Do we have to do mandatory climate reporting?

You must prepare a sustainability report if you already lodge a financial report under Chapter 2M of the Corporations Act and you also meet one of the size, NGER or funds-under-management tests in section 292A. Both gates have to be passed: with no Chapter 2M obligation, section 292A never engages however large you are. Which of the three reporting groups you fall into decides which financial year is your first.

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›Sustainability-related financial disclosure

Glossary term

Cluster C · C21

Tier 1 · differentiator

Sustainability-related financial disclosure

Definition

A sustainability-related financial disclosure is information about a sustainability matter that could reasonably be expected to affect an entity’s cash flows, access to finance or cost of capital over the short, medium or long term. It is financial information about a non-financial subject. In Australia the mandatory subset is climate, disclosed under AASB S2.

AASB S1 (voluntary in Australia) and AASB S2

· the concept underpinning both standards ·

In force

On this page

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

Cluster

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

In practice

This is the umbrella concept, and the word doing all the work in it is financial. It is the reason a climate disclosure belongs to the CFO rather than to an environmental manager, and it is the single biggest reframe for a first-time reporter.

The test is not whether a matter is environmentally or socially significant. It is whether it could reasonably be expected to affect the entity’s prospects: cash flows, access to finance, cost of capital. A matter that fails that test is not a sustainability-related financial disclosure, however important it may be in other respects. This is the “enterprise value” lens, inherited from the ISSB, and it is narrower than the impact-materiality lens used in European reporting.

Three practical consequences for a private business:

The audience is capital providers. Existing and potential investors, lenders and other creditors. For a privately held group that usually means the bank, the shareholders and any acquirer, not the general public. That audience defines what is material.

The information sits with the financial report. It is prepared for the same reporting entity and the same reporting period, and it is required to be connected to the financial statements. A climate risk described as significant in the sustainability report, with no trace in the financial statements, is a connected-information problem.

Only climate is mandatory in Australia. AASB S1 covers sustainability-related financial disclosure generally and is available for voluntary application. The Corporations Act mandate runs to climate, through AASB S2. An entity is not required to disclose on biodiversity, water, human capital or supply chain labour as a statutory matter. AASB S2 says so in terms. Its own introductory material describes AASB S1 as “a voluntary Standard addressing sustainability-related financial disclosures in general”, and states that an entity applying AASB S2 is not required to apply AASB S1. Appendix D of AASB S2 contains paragraphs drawn from AASB S1, but those requirements apply only to climate-related financial information, not to the broader sustainability information AASB S1 covers. An entity may still refer to AASB S1 for guidance, and may elect to apply it voluntarily. No timetable for mandating it has been announced.

What the assurer does with it

The concept sets the boundary of the engagement, so the assurer tests the boundary before testing the contents. They want the entity’s own documented assessment of which matters meet the test and why, and they will probe both edges: a matter disclosed that plainly cannot affect the entity’s prospects, and a matter obviously affecting prospects that has been left out.

They reject an assessment with no documented reasoning, an assessment performed by an adviser with no evidence management adopted it, and an assessment that was never revisited after the year’s events. The reliable follow-up question is whether anything the board discussed during the year as a financial risk with a climate driver made it into the disclosure.

Commonly confused with

Sustainability reporting in the general sense: ESG reports, GRI reports, corporate responsibility statements. Those are typically impact-focused, aimed at a broad stakeholder audience, and voluntary. A sustainability-related financial disclosure is narrower, financially framed, audience-specific and, for climate, statutory. Also confused with double materiality, which is the European approach and is not the Australian test.