Glossary›AASB S2 disclosure requirements / AASB S2 mechanics›Physical risk
Glossary term
Cluster C · C7
Tier 1
Physical risk
Definition
Physical risk is risk arising from the physical effects of climate change on assets, operations, supply chains and people. It splits into acute risks, which are event-driven such as flood, bushfire, cyclone and heatwave, and chronic risks, which are longer-term shifts such as rising sea levels, changed rainfall patterns and sustained higher temperatures.
On this page
In practice
Physical risk assessment in Australia is asset-located work. It requires a list of your sites with their locations, then an assessment of the hazards each faces under the scenarios you have chosen. Entities with a small property footprint often find physical risk is genuinely immaterial and the disclosure is short. Entities with distributed operations, agricultural exposure, coastal assets or long domestic supply chains usually find the opposite.
The commonly missed exposure is indirect: your own sites are fine, but a single supplier, a port, or a road corridor is not.
What the assurer does with it
Physical risk sits within the strategy disclosures reviewed from year one under ASSA 5010 paragraph 10(a)(ii), so the assessment is tested in the first report even though the output is a judgement.
The assurer tests the boundary and the method, not the conclusion. They ask which locations were assessed and how that population was derived, because the population is testable and the risk rating is not: the site list should reconcile to the fixed asset register, the lease schedule and the insurance schedule. They accept an assessment with a documented site population reconciled to a finance-system record, a named and dated hazard data source, and defined time horizons consistent with those disclosed under paragraph 10(d). They reject a site list that does not agree to the asset or lease register, a hazard screen with no stated source or vintage, and an assessment covering owned sites only where the value chain concentration under paragraph 13(b) is obviously elsewhere.
Commonly confused with
Transition risk, which arises from the response to climate change rather than from the climate itself. The test is the source of the risk, not its timing: a carbon price is transition risk even though it is slow, and a heatwave is physical risk even though it is brief.
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
The other half of the risk classification paragraph 10(b) requires
The split inside the definition that finds the risks an entity missed
The parent requirement both categories sit under
Related questions
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.
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.
Other terms in this cluster
Physical risk