What will our audit and risk committee ask us?

The same questions they ask about the financial report, applied to information the committee has never seen before. Expect them on capture and scope, where each number comes from and what controls sit over it, the significant judgements and materiality, who your assurance provider is and whether they are independent of the preparer, and what liability protection applies and until when. It works as a self-test: anything you cannot answer today is a work item.

What is the materiality threshold for climate disclosures?

There is no prescribed number. Under AASB S2, information is material if omitting or misstating it could reasonably be expected to influence users' decisions. Separately, your assurance practitioner sets a quantitative materiality for testing, and the two are related but different.

What does the board have to sign?

The directors' declaration in the sustainability report. For financial years commencing between 1 January 2025 and 31 December 2027, directors declare they have taken reasonable steps to ensure the report complies with the Corporations Act. From financial years commencing 1 January 2028, they declare their opinion that it does comply.

Glossary›AASB S2 disclosure requirements / AASB S2 mechanics›Strategy disclosures (AASB S2)

Glossary term

Cluster C · C14

Tier 1 · differentiator

Strategy disclosures (AASB S2)

Definition

Strategy is the second of the four AASB S2 pillars. It requires disclosure of the climate-related risks and opportunities affecting the entity’s prospects, their effects on its business model and value chain, their effects on strategy and decision-making including any transition plan, their current and anticipated financial effects, and the climate resilience of the strategy itself.

AASB S2

· paragraphs 8 to 22, structured by paragraph 9(a) to 9(e) ·

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

C · AASB S2 disclosure requirements / AASB S2 mechanics, 25 terms

In practice

Strategy is the largest pillar in the standard and the one where first-time reporters most often under-scope the work, because paragraph 9 is a table of contents that looks shorter than it is. Its five limbs each point at their own requirement block:

Limb

What it covers

Where the detail is

9(a)

The climate-related risks and opportunities that could reasonably be expected to affect prospects

Paragraphs 10 to 12 (paragraph 12 deleted by the AASB)

9(b)

Current and anticipated effects on the business model and value chain

Paragraph 13

9(c)

Effects on strategy and decision-making, including any transition plan

Paragraph 14

9(d)

Current and anticipated financial effects

Paragraphs 15 to 21

9(e)

Climate resilience

Paragraph 22, with Appendix B paragraphs B1 to B18

Four features determine how much work this actually is.

Time horizons are the entity’s own, and they must be explained. Paragraph 10(c) requires each risk and opportunity to be assigned to short, medium or long term, and paragraph 10(d) requires the entity to explain how it defines those terms and how the definitions link to its own strategic planning horizons. Borrowing someone else’s horizons without a link to the entity’s planning cycle is a visible weakness, because the link is the disclosure.

Concentration is asked for explicitly. Paragraph 13(b) requires a description of where in the business model and value chain risks and opportunities are concentrated, naming geographical areas, facilities and asset types. A general statement that the business faces climate risk does not answer it.

Paragraph 14 is about decisions, and it looks backwards as well as forwards. It asks for current and anticipated changes to the business model and resource allocation, direct and indirect mitigation and adaptation efforts, any transition plan with its key assumptions and dependencies, how the entity plans to achieve its targets, how it is resourcing all of that, and, at 14(c), quantitative and qualitative information about the progress of plans disclosed in previous reporting periods. That last subparagraph is the one that catches entities in year two: a plan published in year one becomes a progress obligation in year three.

The financial effects block carries real relief, and it is not widely used. Paragraph 18 requires the entity to use all reasonable and supportable information available without undue cost or effort, and an approach commensurate with the skills, capabilities and resources available for preparing those disclosures. Paragraph 19 then permits quantitative information about current or anticipated financial effects to be omitted where the effects are not separately identifiable, or where measurement uncertainty is so high the resulting figure would not be useful. Paragraph 20 permits omission where the entity does not have the skills, capabilities or resources to produce it. Paragraph 21 sets the price of taking that relief: explain why, provide qualitative information identifying the line items, totals and subtotals in the financial statements likely to be affected, and provide quantitative information about combined financial effects unless that too would not be useful. Paragraph 17 also permits a single amount or a range, and a range is often the honest answer.

The practical shape of a defensible first-year strategy disclosure for a private business is therefore narrower than most people fear and more specific than most people write. Few risks, each named precisely, each with a horizon tied to the entity’s own planning cycle, each located in the business model, qualitative financial effects with the affected line items identified, and a resilience conclusion proportionate to the analysis behind it.

What the assurer does with it

ASSA 5010 paragraph 10(a)(ii) brings strategy into the year-one review scope, but only by reference to subparagraphs 9(a), 10(a) and 10(b) of AASB S2, so the first-year review covers the identification and description of risks and opportunities and their classification as physical or transition. From the second reporting year the review covers all disclosures in the sustainability report, which brings in paragraphs 13 to 22 in full. Knowing which limb is in scope in which year is the difference between a proportionate first engagement and an unpleasant surprise.

Because the output is narrative, the assurer tests the process and the internal consistency rather than re-performing a judgement. They want the risk and opportunity identification record, the horizon definitions with their link to the planning cycle, the board or committee papers where the strategy implications were considered, and the working that supports any quantified financial effect. They then read the strategy disclosure against three other documents and look for contradiction: the financial statements, the directors’ report, and the entity’s own board papers.

They accept a disclosure whose risks match the register, whose horizons match the stated definitions, whose financial effects either carry working or carry an explicit paragraph 19 to 21 explanation, and whose claims about plans and resourcing are traceable to approved budgets. They reject a strategy disclosure describing a transition plan the board has not approved, a quantified financial effect with no model behind it, a claim of resourcing that does not appear in any budget, silence on financial effects with no paragraph 21 explanation, and any statement in the sustainability report that contradicts the financial report. The single most common finding is a strategy narrative written at the level of the industry rather than the entity, which the assurer flags because it cannot be tested against anything the business actually did.

Commonly confused with

The transition plan, which is one component disclosed under paragraph 14(a)(iv), not the whole pillar. Also confused with the risk management pillar: strategy discloses what the risks and opportunities are and what the entity is doing about them, while risk management discloses the process by which they were found and are monitored. An entity that describes its process under strategy and its risks under risk management has answered both requirements in the wrong places, and an assurer will say so.

Timing and relief

No Appendix C transitional relief applies to the strategy pillar. Paragraph C3 removes comparatives in the first annual reporting period, which affects presentation rather than content. The relief that does exist is inside the pillar itself, at paragraphs 19 to 21, and it is available in every year rather than only the first. Paragraph 14(c), the obligation to report progress against plans disclosed in earlier periods, only begins to bite once there is a prior period to report against.