How to Comply with AASB S2 in Australia
Last updated: April 2026
Summary
- AASB S2 makes climate-related financial disclosures mandatory for large Australian entities, phased in over three groups from July 2025 to July 2027.
- You must disclose across four pillars: governance, strategy (including scenario analysis), risk management, and metrics & targets (including GHG emissions).
- Year 1 transition reliefs mean you can defer Scope 3 emissions and scenario analysis, but Scope 1 & 2 emissions and governance disclosures need limited assurance from day one.
- Penalties are real: up to $16.5M or 10% of turnover, plus personal director liability. A modified safe harbour protects good-faith efforts in Years 1–3.
What Is AASB S2?
AASB S2 (Climate-related Financial Disclosures) is an Australian accounting standard that requires certain entities to report on how climate change affects their business. It was introduced through the Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Act 2024 and amendments to the Corporations Act 2001.
The standard is based on the International Sustainability Standards Board's IFRS S2, adapted for Australian law. It sits within the broader Australian Sustainability Reporting Standards (ASRS) framework alongside AASB S1 (General Requirements).
In practical terms, if your entity meets the size thresholds, you must include a sustainability report as part of your annual financial reporting — covering climate governance, strategy, risk management, and greenhouse gas emissions.
Who Must Report? Group 1, 2, and 3 Thresholds
AASB S2 applies in three phases, based on entity size assessed on a consolidated basis:
| Group | Revenue | Assets | Employees | Reporting starts |
|---|---|---|---|---|
| Group 1 | ≥$500M | ≥$1B | ≥500 | 1 July 2025 |
| Group 2 | ≥$200M | ≥$500M | ≥250 | 1 July 2026 |
| Group 3 | ≥$50M | ≥$25M | ≥100 | 1 July 2027 |
You meet a group's threshold if you satisfy at least two of the three criteria (revenue, assets, employees) for that group. The thresholds are assessed using the most recent financial year's data.
Not sure if you meet the thresholds? Use our free threshold calculator to check in under 2 minutes.
The Four Pillars of AASB S2
AASB S2 requires disclosures across four interconnected pillars. Here is what each one requires:
Pillar 1: Governance
Disclose how your board and management oversee climate-related risks and opportunities. Specifically:
- Which board body or committee is responsible for climate oversight, including its composition and how often it reviews climate matters
- How management assesses and manages climate-related risks — who is responsible, what processes they follow, and how they report to the board
- Whether climate is embedded in the entity's strategic planning, risk management policies, and performance objectives
Pillar 2: Strategy
Explain how climate risks and opportunities affect your business model, strategy, and financial position:
- Risk and opportunity identification — material physical risks (e.g., flooding, bushfire, heat stress) and transition risks (e.g., carbon pricing, regulatory change, market shifts) across short, medium, and long-term horizons
- Financial effects — current impacts on revenue, costs, assets, and liabilities, plus anticipated future effects
- Scenario analysis — at least two climate scenarios: one where warming stays below 2°C and one at 2.5°C or above. Year 1 entities in Groups 2 and 3 can defer this to Year 2 under transition relief
- Transition plan — if your entity has committed to a climate transition, describe the plan and its progress
Pillar 3: Risk Management
Describe your processes for managing climate-related risks:
- How you identify, assess, and prioritise climate-related risks and opportunities
- How these processes integrate into your overall enterprise risk management (ERM) framework
- What inputs, parameters, and assumptions you use to assess climate risk materiality
Pillar 4: Metrics and Targets
Report quantitative data on your climate performance:
- Scope 1 emissions — direct emissions from owned or controlled sources (vehicles, gas heating, refrigerants)
- Scope 2 emissions — indirect emissions from purchased electricity, using both location-based and market-based methods where applicable
- Scope 3 emissions — value chain emissions (supply chain, employee commuting, waste). Deferred to Year 2 under transition relief
- Cross-industry metrics — physical and transition risk exposure, climate opportunities, capital deployment, internal carbon price (if used), and climate-linked remuneration
- Targets — any climate targets you have set, including base year, progress, and whether independently validated
GHG emissions must be calculated using IPCC AR6 global warming potential (GWP) values and reported in tonnes of CO2-equivalent (tCO2-e).
Year-by-Year Obligations and Transition Reliefs
Year 1 — Core Disclosures
What you must do in Year 1:
- Governance disclosures — board and management oversight
- Strategy — climate risks, opportunities, and financial effects
- Risk management processes
- Scope 1 and Scope 2 GHG emissions
- Cross-industry metrics and any climate targets
- Directors' declaration (s296A) — two directors must sign
- Limited assurance on governance and Scope 1 & 2 emissions
Year 1 transition reliefs:
- Scope 3 emissions can be deferred to Year 2
- Scenario analysis can be deferred to Year 2 (Groups 2 & 3)
- No comparative period required
- Modified liability safe harbour protects good-faith disclosures
Year 2 — Scope 3, Scenario Analysis, Comparatives
- Scope 3 emissions become mandatory (all GHG Protocol categories)
- Scenario analysis now required — at least one ≤2°C and one ≥2.5°C
- Comparative period — Year 1 figures must be restated alongside Year 2
- Limited assurance extends to all disclosures
- Modified liability safe harbour still applies
Year 3+ — Full Compliance
- Full disclosures across all four pillars with comparatives
- Base year restatement policy required
- Limited assurance continues; reasonable assurance from Year 4 (~July 2030)
- Modified liability safe harbour expires — full civil liability applies from Year 4
Penalties and Director Liability
AASB S2 is not voluntary guidance — it is backed by the Corporations Act with serious enforcement:
- Corporate penalties: up to $16.5 million or 10% of annual turnover (whichever is greater) for non-compliance or misleading disclosures
- Director liability: two directors must personally sign the directors' declaration (s296A) confirming the sustainability report is compliant. False or misleading declarations attract personal liability
- ASIC enforcement: ASIC has signalled it will actively monitor climate disclosures — greenwashing cases (Active Super $10.5M, Mercer Super $11.3M) show the regulator takes climate claims seriously
The modified liability safe harbour (ss1707C–1707D) provides protection for good-faith disclosures during Years 1–3. This means if you make reasonable efforts to comply and disclose in good faith, you are protected from civil liability — even if your disclosures turn out to be imperfect.
The safe harbour does not protect against knowingly false or reckless statements. And it expires after Year 3, when full liability applies.
How to Prepare: A Practical Checklist
Whether you are in Group 2 (starting July 2026) or Group 3 (starting July 2027), here is what to do now:
Step 1: Confirm Your Reporting Group
Check whether your entity meets at least two of the three size criteria for Group 2 or Group 3. Use consolidated figures. If you're close to the thresholds, assume you're in — it's better to prepare early than scramble later.
Step 2: Establish Climate Governance
Assign board-level responsibility for climate oversight. This could be a dedicated sustainability committee or an existing committee (audit, risk) with expanded terms of reference. Document who is responsible and how often they review.
Step 3: Measure Scope 1 and 2 Emissions
Start collecting activity data for your direct operations:
- Scope 1: fuel consumption (fleet vehicles, gas heating, generators), refrigerant leaks, on-site combustion
- Scope 2: electricity bills for all facilities — you need kWh consumed and your grid location for the correct emission factor
Use NGA 2025 emission factors for Australian operations. Convert to tCO2-e using IPCC AR6 GWP values.
Step 4: Identify Climate Risks and Opportunities
Map out physical risks (flooding, bushfire, extreme heat, drought) and transition risks (carbon pricing, regulatory change, technology shifts, changing customer expectations) across short, medium, and long-term horizons. Consider how these affect your revenue, costs, assets, and supply chain.
Step 5: Document Your Risk Management Process
Describe how climate risks feed into your existing enterprise risk management. If you don't have a formal ERM process, this is a good time to establish one — AASB S2 requires you to explain how climate risk integrates with overall business risk management.
Step 6: Start on Scope 3 (Even Though It's Deferred)
Scope 3 is deferred to Year 2, but it takes the longest to prepare. Start by identifying your material Scope 3 categories (typically purchased goods, business travel, employee commuting, and waste). Begin collecting data from suppliers and travel providers now.
Step 7: Engage an Assurance Provider Early
Don't wait until the report is written to find an auditor. Limited assurance is required from Year 1, and assurance providers are in high demand. Engaging early lets you build your processes to meet audit expectations from the start.
Step 8: Use Software, Not Spreadsheets
Spreadsheets won't survive an auditor's review. You need a system that provides an audit trail, uses verified emission factors, and can generate structured disclosures. Purpose-built carbon reporting tools save months of manual work and give your auditor confidence in the data.
How AASB S2 Relates to Other Frameworks
- IFRS S2 / ISSB: AASB S2 is based on IFRS S2 with Australian-specific modifications. If you comply with AASB S2, you substantially comply with IFRS S2
- NGER: Your National Greenhouse and Energy Reporting data feeds directly into AASB S2 Scope 1 and 2 figures. AASB S2 adds governance, strategy, and risk disclosures on top
- GHG Protocol: AASB S2 requires Scope 3 emissions to be calculated using GHG Protocol categories. The Corporate Standard is the foundation
- TCFD: The TCFD four-pillar structure (governance, strategy, risk management, metrics) is carried through into AASB S2. TCFD experience translates directly
- CSRD (EU): Different standard, but significant overlap. AASB S2 focuses on financial materiality, while CSRD uses double materiality. Preparing for one gives you a head start on the other
Frequently Asked Questions
What is AASB S2?
Who needs to comply with AASB S2?
When does AASB S2 reporting start?
What are the four pillars of AASB S2?
What transition reliefs are available under AASB S2?
What are the penalties for not complying with AASB S2?
Do I need an audit for AASB S2 reports?
What is the difference between AASB S2 and NGER?
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