Mid-sized Australian businesses classified as Group 2 and Group 3 entities are now entering the phased mandatory climate-related disclosure regime under AASB S2. While Group 1 entities began reporting from financial years commencing on or after 1 January 2025, Group 2 entities commence from 1 July 2026 and Group 3 from 1 July 2027, based on meeting two of three thresholds for revenue, assets and employee numbers.
These organisations often operate with tighter resources than larger counterparts, yet face the same core requirements for governance, strategy, risk management, metrics and targets. Common hurdles include limited internal expertise, fragmented data systems and the complexity of Scope 3 emissions collection, all while balancing day-to-day operations. Targeted preparation can help these businesses meet obligations efficiently and identify strategic benefits along the way.
Understanding the Phased Requirements for Group 2 and Group 3 Entities
Group 2 entities — typically those with consolidated revenue of $200 million or more, gross assets of $500 million or more, or more than 250 employees — must prepare their first sustainability reports for periods beginning on or after 1 July 2026. Group 3 entities, with lower thresholds of $50 million revenue, $25 million assets or 100 employees, follow from 1 July 2027, although they may claim a materiality exemption if no climate-related risks or opportunities are identified.
Both groups must address the same four pillars as larger entities, with phased assurance beginning at limited level and progressing toward reasonable assurance. CA ANZ’s 2025 Climate & Nature Survey indicates that while awareness of tools and resources has risen to 75% among members, many still report gaps in data systems and capacity, challenges that are often more pronounced for mid-sized organisations with leaner teams.
Industry observations show that these businesses frequently underestimate the lead time needed to build reliable processes, particularly for value-chain data and scenario analysis.
Key Challenges Specific to Mid-Sized Businesses
Resource constraints rank among the most cited difficulties. With smaller finance and sustainability teams, many Group 2 and 3 entities struggle to dedicate staff to emissions tracking, governance documentation and board-level reporting without disrupting core operations.
Data readiness presents another significant hurdle. Historical energy and emissions records are often scattered across sites or suppliers, making baseline calculations for Scope 1 and 2 emissions time-consuming. Scope 3 data collection is even more demanding, as it relies on supplier cooperation and consistent methodologies that many mid-sized firms have not yet developed.
Governance integration can feel overwhelming when boards and management already manage multiple priorities. Establishing clear oversight, scenario analysis under different climate pathways, and linking risks to financial planning requires new processes that compete for limited internal bandwidth. Assurance preparation adds further pressure, as controls over non-financial information must reach the same standard expected for financial reporting.
Practical Steps to Overcome These Hurdles
Many mid-sized businesses are adopting a phased, prioritised approach that delivers compliance while controlling costs. Common effective strategies include:
- Conducting an early applicability and gap assessment to confirm group classification and map existing data against AASB S2 pillars, focusing effort on material areas first.
- Building a centralised data repository for energy consumption and emissions, starting with Scope 1 and 2 using historical bills and meter readings, then prioritising the most relevant Scope 3 categories.
- Strengthening governance through simple updates to board charters and regular reporting templates that integrate climate considerations without creating excessive new meetings.
- Performing scenario analysis with readily available tools and conservative assumptions, documenting methodologies clearly for future assurance.
- Developing internal controls over sustainability data in parallel with financial controls, using existing systems where possible to minimise duplication.
These steps, when started 12–18 months ahead of the reporting deadline, allow organisations to spread workload and reduce last-minute pressure. Reports indicate that businesses taking this measured approach often uncover operational efficiencies, such as energy cost savings, that offset preparation expenses.
Some firms also explore collaborative arrangements or specialist support for technical elements such as emissions calculations and assurance readiness, freeing internal teams to focus on strategic integration.
Turning Compliance into Long-Term Value
While the transition demands investment, mid-sized businesses that prepare thoughtfully frequently report improved risk visibility, stronger stakeholder relationships and better access to sustainable finance options. Transparent disclosures on climate resilience can differentiate the organisation in supply chains where larger customers increasingly request Scope 3 data.
By addressing resource constraints through structured planning and prioritisation, Group 2 and 3 entities can meet mandatory requirements without compromising operational focus. The phased timeline provides a valuable window to build capability gradually and embed sustainability considerations into core decision-making.
Sources
CA ANZ 2025 Climate & Nature Survey.
AASB S2 Climate-related Disclosures and phased rollout under the Corporations Act (Groups 2 and 3 commencing 1 July 2026 and 1 July 2027 respectively).
ASIC Regulatory Guide 280 Sustainability Reporting (2025).
AASB overview of Australian Sustainability Reporting Standards (2025).
Frequently Asked Questions
When do Group 2 and Group 3 entities begin mandatory AASB S2 reporting?
Group 2 entities commence for financial years beginning on or after 1 July 2026, while Group 3 entities start from 1 July 2027, based on meeting two of the three size thresholds for revenue, assets and employees.
What are the biggest challenges for mid-sized businesses in ESG reporting?
Common hurdles include limited internal resources, fragmented data systems for emissions tracking, Scope 3 collection difficulties and integrating climate governance without disrupting operations.
How can mid-sized firms prepare data readiness efficiently?
Start with a gap analysis of existing energy records, centralise Scope 1 and 2 data collection, prioritise material Scope 3 categories and implement simple tracking processes well ahead of the reporting deadline.
Is governance overhaul necessary for smaller large businesses?
No major overhaul is required. Many organisations update existing board charters and reporting templates to include climate oversight, ensuring clear responsibilities without adding excessive new processes.
Can the ESG reporting process deliver benefits beyond compliance?
Yes. Structured preparation often reveals energy efficiencies, improves risk management, strengthens supply-chain relationships and enhances access to sustainable finance opportunities.
