Do our subsidiaries have to report separately or does the parent cover them?

Each entity is tested on its own. A subsidiary that must lodge its own financial report under Chapter 2M and meets a section 292A test prepares its own sustainability report, even where the parent reports as well. Being consolidated into the parent's report does not by itself remove the obligation.

We are foreign-owned. Does the Australian entity report?

Yes, if the Australian entity has its own Chapter 2M financial reporting obligation and meets a section 292A test, because it is tested on its own consolidated numbers rather than the global group's. Foreign ownership is not a factor in section 292A. A parent's climate report prepared overseas does not automatically discharge the Australian obligation.

We are a private company with no external shareholders. Are we still captured?

Yes, if you meet the tests. The regime is not limited to listed entities, so any entity that must lodge a financial report under Chapter 2M and meets a section 292A test is captured. That includes large proprietary companies, unlisted public companies and Australian subsidiaries of foreign groups.

Glossary›Regulation, capture and thresholds / Regulation, capture and timing›Controlled entity / subsidiary reporting

Glossary term

Cluster B · B14

Tier 1 · differentiator

Controlled entity / subsidiary reporting

Definition

A controlled entity is generally covered by its parent’s consolidated sustainability report rather than preparing its own, where the parent elects to report for the consolidated entity and is required by the accounting standards to prepare consolidated financial statements for it. Where that condition is not met, a subsidiary that independently satisfies Chapter 2M and section 292A has its own obligation.

Corporations Act 2001 (Cth) s 292A

· consolidated sustainability report by the parent, ASIC relief available on application in other cases ·

In force

On this page

In practice
What the assurer does with it
Commonly confused with
Timing and relief
Sources
Related terms
Related questions

Cluster

B · Regulation, capture and thresholds / Regulation, capture and timing, 26 terms

In practice

Two questions decide whether a subsidiary reports, and groups routinely answer only the first.

Question one: is the subsidiary itself captured? That requires the subsidiary to have its own Chapter 2M annual financial reporting obligation and to meet a section 292A threshold on its own consolidated figures. Many subsidiaries in a large group do have a Chapter 2M obligation, as large proprietary companies, and some are big enough to meet a Group 2 or Group 3 test on their own numbers.

Question two: is the parent preparing a consolidated sustainability report that covers it? Where the parent elects to prepare a sustainability report for the consolidated entity, and is required by the accounting standards to prepare consolidated financial statements for that consolidated entity for the year, the subsidiary is generally not required to prepare its own. That is the ordinary answer for a straightforward group and it is why most subsidiaries never see a sustainability report of their own.

The structures where the answer is not straightforward are the ones private groups actually have.

Mismatched groups. A subsidiary that meets the Group 1 tests sitting under a parent that only meets the Group 2 tests would, on a literal reading, start reporting a year before its parent. ASIC has granted relief in precisely that situation, allowing a wholly-owned Group 1 subsidiary a single year’s relief where the parent is a Group 2 entity, so that the group starts together. That relief was granted on application, in a specific case. It is not automatic and it is not a class order.

Stapled groups. ASIC has provided relief allowing stapled entities to prepare a consolidated sustainability report for the stapled group, which is the practical answer for a common Australian property and infrastructure structure.

Foreign parents. A foreign parent’s group report does not discharge an Australian subsidiary’s Chapter 2M obligation. The obligation attaches to the Australian reporting entity. A group whose global sustainability report is prepared under IFRS S2 offshore still needs an Australian sustainability report complying with AASB S2 for each captured Australian entity, and the two are not the same document.

Where ASIC has refused. Relief has been refused where compliance would not impose an unreasonable burden, and specifically where a proposed consolidation would conflict with the connected information requirement in AASB S2, or where entities proposed to consolidate without control and therefore could not have prepared consolidated financial statements under AASB 10. The pattern is consistent: ASIC will accommodate a group reporting as the group it actually is, and will not accommodate a group reporting as a group it is not.

The precise statutory pathway for the subsidiary carve-out is expressed in section 292A and its interaction with the consolidation requirements of the accounting standards, and ASIC’s guidance is the clearest public statement of how it operates. Where a group’s structure is unusual (cross-holdings, joint ventures, a non-controlling parent, a trust at the top) this is a question for legal advice on the specific structure rather than one to infer from the general rule.

What the assurer does with it

The assurer establishes the reporting entity before anything else, because scope, materiality and the connected-information testing all follow from it. They ask which legal entity the report is for, whether it matches the entity presented in the consolidated financial statements, and whether every captured entity in the group is covered by a report somewhere. They accept a consolidated sustainability report whose reporting entity is identical to the consolidated financial statements’ reporting entity for the same period. They reject a sustainability report whose boundary differs from the financial statements’ consolidation boundary with no explanation, a group report that omits a captured subsidiary, and reliance on a relief that is described but not produced. The common first-year finding is an emissions inventory built on the operating footprint the business thinks in, which quietly excludes a dormant or newly acquired controlled entity that is inside the financial statements.

Commonly confused with

The emissions organisational boundary, again. A subsidiary covered by the parent’s report is inside the reporting entity for capture purposes; whether its emissions are inside the Scope 1 and Scope 2 inventory depends on the boundary approach chosen under the GHG Protocol. Also confused with a deed of cross guarantee, which relieves financial reporting obligations and whose effect on the sustainability reporting obligation for closed-group members is not settled in public ASIC material. That one turns on advice about a specific structure and should not be inferred from the financial reporting relief.

Timing and relief

Relief for subsidiaries is individual and granted on application. ASIC maintains a public register of its sustainability reporting and audit relief decisions, which is the best available guide to what it has and has not been willing to do. Apply early; ASIC has said applications may raise novel issues and will generally refuse an application lodged after the statutory deadline, because it cannot grant retrospective relief.