ASRS & AASB S2: Mandatory Climate Reporting in Australia

The landscape of sustainability reporting in Australia is undergoing a significant transformation. Starting from 1st January 2025, both large listed and private companies and financial institutions, are required to assess and disclose information about their climate-related risks and opportunities in a ‘Sustainability Report’. With the introduction of Australian Sustainability Reporting Standards (ASRS) and the Australian Accounting Standards Board’s (AASB) role in implementing these frameworks, companies must prepare for new compliance requirements. Here’s what businesses need to know.

What Are the New Standards?

These ASRS standards are aligned with the International Financial Reporting Standards (IFRS) Sustainability Disclosure Standards established by the International Sustainability Standards Board (ISSB). The Australian Accounting Standards Board (AASB) is responsible for developing and maintaining the ASRS, ensuring consistency with global reporting frameworks while tailoring requirements to Australia’s regulatory environment.

The first two ASRS standards issued in September 2024 are:

• AASB S1 – General Requirements for Disclosure of Sustainability-related Financial Information (voluntary)

• AASB S2 – Climate-related Disclosures (mandatory)

AASB S2 closely follows IFRS S2 Climate-related Disclosures, ensuring Australian companies provide robust, investor-relevant climate disclosures with minimal variations from the international standard.

What Does This Mean for Australian Businesses?

The Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Act 2024 mandates sustainability reporting for certain entities under ASRS, with reporting requirements phased in over three years:

Entities in scope must submit sustainability reports alongside financial statements, with initial relief on liability for forward-looking statements and Scope 3 emissions disclosures until 2028.

Key Things to Note

1. Aligning with Global Standards

ASRS standards align with ISSB’s IFRS S1 and S2, allowing companies to integrate their Australian sustainability reporting into international compliance frameworks. However, companies aiming for full ISSB compliance must additionally disclose industry-based metrics not required under ASRS.

2. Assurance Requirements

From 1 July 2030, sustainability reports must be audited for reasonable assurance. Leading up to this, the Australian Securities and Investments Commission (ASIC) and the Auditing and Assurance Standards Board (AUASB) are phasing in assurance obligations, requiring companies to develop robust internal controls over ESG data.

3. Climate Scenario Analysis and Metrics

AASB S2 mandates scenario analysis with at least two climate scenarios:

• A 1.5°C warming scenario.

• A ‘higher warming’ scenario exceeding 2°C.

Additionally, companies must report on Scope 1, 2, and (eventually) Scope 3 emissions, transition plans, and climate resilience strategies.

4. Board and Executive Accountability

Company directors must declare compliance with ASRS, with liability protections phasing out after three years. This increases the need for strong governance and accurate sustainability data management.

The non-compliance penalties under ASRS and AASB S2 closely mirror financial reporting penalties under the Corporations Act.

In line with non-compliance penalties for financial reporting, directors may face personal liability for misleading statements in Sustainability Reports due to a lack of due diligence. False or misleading climate statements could result in penalties up to $15 million or 10% of annual turnover, with directors personally liable.

Streamlining AASB Compliance with ESG360Air

Navigating the complexities of AASB-aligned sustainability reporting requires a structured approach to data collection, risk management, and compliance tracking. ESG360Air streamlines the process by:

• Automating Data Collection: Consolidating financial, operational, and emissions data to ensure accurate and timely reporting.

• Facilitating Assurance Readiness: Enabling companies to build the internal controls needed for eventual third-party assurance.

• Supporting Board-Level Oversight: Generating real-time insights to help executives and boards make informed sustainability decisions.

ESG360Air simplifies the transition, equipping organisations with the tools they need to meet Australia’s evolving ESG disclosure requirements.

The ASRS requirements mark a critical shift in corporate sustainability reporting, setting the stage for greater transparency and accountability. While the new requirements present challenges, they also offer opportunities for businesses to enhance investor confidence and drive long-term value. By leveraging technology and proactive compliance strategies, companies can stay ahead in the rapidly evolving ESG landscape.