Starting 1 January 2025, a new era of climate transparency begins for Australian businesses. The Government has updated the Corporations Act 2001, requiring companies to submit an annual ‘Sustainability Report’ alongside financial statements. Under the legislation, businesses must publicly disclose climate statements for the year, notes to the climate statements, and a declaration from the directors about the statements and notes.
These new rules, based on the Australian Sustainability Reporting Standards (ASRS) AASB S2, are part of a global push for greater transparency in how businesses address climate change.
In this blog, we break down ASRS and AASB S2 to prepare your business for climate-related disclosures.
What Are the Australian Sustainability Reporting Standards (ASRS)?
The ASRS is a framework for assessing and disclosing climate and sustainability-related risks and opportunities. These standards aim to provide consistent, transparent reporting that aligns with international guidelines.
Why Are These Standards Being Mandated?
The Australian Government is working to improve climate-related financial disclosures in order to help Australians and investors understand how companies handle climate risks, opportunities, and strategies.
Improving these disclosures will allow regulators to more effectively identify and address financial system risks posed by climate change and global efforts to mitigate its impact.
A strong and trustworthy climate disclosure framework is also expected to make Australia more attractive for global investment — bringing in the funds needed to help reach net zero.
This initiative positions Australia alongside global leaders like the EU, UK, New Zealand, and Japan, which have already introduced similar sustainability-focused business requirements — reflecting their commitment to tackling climate change.
What are ASRS AASB S2 and AASB S1?
The ASRS currently includes two standards – one is currently voluntary, while the other is mandatory.
AASB S1 General Sustainability Reporting Requirements (optional for sustainability issues excluding climate)
This Standard mandates an organisation to reveal details about all sustainability-associated risks and opportunities that could plausibly impact its cash flow, financial accessibility or capital cost in the short, medium or long term.
In this Standard, these risks and opportunities are collectively known as sustainability-related risks and opportunities that could influence the organisation’s future prospects.
AASB S2 Climate-Related Disclosures
Relevant for compulsory climate reporting (incorporates IFRS S1 and S2). This Standard requires an entity to disclose information about climate-related risks and opportunities that could reasonably be expected to affect the entity’s cash flow, its access to finance or the cost of capital over the short, medium or long term.
All Australian businesses must focus on preparing for the AASB S2 mandatory climate reporting. However, some Australian businesses are also looking at AASB S1 to improve their sustainability disclosures. This proactive approach will also position their business at the forefront of sustainability standards and help them prepare for potential future mandates. The Australian Accounting Standards Board (AASB) created the ASRS using the International Sustainability Standards Board’s (ISSB) IFRS S1 and S2 standards. These standards provide a global framework for sustainability-related financial disclosures. Many countries are adopting these standards, which build on the earlier work of the Taskforce for Climate-related Financial Disclosures (TCFD).
Does my business have to consider AASB S1 to comply with mandatory climate reporting?
No. To streamline your reporting, AASB S2 already includes the relevant guidance from AASB S1 and IFRS S1 for climate-related disclosures. You don’t need to consult AASB S1 specifically for climate information. However, if you’re exploring broader sustainability topics beyond climate, such as environmental issues, AASB S1 can be a valuable resource.
Impact on Businesses
The introduction of mandatory climate-related financial disclosures will have a direct impact on businesses in several ways:
- Increased Workload: Businesses must invest time and resources in gathering, analysing, and reporting climate-related data. This may require significant adjustments to existing reporting processes and systems.
- Enhanced Scrutiny: Sustainability performance will likely to receive increased scrutiny from investors, regulators, and the public, along with attention to the business’s ability to manage climate-related risks.
- Need for Improved Data Management: Accurate and reliable data collection and management will be crucial for meeting reporting requirements, potentially requiring investment in new technologies and data management systems.
Opportunities for Businesses
While these mandates may present challenges, they also offer significant opportunities for businesses:
- Enhanced Reputation and Investor Confidence: Demonstrating a strong commitment to sustainability and transparent reporting can enhance a company’s reputation among investors, customers, and the public.
- Competitive Advantage: Proactive and forward-looking climate strategies can provide a competitive edge, attracting investors and customers who prioritise sustainability.
- Innovation and Growth: Addressing climate-related risks and opportunities can drive innovation, improve operational efficiency, and unlock new business models.
- Improved Risk Management: Integrating climate considerations into business strategy and decision-making can improve risk management and enhance resilience to climate-related impacts.
What is the Timeline for Implementation?
Entities subject to mandatory climate-related financial disclosure have been divided into three groups to be phased in over four years. The initial commencement date for Group 1 entities, as outlined in the exposure draft of the legislation, was July 1, 2024. However, the Government considered stakeholder input on amending this to January 1, 2025, to potentially improve reporting quality during the transition period. Stay updated on changes by engaging a professional to help your business adjust to new reporting standards.
Group 1: To start reporting for reporting periods from (i.e. the full reporting period starting on or after) 1 January 2025.
Includes large entities and their controlled entities meeting at least two of three criteria:
- Consolidated revenue of $500 million or more
- EOFY consolidated gross assets of $1 billion or more
- 500 or more employees
Group 1 includes corporations exceeding the NGER publication threshold of 50 kilotonnes of carbon dioxide equivalence (CO2-e) or more.
Group 2: To start reporting for reporting periods from 1 July 2026.
Includes entities meeting at least two of three criteria:
- Consolidated revenue of $200 million or more
- EOFY consolidated gross assets of $500 million or more
- 250 or more employees
Group 2 includes corporations exceeding the NGER publication threshold of 50 kilotonnes of carbon dioxide equivalence (CO2-e) or more, plus Asset Owners with $5 billion assets under management or more.
Group 3: To start reporting for the first full reporting period on or after 1 July 2027.
Includes entities meeting at least two of three criteria:
- Consolidated revenue of $50 million or more
- EOFY consolidated gross assets of $25 million or more
- 100 or more employees
Note: Report timing aligns with your first full financial reporting period on or after 1 January 2025. For example, if you complete financial reporting for the period 1 July to 30 June, your first reporting period is 1 July 2025 to 30 June 2026 (FY26).
Are there penalties for non-compliance with ASRS and AASB S2?
The non-compliance penalties under ASRS and AASB S2 closely mirror financial reporting penalties under the Corporations Act. As the regulator, ASIC has stated it recognises there will be a period of transition as the industry builds its capabilities and implements the organisational changes required to comply with these mandatory climate-related reporting requirements. Accordingly, they will take “a pragmatic and proportionate approach to supervision and enforcement as the industry adjusts to the new requirements.” ASIC is expected to release new or updated regulatory guidance from November 2024.
In line with non-compliance penalties for financial reporting, directors may face personal liability for misleading statements in Sustainability Reports due to a lack of due diligence. False or misleading climate statements could result in penalties up to $15 million or 10% of annual turnover, with directors personally liable.
Staying ahead in today’s dynamic market requires proactive planning and adaptability. Our latest eBook, Changes to Prepare for in 2025 and Beyond, provides the guidance you need to navigate the complexities of the evolving business landscape.
Alternatively, to navigate the complexities of climate-related financial disclosures? Contact AFP Accounting today. As trusted advisors, we’ll guide you through the entire process, from initial assessments to final reporting.
