Climate change is no longer viewed solely as an environmental issue — it is now recognised as a significant financial and business risk. In response, Australia has introduced mandatory climate-related financial disclosure requirements through AASB S2 – Climate-related Financial Disclosures.
For many organisations, this marks a major shift in how climate risks, greenhouse gas emissions and sustainability performance are managed and reported.
What is AASB S2?
AASB S2 is a new reporting standard issued by the Australian Accounting Standards Board (AASB), aligned closely with the international IFRS S2 framework developed by the International Sustainability Standards Board (ISSB).
The purpose of AASB S2 is to ensure organisations provide transparent, consistent and reliable information about how climate change may impact their business operations, strategy and financial performance.
The standard requires organisations to disclose information across four key areas:
Governance
Companies must demonstrate how climate-related risks and opportunities are governed within the organisation, including board oversight and management responsibilities.
Strategy
Organisations are required to identify climate-related risks and opportunities and explain how these may affect business strategy, operations and financial planning. This includes conducting climate scenario analysis under different future climate conditions.
Risk Management
Climate risks must be integrated into existing enterprise risk management frameworks, strategic planning and investment decision-making processes.
Metrics and Targets
Organisations must measure and disclose greenhouse gas (GHG) emissions and climate-related performance metrics, including:
- Scope 1 emissions – Direct operational emissions
- Scope 2 emissions – Indirect emissions from purchased electricity and energy
- Scope 3 emissions – Emissions across the value chain
Companies must also disclose climate targets, transition plans and progress toward achieving those targets.
When Does AASB S2 Apply?
The Australian Government is implementing AASB S2 through a phased approach:
Group 1 – Large Entities (from FY2025)
Typically organisations with:
- ≥500 employees
- ≥AUD $1 billion revenue
- ≥AUD $500 million assets
Group 2 – Medium Entities (from FY2026)
Typically organisations with:
- ≥250 employees
- ≥AUD $200M revenue
- ≥AUD $500M assets
Group 3 – Smaller Listed / Large Proprietary Entities (start FY2027)
Typically organisations with:
- ≥100 employees
- ≥AUD $50M revenue
- ≥AUD $25M assets
Although the largest organisations are affected first, many medium-sized businesses will soon need to prepare systems and processes for compliance.
Why This Matters
AASB S2 is not simply a sustainability reporting exercise. It represents a shift toward treating climate-related risks as material financial risks.
Investors, regulators, lenders and stakeholders increasingly expect organisations to demonstrate:
- Strong climate governance
- Reliable emissions data
- Clear transition planning
- Transparency in climate-related risks and opportunities
Organisations that delay preparation may face:
- Regulatory pressure
- Increased compliance costs
- Reputational risk
- Reduced investor confidence
Conversely, organisations that act early can strengthen resilience, improve operational efficiency and position themselves as sustainability leaders.
The Biggest Challenge: Data and Systems
For many organisations, one of the most difficult aspects of AASB S2 compliance is establishing systems to accurately measure and manage greenhouse gas emissions.
This includes:
- Identifying emission sources across operations and supply chains
- Collecting reliable operational data
- Managing Scope 3 reporting requirements
- Producing audit-ready disclosures
- Integrating climate data into governance and risk management systems
Without dedicated systems and expertise, compliance can become complex and resource-intensive.