Navigating Australia’s Mandatory Climate Reporting - AASB/ASRS

Introduction

With the Treasury Laws Amendment Bill 2024 passed in September 2024, mandatory and stringent climate reporting has started to kick in for AASB Group I companies. From the financial year 1 January 2025, companies with Australian operations that meet specific revenue, asset and manpower thresholds will need to begin reporting greenhouse gas emissions and overall climate impact.

Use our guide to navigate the emerging space of sustainability reporting in Australia.

What’s ASRS/AASB/AUASB?

ASRS: Australian Sustainability Reporting Standards
AASB: Australian Accounting Standards Board
AUASB: Australian Auditing and Assurance Standards Board (AUASB)

With the election of the Labour government in 2022, new standards, goals, and promises have coalesced around a specific goal of reducing Australia’s greenhouse gas (GHG) emissions by 43% below 2005 levels by 2030. It also set the goal of reaching net zero by 2050.

To achieve these ambitious goals, the Treasury Laws Amendment Bill 2024 was introduced to formalise the Australian Sustainability Reporting Standards (ASRS). These comprise of AASB S1 and S2, which each align and build on certain aspects of the ISSB’s IFRS S1 and S2 standards. This is an ongoing (albeit mostly formalised) process, which aligns Australia’s corporate sector climate disclosures with international standards.

Their administration in Australia is governed by the Australian Accounting Standards Board (AASB), which has given the task of determining quality and assurance to the Australian Auditing and Assurance Standards Board (AUASB).

AASB S1 and S2 are different in that S2 is specific to climate-related risks, whilst S1 governs sustainability reporting in general. S2 is also mandatory, while S1 is voluntary. 

AASB S2, as it pertains to mandatory climate-related disclosures, is what you might be reading this article for. According to the AASB, this Standard, when applicable, requires an entity to disclose information about climate-related risks and opportunities that could reasonably be expected to affect the entity’s cash flows, its access to finance, or cost of capital over the short, medium, or long term. 

What's different from existing standards like IFRS S2?

Not too much. AASB S1 and S2 build on the existing IFRS S1 and S2 frameworks. However, they are tailored specifically to the Australian market, and engage legislation like the Corporations Act (2001) to levy guardrails around making compliance mandatory. Unlike IFRS S1 and S2, they are national-level legislation that vest specific civil penalties with non-compliance.

Specific aspects of AASB S2 also remove the industry-based metrics mentioned in the IFRS standards, removing the need for companies to disclose industry-based metrics associated with industry participation. Similarly, reporting periods are removed in favor of the ASRS’ delayed phase-in.

Who’s covered and what’s the timeline?

Now that we know the basis of these requirements, who exactly needs to comply? Criteria are based on three metrics: consolidated revenue, EOFY consolidated assets, and EOFY consolidated number of employees. The diagram below lays out the details and deadlines applicable to different groups of companies.  

Fig. 1: Phases in timeline and criteria of the Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill 2024

Entities that are exempt entirely from lodging financial reports under Chapter 2M of the Corporations Act 2001 (Cth) are excluded from these requirements. However, even companies who do not fall under any of the aforementioned categories should look to embark on emission accounting if they have not already.

When Scope 3 emissions reporting becomes a requirement of Group 1 companies, this will lead to increased customer demand for emission data from their value chain, spilling over to smaller companies who in turn have to disclose their own emissions data.

What does it contain and how do you submit it?

Preparing any kind of climate-related disclosures requires entities to provide clear links between the climate risks and their potential impact on the entity’s prospects. The Explanatory Memorandum to the Bill proposes that companies must make their climate-related financial disclosure in an annual ‘sustainability report’. This is governed by Australia’s Corporations Act (2001), which must be submitted to the Australian Securities and Investments Commission (ASIC). 

• The year’s climate statements;
• any accompanying notes to the climate statements; and
• the directors’ declaration about the statements and notes.

Climate statements and their notes should focus on:

• the entity’s material climate-related financial risks and opportunities;
• the entity’s metrics and targets for the financial year relating to climate that are required to be disclosed by the sustainability standards, including in relation to Scope 1, 2 and 3 emissions of greenhouse gas; and
• any information about the entity’s governance, strategy, or risk management in relation to these risks, opportunities, metrics and targets.

Do I need to get it assured?

After some initial deliberation, the AUASB has worked with the International Auditing and Assurance Standards Board to implement the AUASB standard, ASSA 5000 General Requirements for Sustainability Assurance Engagements. This will take effect on sustainability assurance engagements on or after 1st January, 2025. 

For mandatory climate reporting under the Corporations Act, the phasing model is given effect through ASSA 5010 Timeline for Audits or Reviews of Information in Sustainability Reports. 

Fig. 2: Phases of assurance requirements as given effect through ASSA 5010 Timeline for Audits or Reviews of Information in Sustainability Reports

In Year 1, assurance requirements are the least stringent, with limited assurance needed only for Governance, Strategy, and Scope 1 & 2 emissions disclosures. These begin to kick in more strongly in Year 2 and 3, with limited assurance needed across all components of a Sustainability Report. 

Reasonable assurance starts to kick in by Year 4, with all categories being covered and required.

In alignment with global benchmarks, the Australian Auditing and Assurance Standards Board's (AUASB) standard ASAE 3410, which governs Assurance Engagements on Greenhouse Gas Statements, will remain in effect until the start of reporting periods beginning December 15, 2026. This standard will continue to be applicable for distinct emissions reporting as mandated by Australia's National Greenhouse and Energy Reporting Act 2007.

What happens if my company does not or cannot comply?

The non-compliance penalties under ASRS and AASB S2 closely mirror financial reporting penalties under the Corporations Act. For example, directors may be liable for civil penalties if they fail to take all reasonable steps to secure their company’s compliance with its reporting obligations.

ASIC has stated it recognises there will be a period of transition as industry builds its capabilities to comply with these mandatory climate-related reporting requirements and will accordingly take ‘a pragmatic and proportionate approach to supervision and enforcement as industry adjusts to the new requirements.’ There are also several pathways for applicants to apply to the ASIC for relief under the Corporations Act 2001 which governs the disclosure of sustainability reports. This is generally done directly via the ASIC Regulatory Portal. More information here.

Nevertheless, given the short runway to measure and report Scope 1, 2 and 3 emissions accurately, it is important for companies to act early in preparing their climate reporting systems and processes. Terrascope’s ease of use makes it simple for any clients reporting to the AASB’s requirements to easily ingest and get a top-level overview of your emissions sources. Any data is easily accessible at the time of audit & assurance, keeping your third party verification process easily resolvable.

What does it mean for Australian companies?

If they have not already, eligible companies need to begin preparing their climate reporting systems and processes now. Needing to identify key climate factors in financial prospects demands that companies can effectively visualise their data at scale. Companies should also familiarize themselves with the AASB S2 disclosure requirements and assess their current capabilities to meet these new standards.

In particular, AASB is notably stringent on Scope 3 indirect emissions. As part of their phase-in approach, Scope 3 emissions are mandatory to be reported from a company’s second reporting year, on top of the immediate disclosure requirements for Scope 1 & 2 emissions. Scope 3 make up the majority of a company’s total emissions and are the hardest to accurately measure and calculate out.

For Scope 3 emissions, the stringency and detail required by these reporting standards demand a level of data granularity that is highly costly and effort-intensive to achieve by manual means.

Where Terrascope can help is in our ability to assimilate data from across complex supply chains and fill in data gaps to visualise Scope 1, 2, and 3 emissions. Terrascope supports data in any format, from receipts to itemised invoices, and has several key integrations into SAP, Salesforce, and other platforms used to manage a company’s data. Companies can trust in Terrascope’s ability to provide high-level overviews of your organisation’s emissions, whilst having a transparent, reproducible audit trail.

Unlike other companies, Terrascope works with yours throughout, through to the assurance stage to ensure that your inventory is accurate. By working with Terrascope, businesses can get a thorough understanding of their carbon emissions, broken down by product, geography, process, and more. This, in turn, can drive actionable change in operations and can also help them avoid legal or regulatory penalties.

If your company is preparing for mandatory climate-related financial reporting in Australia, reach us now for a free consultation on how best to achieve results.