Director Liability for Climate Reporting in Australia

Last updated: April 2026

The Legal Framework

AASB S2 mandatory climate reporting was legislated through amendments to the Corporations Act 2001. This means climate disclosures carry the same legal weight as financial reporting. The key provisions are:

• Section 292A: Requires reporting entities to prepare a sustainability report as part of their annual reporting
• Section 296A: Requires a directors' declaration — two directors must sign off that the sustainability report complies with AASB S2
• Sections 1707C–1707D: The modified liability safe harbour for Years 1–3
• Existing penalties: The Corporations Act's existing penalty framework for misleading disclosures, non-compliance, and false statements applies to sustainability reports

The Directors' Declaration (s296A)

Just as directors sign off on the financial statements, s296A requires at least two directors to declare that:

• The sustainability report complies with AASB S2 (and AASB S1 where applicable)
• The report complies with the relevant provisions of the Corporations Act
• There are reasonable grounds to believe the entity will be able to pay its debts as and when they fall due (if relevant)

This declaration creates personal accountability. The signing directors are putting their name — and their liability — behind the accuracy and compliance of the report.

Board members who sign should satisfy themselves that:

• The emissions data is sourced from reliable systems with an audit trail
• Appropriate emission factors have been used (NGA 2025 for Australian operations)
• Governance disclosures accurately reflect actual board processes
• The report has been reviewed by qualified internal or external advisors
• Limited assurance has been obtained (required from Year 1)

Penalties and Enforcement

Corporate Penalties

ASIC Enforcement Track Record

ASIC has demonstrated willingness to enforce climate and ESG-related obligations:

• Active Super (2024): $10.5 million penalty for misleading ESG and sustainability claims about investment screening
• Mercer Super (2024): $11.3 million penalty for greenwashing — making misleading claims about the sustainability of investment options
• Vanguard (2024): $12.9 million penalty for misleading ESG screening claims

These cases involved voluntary ESG claims. AASB S2 disclosures are mandatory — the enforcement bar will be even clearer.

The Modified Safe Harbour (ss1707C–1707D)

Recognising that climate reporting is new and complex, the legislation includes a modified liability safe harbour for the first three reporting years:

What It Protects

• Good-faith disclosures made with reasonable care and diligence
• Errors or inaccuracies that result from genuine uncertainty (e.g., Scope 3 estimates, scenario projections)
• Forward-looking statements made on a reasonable basis

What It Does NOT Protect

• Knowingly false or misleading statements
• Reckless disregard for accuracy
• Fraudulent disclosures
• Complete failure to report when required

Timeline

The safe harbour is not an excuse to do a poor job — it is protection for those who make genuine, good-faith efforts. Use the safe harbour years to build robust processes that will stand up under full liability.

What "Reasonable Steps" Looks Like in Practice

A director who can demonstrate they took reasonable steps will be in a much stronger position if disclosures are later questioned. Here is what reasonable steps look like:

1. Establish climate governance: Assign board responsibility, define committee terms of reference, set review frequency. Document everything
2. Use proper systems: Use auditable carbon accounting software, not spreadsheets. Ensure there is a complete data trail from source documents to final report
3. Engage qualified people: Whether internal sustainability staff or external advisors, ensure those preparing the report understand AASB S2 requirements and emission factor methodology
4. Obtain assurance early: Engage an assurance provider before the report is finalised. Year 1 requires limited assurance on governance and Scope 1 & 2 emissions
5. Stay informed: Directors should understand the basics of AASB S2, what is being disclosed, and the methodology used. You don't need to be a climate scientist, but you need to understand the report you are signing
6. Document decisions: Record board discussions about climate risks, methodology choices, and materiality assessments. If challenged later, you want evidence of deliberate, informed decision-making
7. Review and challenge: Don't just rubber-stamp the report. Ask questions about data quality, boundary completeness, and key assumptions. The directors' declaration requires you to be satisfied the report is compliant

Board Action Plan

Frequently Asked Questions

Related Guides

• How to Comply with AASB S2 in Australia
• Preparing for a Carbon Report Audit
• Scope 1, 2, and 3 Emissions Explained
• The GHG Protocol Explained Simply