Glossary›Measurement and governance / Governance, board and directors›Remuneration linkage to climate targets
Glossary term
Cluster E · E5
Tier 2
Remuneration linkage to climate targets
Definition
AASB S2 requires an entity to disclose whether and how climate-related considerations are factored into executive remuneration, and the percentage of executive management remuneration recognised in the current period that is linked to them. The requirement applies whether or not any linkage exists, so an entity with none discloses that fact.
On this page
In practice
This requirement surprises private company boards more than any other single item in AASB S2, because remuneration disclosure is something they associate with listed company remuneration reports and have never had to do.
Paragraph 29(g) requires two things. A description of whether and how climate-related considerations are factored into executive remuneration, cross-referenced to paragraph 6(a)(v). And the percentage of executive management remuneration recognised in the current period that is linked to climate-related considerations.
The second limb is a number, not a narrative. It appears in the metrics and targets pillar, alongside the emissions figures, which tells you how the standard treats it.
There is no requirement to have any linkage. This is the point to make to a board first, because the instinct on reading the requirement is that a linkage must be created. It must not. An entity with no climate component in executive remuneration discloses that there is none and reports nil per cent. That is a complete, compliant disclosure and it is the honest position for most private Australian businesses in a first reporting year.
Creating a linkage purely to have something to disclose is the anti-pattern here, and it is worse than nil for two reasons. A metric added to a remuneration framework late in a period, weighted at one or two per cent, influences no behaviour and reads as exactly what it is. And it creates a measurement obligation: once pay depends on a climate metric, that metric needs to be as reliable as any other remuneration measure, with the evidence trail to match, in an area where the data is usually least mature.
The percentage is harder to calculate than it looks. Three definitional questions have to be settled and disclosed. Who is “executive management”: the standard does not define a fixed population for this purpose, so the entity defines it and states the definition. Which remuneration is counted: fixed, short-term incentive, long-term incentive, or total. And how a composite scorecard is treated where climate is one of several ESG measures inside one weighting: an entity with a twenty per cent ESG gate containing four measures, one of which is climate, has to decide whether five per cent or twenty per cent is the answer, and disclose the reasoning.
For entities that do have a linkage, the credibility question a board should ask itself is whether the metric is measurable and verifiable. A target tied to absolute emissions reduction is verifiable against the disclosed figures. A target tied to “progressing the climate strategy” is not, and it will be read as a discretionary payment wearing a climate label.
What the assurer does with it
This disclosure sits in the metrics and targets pillar, which means it comes into assurance scope in the second reporting year under ASSA 5010 paragraph 10(b) rather than the first. The governance-side description under paragraph 6(a)(v) is in scope from year one, so an entity can find the narrative assured a year before the number is.
When the number is tested, the assurer agrees it to the remuneration records and the financial report. They confirm the executive management population is defined and consistent with the definition used elsewhere in the report, that the remuneration base matches the disclosed definition, and that the amount recognised in the period agrees to what was actually recognised rather than what was awarded.
They accept a percentage with a stated population, a stated remuneration base, a stated treatment of composite metrics, and a calculation agreeing to the remuneration records. They reject a percentage with no stated basis, a population inconsistent with the key management personnel disclosed in the financial statements with no explanation of the difference, and a claimed linkage that the remuneration framework document does not actually contain.
Where a linkage exists and the climate metric was assessed as achieved, expect the assurer to ask for the evidence of achievement, particularly where it ties to an emissions figure they have separately tested. A remuneration outcome awarded on an emissions result the assurer has qualified is a conversation nobody wants at the committee.
Commonly confused with
The remuneration report under section 300A of the Corporations Act, which applies to listed companies and covers remuneration comprehensively. This is a narrow climate-specific disclosure in the sustainability report, it applies to unlisted captured entities, and it does not require the remuneration detail a remuneration report does.
Timing and relief
The paragraph 6(a)(v) governance narrative about whether performance metrics are included in remuneration policies is assured from the first reporting year under ASSA 5010 paragraph 10(a)(i). The paragraph 29(g) percentage sits in metrics and targets and comes into scope in the second reporting year under paragraph 10(b).
Sources
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ASSA 5010 Timeline for Audits and Reviews of Information in Sustainability Reports under the Corporations Act 2001
AUASB
3
Review status
Review required
Last reviewed
15 September 2026
Editorial pass, unsigned
Reviewer required
Remuneration adviser and registered company auditor
Next scheduled review
1 July 2027
Part of
Cluster E, Measurement and governance / Governance, board and directors
10 terms on what the board must be able to evidence, what personal exposure directors carry, and how the audit and risk committee engages with the assurer. Governance disclosures sit inside the year-one assurance scope.
Related terms
The paragraph 6(a)(v) narrative this number is cross-referenced to
The pillar the percentage sits in, and when it comes into assurance scope
Who below the board owns the metric the pay depends on
Related questions
What governance evidence does the assurance provider look for?
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Evidence that the governance you described actually happened: board and committee minutes and papers showing climate was considered, terms of reference allocating oversight, the delegation to management, and dated records of the decisions you disclose. Governance disclosures are assured from year one, so the paper trail matters immediately.
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 does the board have to sign?
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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.
Other terms in this cluster
Remuneration linkage to climate targets