Australia’s mandatory climate-related financial disclosure regime has commenced, with the first obligations applying to large entities for financial years beginning on or after 1 January 2025. This new framework, embedded in amendments to the Corporations Act 2001, requires eligible reporting entities to prepare annual sustainability reports containing climate-related disclosures in accordance with AASB S2 Climate-related Disclosures.
The regime aims to provide investors and other stakeholders with consistent, decision-useful information about how climate-related risks and opportunities might affect an entity’s financial position, performance, and cash flows. While initially focused on climate (with AASB S2 as the mandatory standard), the framework is designed to expand over time to broader sustainability topics as international standards evolve.
For accounting firms advising clients — or managing their own compliance — understanding the phased implementation, who is in scope, and the core disclosure requirements is essential to ensure timely preparation and avoid non-compliance risks.
Phased Implementation and Key Timelines
The mandatory reporting rolls out in three groups based on entity size, emissions profile under the National Greenhouse and Energy Reporting (NGER) scheme, or asset thresholds for certain financial entities. This phased approach recognises the preparation burden on organisations and allows progressive build-up of capability.
Group 1 entities — the largest and highest emitters — must prepare their first sustainability report for annual reporting periods beginning on or after 1 January 2025. This means entities with 30 June year-ends will report for the year ended 30 June 2026, while those with calendar year-ends will report for the year ended 31 December 2025. Subsequent groups follow in 2026 and 2027.
The timelines align reporting with existing financial reporting cycles under Chapter 2M of the Corporations Act. Entities prepare the sustainability report alongside their financial statements, with the combined annual report lodged with ASIC within standard deadlines (typically three to four months after year-end, depending on entity type).
Assurance requirements also phase in gradually. Initial reports receive limited assurance on certain elements (e.g., governance and Scope 1/2 emissions), with reasonable assurance expanding over time until full reasonable assurance applies from 1 July 2030 onwards.
Who Is Affected? Thresholds and Groups
Mandatory reporting applies to entities required to lodge financial reports under Chapter 2M of the Corporations Act (including listed companies, large proprietary companies, public companies, registered schemes, registrable superannuation entities, and retail corporate collective investment vehicles) that meet specific sustainability reporting thresholds.
Entities fall into one of three groups based on the following criteria (meeting at least two of three size tests, or qualifying under NGER or asset thresholds):
- Group 1 (reporting from periods beginning on or after 1 January 2025):
- Consolidated revenue ≥ $500 million, consolidated assets ≥ $1 billion, and >500 employees; or
- NGER controlling corporations exceeding the publication threshold (high emissions).
- Group 2 (reporting from periods beginning on or after 1 July 2026):
- Consolidated revenue ≥ $200 million, consolidated assets ≥ $500 million, and >250 employees; or
- All other NGER reporters; or
- Asset owners (e.g., super funds, registered schemes) with assets under management ≥ $5 billion.
- Group 3 (reporting from periods beginning on or after 1 July 2027):
- Consolidated revenue ≥ $50 million, consolidated assets ≥ $25 million, and >100 employees.
Group 3 entities only report if they identify material climate-related risks or opportunities; otherwise, they make a statement explaining their assessment (still subject to director declaration and audit).
Smaller entities and most SMEs fall below these thresholds and are exempt. Charities and not-for-profits registered with the ACNC are generally not captured unless they meet Chapter 2M reporting obligations and size criteria.
Core Disclosure Requirements Under AASB S2
AASB S2 requires disclosure of material climate-related risks and opportunities that could reasonably affect the entity’s prospects over short, medium, and long terms. Disclosures cover four pillars:
- Governance: Processes, controls, and oversight for monitoring and managing climate-related risks and opportunities, including board and management’s roles.
- Strategy: How climate risks/opportunities affect business model, value chain, strategy, decision-making, and financial position/performance; transition plans (if any); and mandatory climate scenario analysis (at least two scenarios: one aligned with 1.5°C warming, one well exceeding 2°C).
- Risk Management: Processes for identifying, assessing, prioritising, and monitoring climate-related risks/opportunities, and integration with overall risk management.
- Metrics and Targets: Cross-industry metrics (e.g., Scope 1, 2, and potentially Scope 3 greenhouse gas emissions), industry-based considerations (though not mandatory under Australian variations), and any climate-related targets with progress updates.
Entities must apply materiality judgements consistent with financial reporting — focusing on information that could influence primary users’ decisions. Relief exists for certain transitional disclosures (e.g., modified liability for Scope 3, scenario analysis, and forward-looking statements in early years).
Steps to Prepare and Stay Compliant
Accounting firms and their clients can take practical steps now to build readiness:
- Assess whether your entity (or clients) meets any group thresholds — review recent financials against revenue, assets, employee, or NGER criteria.
- Map existing data — identify available greenhouse gas emissions data, governance structures, and risk processes; gaps in Scope 1/2 (and later Scope 3) will need addressing.
- Conduct scenario analysis — test resilience under required warming pathways, documenting assumptions and impacts on strategy/finances.
- Integrate with governance — ensure board oversight and internal controls cover climate disclosures, mirroring financial reporting rigour.
- Plan for assurance — engage auditors early, as phased requirements ramp up from limited to reasonable assurance.
- Monitor updates — follow ASIC RG 280 and AASB/ AUASB guidance for evolving interpretations and relief.
Non-compliance carries civil penalties (mirroring financial reporting breaches), including fines up to significant amounts or director liability for misleading disclosures. Early preparation mitigates risks and can reveal strategic opportunities in climate resilience.
Many accounting practices are reviewing capacity to support clients through this transition, including data collection and disclosure preparation. Some firms explore offshore support to free onshore teams for higher-value advisory on emerging requirements like these, allowing focus on strategic guidance while maintaining compliance standards. For insights on managing practice workload during regulatory changes, see our guide on outsourced accounting services or the BOSS Outsourced Accounting FAQ. Preparing effectively positions firms to advise confidently on these evolving obligations.
Sources
Australian Accounting Standards Board (AASB), AASB S2 Climate-related Disclosures (issued October 2024, amended December 2025).
Australian Securities and Investments Commission (ASIC), Regulatory Guide 280 Sustainability Reporting (March 2025).
Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Act 2024 (Cth).
BDO Australia, Mandatory sustainability reporting in Australia starts 1 Jan 2025 (February 2026).
EY Australia, Mandatory climate-related financial disclosures: What you need to know (July 2025 update).
PwC Australia, Sustainability reporting standards and legislation finalised (2024–2025).
Frequently Asked Questions
What is AASB S2 and when does mandatory reporting begin?
AASB S2 is the mandatory Australian standard for climate-related financial disclosures. Reporting phases in from financial years beginning on or after 1 January 2025 for Group 1 entities, with Groups 2 and 3 following in 2026 and 2027.
Which entities must comply with the new climate disclosure rules?
Entities lodging financial reports under Chapter 2M of the Corporations Act that meet size/emissions thresholds: large companies (e.g., revenue ≥ $500m, assets ≥ $1b, >500 employees for Group 1), NGER reporters, and certain asset owners.
What are the main disclosure pillars under AASB S2?
Disclosures cover governance, strategy (including scenario analysis), risk management, and metrics/targets (e.g., Scope 1/2 emissions, with Scope 3 phased in).
Are there penalties for non-compliance?
Yes, breaches attract civil penalties similar to financial reporting violations, including fines and potential director liability for misleading disclosures.
How does assurance work for sustainability reports?
Assurance phases in: limited assurance initially on key elements, progressing to reasonable assurance on all climate disclosures from 1 July 2030.
