Glossary›AASB S2 disclosure requirements / AASB S2 mechanics›Climate-related risks
Glossary term
Cluster C · C5
Tier 1
Climate-related risks
Definition
Climate-related risks are the potential negative effects of climate change, and of the response to it, on an entity’s business model, strategy, cash flows, access to finance or cost of capital. AASB S2 divides them into physical risks and transition risks, and requires disclosure of those that could reasonably be expected to affect the entity’s prospects.
On this page
In practice
The materiality filter is doing the work. AASB S2 does not require an entity to disclose every conceivable climate risk. It requires disclosure of risks that could reasonably be expected to affect the entity’s prospects, meaning its cash flows, access to finance or cost of capital over the short, medium and long term.
That framing is financial, and it is the reason a climate-illiterate but financially literate reader can assess it. The question is not whether a risk is environmentally significant. It is whether it could move the numbers.
Where entities go wrong in year one is treating this as a hazard list. A three-page catalogue of generic climate risks with no link to the entity’s own assets, markets or cash flows does not satisfy the standard and is the disclosure most likely to attract a question from the assurer and the audit committee.
What the assurer does with it
Risk identification and description sit inside the year-one review scope under ASSA 5010 paragraph 10(a)(ii), by reference to AASB S2 subparagraphs 9(a), 10(a) and 10(b), so they are tested from the first report.
The assurer tests the process and the link to the business rather than re-performing the risk judgement. They ask who identified the risks, on what information, over what horizons, and whether the result was considered by management or the board. They accept a risk set traceable to a dated identification record, each risk tied to a named part of the business model or value chain and classified as physical or transition as paragraph 10(b) requires. They reject a generic industry hazard list with no entity-specific link, a risk disclosed with no time horizon, and a register assembled after year end for the engagement.
Commonly confused with
Climate-related opportunities, which are the positive half of the same requirement and are disclosed alongside rather than instead of risks. Also confused with an operational or safety risk register, which records risks to the business day to day rather than risks meeting the standard’s financial-prospects test.
Sources
1
2
ASSA 5010 Timeline for Audits and Reviews of Information in Sustainability Reports under the Corporations Act 2001
AUASB
Review status
Review required
Last reviewed
15 September 2026
Editorial pass, unsigned
Reviewer required
Registered company auditor
Next scheduled review
1 July 2027
Part of
Cluster C, AASB S2 disclosure requirements / AASB S2 mechanics
25 terms on what the climate disclosure standard actually requires, pillar by pillar, plus the reliefs and the effort standard.
Related terms
One of the two categories every risk must be classified into
The other category, and the larger one for most service businesses
The half of the requirement most first-year reports skip
Related questions
What is the materiality threshold for climate disclosures?
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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 will our audit and risk committee ask us?
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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.
Other terms in this cluster
Climate-related risks