Navigating the new era of mandatory climate reporting

Australia is transitioning from a period of voluntary Environment, Social and Governance (ESG) disclosures to mandatory disclosures. Under the Australian Accounting Standards Board (AASB), the new AASB S2 Climate-related Disclosures standard1 represents a significant shift in how businesses must report their climate-related financial risks and opportunities.​

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What is AASB S2? 

AASB S2 is a mandatory climate reporting standard based on the global International Sustainability Standards Board/ International Financial Reporting Standards (ISSB/IFRS) S2 Climate-related Disclosures. It has been modified specifically for the Australian legal and institutional environment under Chapter 2M of the Corporations Act 2001. 

The primary goal of these disclosures is to provide investors, lenders and creditors (also referred to as primary users) with useful information regarding an entity’s climate-related risks and opportunities to inform their decision-making. 

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AASB S2 & the director’s duty 

The introduction of AASB S2 represents more than just a new compliance line item; it signals a fundamental shift in the legal expectations placed upon Australian company boards.

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By integrating the Sustainability Report into the Corporations Act 2001 as a core component of the annual financial report, the legislation effectively elevates climate disclosures to the same level of legal rigour as traditional financial statements. 

 

Stronger legal accountability for climate disclosures

Historically, climate disclosures were often viewed as secondary voluntary narratives. Under the new regime, directors must personally sign off on these reports through a formal directors’ declaration. For the initial three-year soft start, directors are required to state that the entity has taken reasonable steps to comply.

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However, from the fourth year, this standard tightens significantly, requiring a declaration that the Sustainability Report is in full accordance with the Corporations Act 2001 and AASB S2. 

According to ASIC Regulatory Guide 280 (RG 280), directors can no longer rely solely on the delegate and forget model. ASIC expects boards to apply a critical lens to the underlying methodologies, particularly regarding high-uncertainty areas like scenario analysis and transition planning. The directors must maintain a sufficient level of literacy to understand and verify the reports they approve. 
 

​Personal liability and enforcement 

Failure to take all reasonable steps to ensure accurate reporting can result in personal civil penalties of more than $1.65 million under Section 344 of the Corporations Act 2001.

While the legislation provides a three-year modified liability period, offering a shield against private litigation for forward-looking statements such as Scope 3 emissions and scenario analysis, this protection is not absolute. 

ASIC retains its full enforcement powers from day one. While companies may have temporary protection from class actions, they remain fully exposed to regulatory action for greenwashing or misleading statements if their disclosures are not supported by reasonable evidence.

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​The four pillars of disclosure 

The reporting framework is structured around four pillars: 

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• Governance: entities must disclose the processes, controls and procedures used to monitor and manage climate-related risks. 

• Strategy: businesses must detail their approach to managing climate-related risks and opportunities, including transition plans and climate resilience. 

• Risk management: this involves describing the processes used to identify, assess, and monitor both physical risks (such as storms or long-term shifts in precipitation) and transition risks (such as new regulations or market shifts). 

• Metrics and targets: disclose quantitative performance metrics used to evaluate climate-related risks and opportunities, including progress toward defined targets and comprehensive Scope 1, 2 and 3 emissions reporting. 

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Who must report and when?