AASB S2 – Checklist Considering ASIC Research
For Australian Sustainability Reporting Standard (ASRS) Group 1 entities with a 30 June year-end, the first mandatory sustainability report under Australian Accounting Standards Board Standard S2 Climate-related Disclosures (AASB S2) is due in September 2026.
The Australian Securities and Investments Commission (ASIC) published its early observations on sustainability reporting just last week, ahead of the June 2026 reporting season. While the regulator acknowledged genuine progress in the quality and consistency of disclosures compared to the previous voluntary framework, it also identified a number of areas requiring improvement. Those observations are directly relevant to June reporters still finalising their reports.
This article sets out what is broadly required under AASB S2, what ASIC and the market have flagged as the most common gaps, and a detailed checklist to work through before lodgement.
The Legislative Framework
AASB S2 is a mandatory standard issued by the Australian Accounting Standards Board (AASB) under the Corporations Act 2001 (Cth), as amended by the Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Act 2024. It is aligned with International Financial Reporting Standard S2 (IFRS S2) Climate-related Disclosures, issued by the International Sustainability Standards Board (ISSB) in June 2023, and draws on the framework established by the Task Force on Climate-related Financial Disclosures (TCFD).
Unlike previous voluntary climate reporting, AASB S2 sits within the formal financial reporting framework under Chapter 2M of the Corporations Act. This means it carries the same legal weight as financial statements — with civil penalties of up to $15 million or 10% of annual turnover, and personal director liability for misleading disclosures.
Who Has to Report, and When
Mandatory reporting is phased across three groups based on entity size:
- Group 1 = 500+ employees, $500M+ revenue or $1B+ assets. Reporting for financial years beginning on or after 1 January 2025. For June year-end entities, the first reporting period is 1 July 2025 to 30 June 2026, with the sustainability report due September 2026.
- Group 2 = 250+ employees, $200M+ revenue or $500M+ assets. Reporting commences for financial years beginning on or after 1 July 2026.
- Group 3 = 100+ employees, $50M+ revenue or $25M+ assets. Reporting commences for financial years beginning on or after 1 July 2027.
The sustainability report must be lodged with Australian Securities and Investments Commission (ASIC) at the same time as the annual financial report, and must include a directors’ declaration confirming compliance with AASB S2 and the Corporations Act.
What ASIC Found in Early Reports
ASIC’s early observations, published in May 2026 following a review of December 2025 year-end reports, are instructive reading for June reporters. The regulator identified six areas of concern:
- Disclaimers that undermine the report’s purpose = some entities placed disclaimers telling readers not to rely on the content for investment decisions, or disclaiming accuracy. ASIC has confirmed these are not permitted under the Chapter 2M statutory framework and may confuse or mislead users.
- Climate-related targets defined too narrowly = the definition of “climate-related targets” under AASB S2 extends to targets required by law or regulation, including obligations under the Safeguard Mechanism. Some entities did not apply this broader reading.
- Ignoring prior weather-related losses = some entities had previously reported weather-related losses in financial statements but did not reference these in their climate risk disclosures, despite this being directly relevant “past event” information required under the standard.
- Insufficient financial quantification = only two-thirds of early reporters quantified the financial impact of climate risks on position, performance and cash flows. The remainder relied heavily on proportionality mechanisms citing measurement uncertainty.
- Wide variability in report quality and length = from PwC’s review of 22 early reports, length ranged from 7 to 82 pages, with no clear correlation to sector size.
- Shallow scenario analysis = many used recognised reference scenarios but did not clearly connect scenario outputs to financial impacts or strategic responses.
Our View
ASIC’s observations, published just last week, are worth reading closely if you are a June reporter. What stands out to us is that the gaps flagged are not just technical and some entities are still approaching this as a voluntary communications exercise rather than a legal reporting obligation. The disclaimer note is a good example of that. Placing a disclaimer in your sustainability report telling readers not to rely on the content has been confirmed by ASIC as not permitted.
What we also keep seeing is that while there are some excellent examples of internal collaboration (between sustainability teams, risk teams, legal teams and finance teams), the sheer volume of work required for first-time reporters is significant. This is particularly true for organisations that have not previously released a sustainability report or similar style of disclosure. They are now expected to report a substantial amount of detail on their company’s carbon-related initiatives and metrics. It represents a meaningful shift in both workload and mindset when it comes to public disclosure.
The Detailed Checklist
The four pillars of AASB S2 (Governance, Strategy, Risk Management, and Metrics and Targets) each carry specific disclosure requirements. Below is a breakdown of what each requires in practice for each example.
1. Governance
- Document which board committee or individual director has explicit oversight responsibility for climate-related risks and opportunities. Name the role specifically, not just the committee
- Provide evidence of how often climate is on the board agenda such as board papers, minutes references, or management reporting cycles
- Describe management-level roles responsible for climate day-to-day including their qualifications, experience and how matters are escalated to the board
- Confirm whether climate metrics are linked to executive remuneration. If so, document the specific metrics, how they are measured and what weighting they carry
- Confirm directors have reviewed and are prepared to sign the directors’ declaration. This is now a legal requirement and carries personal liability
- Remove any disclaimers from or near the report that suggest readers should not rely on the content, as noted above, ASIC has specifically flagged these as not permitted
2. Strategy
- Identify all material climate-related physical risks (e.g. extreme weather events, flooding, heat stress on operations or assets) and transition risks (e.g. policy changes, carbon pricing, shifts in market demand) across short, medium and long-term time horizons. Define these in specific years, not vague descriptors
- Quantify the financial effect of each material risk on assets, liabilities, revenue, costs and access to capital. This is one of the most commonly underdone areas in early reports and a direct ASIC focus
- Check whether your entity has previously reported weather-related losses in financial statements, and if so, these must be referenced in the climate risk disclosures as “past event” information
- Document any climate-related opportunities alongside risks for example opportunities around low-carbon products or services, energy efficiency gains, new markets
- Prepare or update your Climate Transition Plan (CTP) with specific actions, investment commitments, emissions reduction pathways and milestone dates
A note on scenario analysis
Scenario analysis is one of the more technically demanding requirements under AASB S2, and one where early reports showed the most variability. The standard requires entities to assess the resilience of their strategy under at least two climate scenarios, namely one aligned with a 1.5°C warming pathway and one higher-warming scenario.
In practical terms, this means selecting recognised reference scenarios. Commonly used examples include the Intergovernmental Panel on Climate Change (IPCC) Sixth Assessment Report (AR6) pathways, the International Energy Agency (IEA) Net Zero Emissions by 2050 (NZE) scenario, or the Network for Greening the Financial System (NGFS) scenarios, and then working through what each scenario means for your specific business. This is usually quite an intense exercise. It requires engaging with your asset base, your supply chain, your customer mix and your regulatory environment to understand how each scenario changes the financial outlook for your organisation.
The key gap ASIC and market reviewers identified is that many companies selected appropriate scenarios but then did not connect the outputs to financial impacts or strategic decisions. The scenario analysis must flow through to your strategy disclosures and explains what you would do differently under each scenario, what the financial implications are, and how the board has considered these in setting strategic direction.
3. Risk Management
- Map climate risks into your existing Enterprise Risk Management (ERM) framework. ASIC expects climate risk to sit within the same processes as financial and operational risk, not as a standalone ESG exercise
- Document the specific criteria used to assess the likelihood and magnitude of each climate risk, including the time horizon, severity thresholds and probability assessments
- Describe how climate risks are monitored on an ongoing basis, and include details on who reviews them, at what frequency, and what triggers a reassessment
- Evidence that climate risk management is integrated into existing internal controls
4. Metrics and Targets
- Scope 1 emissions = direct emissions from sources owned or controlled by the entity (fuel combustion, company vehicles, on-site industrial processes). Must be calculated and verified using the Greenhouse Gas (GHG) Protocol Corporate Standard
- Scope 2 emissions = indirect emissions from purchased electricity, heat or steam. Must be reported on a location-based basis using grid-average emissions factors. If your organisation has only tracked market-based Scope 2 to date, location-based figures will need to be calculated separately
- Scope 3 emissions = indirect value chain emissions across all 15 categories. A one-year grace period applies for Year 1 reporting, but data collection should be actively underway now. Scope 3 is mandatory from Year 2. For most Group 1 June reporters, that means it must be in next year’s report
- Climate-related targets = disclose all targets set, the methodology used, baseline year, and progress to date. Importantly, this definition extends to targets required by law or regulation, including Greenhouse Gas (GHG) emissions targets under the Safeguard Mechanism. Some early reporters missed this
- Internal carbon price = if used in investment decision-making, this must be disclosed
- Climate-related capital expenditure = disclose where climate considerations are a factor in capital allocation decisions
5. Process and Legal Requirements
- Engage an assurance provider early as limited assurance is required from Year 1 over Scope 1 and 2 emissions and governance disclosures
- Ensure the sustainability report is structured as a standalone document within the annual report, clearly separate from the directors’ report and financial statements
- Obtain the directors’ declaration, signed by the directors, confirming the report complies with AASB S2 and the Corporations Act 2001
- Lodge via the ASIC portal at the same time as the annual financial report
- Regarding the use of comparative data, it has been identified that Group 1 entities are not required to provide comparative period data in their first report, but should consider whether prior year data is available and useful
A Note for Group 2 Reporters
If you are a Group 2 entity (your first reporting period beginning 1 July 2026) now is an excellent time to read through some of the early Group 1 sustainability reports that have been lodged on the Australian Securities Exchange (ASX). Seeing what has been disclosed in practice, across different sectors and entity sizes, gives a much clearer picture of the level of detail expected than any framework document can provide.
Group 2 reporters are in a genuinely advantageous position. They can learn from what worked and what did not in the first wave of reports, and use that to build a more considered and thorough disclosure from the outset.
Sources
- Australian Securities and Investments Commission (ASIC), ASIC Issues Early Observations on Sustainability Reporting Ahead of 30 June 2026, May 2026, asic.gov.au
- Australian Securities and Investments Commission (ASIC), Regulatory Guide 280 Sustainability Reporting, asic.gov.au
- Australian Accounting Standards Board (AASB), AASB S2 Climate-related Disclosures, September 2024 (compiled December 2025), standards.aasb.gov.au
- PricewaterhouseCoopers (PwC) Australia, AASB S2 Unpacked: How Did Australia’s Group 1 Climate Reporting Fare?, March 2026, pwc.com.au
- Ernst & Young (EY) Australia, Mandatory Climate-related Financial Disclosures: Update and Summary, 2025, ey.com
- Insurance Business Australia, ASIC Flags Six Compliance Gaps in Australia’s First Mandatory Sustainability Reports, May 2026
- Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Act 2024 (Cth)
- Corporations Act 2001 (Cth), Chapter 2M
- International Sustainability Standards Board (ISSB), IFRS S2 Climate-related Disclosures, June 2023, ifrs.org
- Greenhouse Gas Protocol, Corporate Accounting and Reporting Standard, ghgprotocol.org
Anabranch ESG Advisory provides independent advice on Environmental, Social and Governance (ESG) strategy, climate disclosure, and sustainability reporting. The information in this article is general in nature and does not constitute legal or financial advice.
