climate-related risks? How is this integrated into the broader enterprise risk management framework?
4. Metrics & Targets — What are the company’s greenhouse gas emissions (Scope 1, 2, and eventually Scope 3), and what targets has it set to manage climate risk?
A notable transitional relief applies in Year 1: companies can defer disclosure of Scope 3 emissions. But Scope 1 and Scope 2 reporting is mandatory from day one.
What Are Early Reports Telling Us?
The first cohort of Group 1 December reporters have now lodged their sustainability reports — and a PwC review of 22 of these early disclosures reveals a market still finding its feet, with some clear leaders and some notable gaps.
The range is striking. Report length varied from just 7 pages to 82 pages, averaging around 30 pages. Some of that variation reflects genuine differences in climate exposure. But some of it reflects differences in ambition and capability. The companies at the longer end tended to include not just mandatory disclosures but voluntary sustainability content as well — going beyond the minimum to build credibility with investors early.
On the positive side, all 22 sustainability reports received unqualified limited assurance opinions — meaning auditors identified no material issues in the mandatory scope. Every single report disclosed climate-related risks and opportunities. And around two-thirds of companies quantified the financial impact of those risks on their position, performance and cash flows — which is a meaningful step forward from the narrative-heavy voluntary reporting of previous years.
Where companies diverged most was in depth and ambition. Around two-thirds disclosed a climate transition plan, but quality varied considerably — from high-level operational initiatives like energy efficiency and fleet electrification, through to comprehensive strategies with defined investment programs and emissions reduction pathways. About 65% disclosed specific climate targets, and in higher-exposure sectors, there was noticeably stronger alignment between identified risks, strategic response and longer-term decarbonisation goals.
Scenario analysis was another area of divergence. Most companies used globally recognised reference scenarios (NGFS, IPCC AR6, IEA), with the majority using IPCC SSP-RCP 1-1.9 to satisfy the mandatory 1.5°C scenario requirement. But time horizons differed significantly — energy and resources companies tended to anchor their horizons to asset lives, while others used shorter planning cycles that may not fully capture long-term physical risks.
On executive accountability, around half of reports connected climate metrics to executive remuneration — a meaningful signal of how seriously boards are embedding climate into governance, rather than treating it as a reporting exercise.
The clearest gap is financial quantification. The one-third of companies that leaned on proportionality mechanisms — citing measurement uncertainty as a reason not to put numbers to climate risks — may face harder questions as assurance requirements ramp up. ASIC has already flagged this as an area of scrutiny. Saying “it’s uncertain” is not the same as explaining how you’re managing the uncertainty.
On Scope 3, most companies used transitional relief to defer disclosure in Year 1 — which is entirely permitted. But notably, 12 companies chose to voluntarily disclose some Scope 3 categories anyway, and around half sought additional limited assurance over those voluntary disclosures. One company even obtained reasonable assurance (the higher standard) over its Scope 1 and 2 emissions — a sign that for some, this is already being treated as a competitive differentiator, not just a compliance exercise.
Recent Changes to the Standard
In December 2025, the AASB approved amendments to AASB S2 (published as AASB S2025-1) to align with recent IFRS S2 updates. The key relief for Australian companies: heavy emitters already reporting Scope 1 and Scope 2 emissions under the National Greenhouse and Energy Reporting (NGER) Act can use the NGER measurement methodology for those emissions under AASB S2 — avoiding the need to run duplicate calculations. This is a practical and welcome change.
The Assurance Roadmap
Assurance requirements phase in progressively. In Year 1, limited assurance applies to Scope 1 and 2 emissions and governance disclosures. From there, requirements escalate, and by 2030 all disclosures will require reasonable assurance — the same standard applied to financial statements.
The financial statement auditor is required to audit the sustainability report, with support from technical climate and sustainability experts where needed.
What Should Companies Be Doing Now?
For Group 1 June reporters: your first report is due by September 2026. The early December reports offer a useful benchmark — but don’t simply replicate what others have done. ASIC is paying attention to quality, not just compliance.
For Group 2 companies: July 2026 is the start of your first reporting period. If you haven’t already, now is the time to conduct a gap analysis, establish data collection processes, and engage your board on climate governance.
For all companies: the direction of travel is clear. Assurance requirements will tighten, Scope 3 reporting will become mandatory, and ASIC has signalled it will move from education to enforcement as the regime matures.
Anabranch ESG Advisory provides independent advice on ESG strategy, climate disclosure, and sustainability reporting. The information in this article is general in nature and does not constitute legal or financial advice.
