78 An entity shall:
(a) identify the amounts that it has disclosed that are subject to a high level of measurement uncertainty; and
(b) in relation to each amount identified in paragraph 78(a), disclose information about:
(i) the sources of measurement uncertainty—for example, the dependence of the amount on the outcome of a future event, on a measurement technique or on the availability and quality of data from the entity’s value chain; and
(ii) the assumptions, approximations and judgements the entity has made in measuring the amount.
79 When amounts reported in climate-related financial disclosures cannot be measured directly and can only be estimated, measurement uncertainty arises. In some cases, an estimate involves assumptions about possible future events with uncertain outcomes. The use of reasonable estimates is an essential part of preparing climate-related financial disclosures and does not undermine the usefulness of the information if the estimates are accurately described and explained. Even a high level of measurement uncertainty would not necessarily prevent such an estimate from providing useful information.
80 The requirement in paragraph 77 for an entity to disclose information about the uncertainties affecting the amounts reported in climate-related financial disclosures relates to the estimates that require the entity’s most difficult, subjective or complex judgements. As the number of variables and assumptions increases, those judgements become more subjective and complex, and the uncertainty affecting the amounts reported in the climate-related financial disclosures increases accordingly.
81 The type and extent of the information an entity might need to disclose vary according to the nature of the amount reported in the climate-related financial disclosures—the sources of and the factors contributing to the uncertainty and other circumstances. Examples of the type of information an entity might need to disclose are:
(a) the nature of the assumption or other source of measurement uncertainty;
(b) the sensitivity of the disclosed amount to the methods, assumptions and estimates underlying its calculation, including the reasons for the sensitivity;
(c) the expected resolution of an uncertainty and the range of reasonably possible outcomes for the disclosed amount; and
(d) an explanation of changes made to past assumptions concerning the disclosed amount, if the uncertainty remains unresolved.
82 [Not included]
Errors
83 An entity shall correct material prior period errors by restating the comparative amounts for the prior period(s) disclosed unless it is impracticable to do so.
84 Prior period errors are omissions from and misstatements in the entity’s climate-related financial disclosures for one or more prior periods. Such errors arise from a failure to use, or the misuse of, reliable information that:
(a) was available when the climate-related financial disclosures for that period(s) were authorised for issue; and
(b) could reasonably be expected to have been obtained and considered in the preparation of those disclosures.
85 Corrections of errors are distinguished from changes in estimates. Estimates are approximations that an entity might need to revise as additional information becomes known.
86 If an entity identifies a material error in its prior period climate-related financial disclosures, it shall apply paragraphs B55–B59.
Application guidance (from AASB S1, Appendix B)
Climate-related risks and opportunities (paragraphs 11–12)
B1 This Standard requires an entity to disclose information about all 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 (referred to as ‘climate-related risks and opportunities that could reasonably be expected to affect the entity’s prospects’).
B2 An entity’s climate-related risks and opportunities arise out of the interactions between the entity and its stakeholders, society, the economy and the natural environment throughout the entity’s value chain. These interactions—which can be direct and indirect—result from operating an entity’s business model in pursuit of the entity’s strategic purposes and from the external environment in which the entity operates. These interactions take place within an interdependent system in which an entity both depends on resources and relationships throughout its value chain to generate cash flows and affects those resources and relationships through its activities and outputs—contributing to the preservation, regeneration and development of those resources and relationships or to their degradation and depletion. These dependencies and impacts might give rise to climate-related risks and opportunities that could reasonably be expected to affect an entity’s cash flows, its access to finance and cost of capital over the short, medium and long term.
B3–
B7 [Not included]
Reasonable and supportable information
B8 Reasonable and supportable information used by an entity in preparing its climate-related financial disclosures shall cover factors that are specific to the entity as well as general conditions in the external environment. In some cases—such as in identifying climate-related risks and opportunities that could reasonably be expected to affect an entity’s prospects—reasonable and supportable information includes information about past events, current conditions and forecasts of future conditions. Other Australian Sustainability Reporting Standards may specify what is reasonable and supportable information in specific cases.
B9 An entity may use various sources of data that may be both internal and external. Possible data sources include the entity’s risk management processes; industry and peer group experience; and external ratings, reports and statistics. Information that is used by the entity in preparing its financial statements, operating its business model, setting its strategy and managing its risks and opportunities is considered to be available to the entity without undue cost or effort.
B10 An entity need not undertake an exhaustive search for information to identify climate-related risks and opportunities that could reasonably be expected to affect the entity’s prospects. The assessment of what constitutes undue cost or effort depends on the entity’s specific circumstances and requires a balanced consideration of the costs and efforts for the entity and the benefits of the resulting information for primary users. That assessment can change over time as circumstances change.
B11–
B12 [Not included]
Materiality (paragraphs 17–19)
B13 Paragraph 17 requires an entity to disclose material information about the climate-related risks and opportunities that could reasonably be expected to affect the entity’s prospects. Materiality of information is judged in relation to whether omitting, misstating or obscuring that information could reasonably be expected to influence decisions of primary users of general purpose financial reports, which provide information about a specific reporting entity.
B14 The decisions of primary users relate to providing resources to the entity and involve decisions about:
(a) buying, selling or holding equity and debt instruments;
(b) providing or selling loans and other forms of credit; or
(c) exercising rights to vote on, or otherwise influence, the entity’s management’s actions that affect the use of the entity’s economic resources.
AusB14.1 In respect of not-for-profit entities, the following are examples of decisions of primary users relating to providing resources to an entity:
(a) parliaments deciding on behalf of constituents whether to fund particular programmes for delivery by an entity;
(b) taxpayers deciding who should represent them in government;
(c) donors deciding whether to donate resources to an entity; and
(d) recipients of goods and services deciding whether they can continue to rely on the provision of goods and services from the entity or whether to seek alternative suppliers.
B15 The decisions described in paragraph B14 depend on primary users’ expectations about returns, for example, dividends, principal and interest payments or market price increases. Those expectations depend on primary users’ assessment of the amount, timing and uncertainty of future net cash inflows to the entity and on their assessment of stewardship of the entity’s economic resources by the entity’s management and its governing body(s) or individual(s).
AusB15.1 In respect of not-for-profit entities, the decisions described in paragraph AusB14.1 depend on primary users’ expectations about returns and a not-for-profit entity’s ability to continue providing goods or services. Those expectations depend on primary users’ assessment of the amount, timing and uncertainty of future net cash inflows to the entity and on their assessment of stewardship of the entity’s economic resources by the entity’s management and its governing body(s) or individual(s).
B16 Assessing whether information could reasonably be expected to influence the decisions made by primary users requires consideration of the characteristics of those users and of the entity’s own circumstances.
B17 Climate-related financial disclosures are prepared for primary users who have reasonable knowledge of business and economic activities and who review and analyse information diligently. At times, even well-informed and diligent users may need to seek the aid of an adviser to understand climate-related financial information.
B18 Individual primary users may have different, and sometimes even conflicting, information needs and desires. Information needs of primary users may also evolve over time. Climate-related financial disclosures are intended to meet common information needs of primary users.
Identifying material information
B19 Materiality judgements are specific to an entity. Consequently, this Standard does not specify any thresholds for materiality or predetermine what would be material in a particular situation.
B20 \[Not included\]
B21 An entity shall assess whether information, either individually or in combination with other information, is material in the context of the entity’s climate-related financial disclosures taken as a whole. In assessing whether information is material, an entity shall consider both quantitative and qualitative factors. For example, an entity might consider the magnitude and the nature of the effect of a climate-related risk or opportunity on the entity.
B22 In some cases, Australian Sustainability Reporting Standards require the disclosure of information about possible future events with uncertain outcomes. In judging whether information about such possible future events is material, an entity shall consider:
(a) the potential effects of the events on the amount, timing and uncertainty of the entity’s future cash flows over the short, medium and long term (referred to as ‘the possible outcome’); and
(b) the range of possible outcomes and the likelihood of the possible outcomes within that range.
B23 When considering possible outcomes, an entity shall consider all pertinent facts and circumstances. Information about a possible future event is more likely to be judged as being material if the potential effects are significant and the event is likely to occur. However, an entity shall also consider whether information about low-probability and high-impact outcomes might be material either individually or in combination with information about other low-probability and high-impact outcomes. For example, an entity might be exposed to several climate-related risks, each of which could cause the same type of disruption—such as disruption to the entity’s supply chain. Information about an individual source of risk might not be material if disruption from that source is highly unlikely to occur. However, information about the aggregate risk—the risk of supply chain disruption from all sources—might be material.
B24 If a possible future event is expected to affect an entity’s cash flows, but only many years in the future, information about that event is usually less likely to be judged material than information about a possible future event with similar effects that are expected to occur sooner. However, in some circumstances, an item of information could reasonably be expected to influence primary users’ decisions regardless of the magnitude of the potential effects of the future event or the timing of that event. For example, this might happen if information about a particular climate-related risk or opportunity is highly scrutinised by primary users of an entity’s general purpose financial reports.
B25 An entity need not disclose information otherwise required by an Australian Sustainability Reporting Standard if the information is not material. This is the case even if the Australian Sustainability Reporting Standard contains a list of specific requirements or describes them as minimum requirements.
B26 An entity shall disclose additional information when compliance with the specifically applicable requirements in an Australian Sustainability Reporting Standard is insufficient to enable users of general purpose financial reports to understand the effects of climate-related risks and opportunities on the entity’s cash flows, its access to finance and cost of capital over the short, medium and long term.
B27 An entity shall identify its climate-related financial disclosures clearly and distinguish them from other information provided by the entity (see paragraph 62). An entity shall not obscure material information. Information is obscured if it is communicated in a way that would have a similar effect for primary users to omitting or misstating that information. Examples of circumstances that might result in material information being obscured include:
(a) material information is not clearly distinguished from additional information that is not material;
(b) material information is disclosed in the climate-related financial disclosures, but the language used is vague or unclear;
(c) material information about a climate-related risk or opportunity is scattered throughout the climate-related financial disclosures;
(d) items of information that are dissimilar are inappropriately aggregated;
(e) items of information that are similar are inappropriately disaggregated; and
(f) the understandability of the climate-related financial disclosures is reduced as a result of material information being hidden by immaterial information to the extent that a primary user is unable to determine what information is material.
B28 An entity shall reassess its materiality judgements at each reporting date to take account of changed circumstances and assumptions. Because of changes in the entity’s individual circumstances, or in the external environment, some types of information included in an entity’s climate-related financial disclosures for prior periods might no longer be material. Conversely, some types of information not previously disclosed might become material.
Aggregation and disaggregation
B29 When an entity applies Australian Sustainability Reporting Standards, it shall consider all facts and circumstances and decide how to aggregate and disaggregate information in its climate-related financial disclosures. The entity shall not reduce the understandability of its climate-related financial disclosures by obscuring material information with immaterial information or by aggregating material items of information that are dissimilar to each other.
B30 An entity shall not aggregate information if doing so would obscure information that is material. Information shall be aggregated if items of information have shared characteristics and shall not be aggregated if they do not have shared characteristics. The entity might need to disaggregate information about climate-related risks and opportunities, for example, by geographical location or in consideration of the geopolitical environment. For example, to ensure that material information is not obscured, an entity might need to disaggregate information about its use of water to distinguish between water drawn from abundant sources and water drawn from water-stressed areas.
Interaction with law or regulation
B31 Law or regulation might specify requirements for an entity to disclose climate-related information in its general purpose financial reports. In such circumstances, the entity is permitted to include in its climate-related financial disclosures information to meet legal or regulatory requirements, even if that information is not material. However, such information shall not obscure material information.
B32 An entity shall disclose material climate-related financial information, even if law or regulation permits the entity not to disclose such information.
B33 An entity need not disclose information otherwise required by an Australian Sustainability Reporting Standard if law or regulation prohibits the entity from disclosing that information. If an entity omits material information for that reason, it shall identify the type of information not disclosed and explain the source of the restriction.
Commercially sensitive information
B34 If an entity determines that information about a climate-related opportunity is commercially sensitive in the limited circumstances described in paragraph B35, the entity is permitted to omit that information from its climate-related financial disclosures. Such an omission is permitted even if information is otherwise required by an Australian Sustainability Reporting Standard and the information is material.
B35 An entity qualifies for the exemption specified in paragraph B34 if, and only if:
(a) information about the climate-related opportunity is not already publicly available;
(b) disclosure of that information could reasonably be expected to prejudice seriously the economic benefits the entity would otherwise be able to realise in pursuing the opportunity; and
(c) the entity has determined that it is impossible to disclose that information in a manner—for example, at an aggregated level—that would enable the entity to meet the objectives of the disclosure requirements without prejudicing seriously the economic benefits the entity would otherwise be able to realise in pursuing the opportunity.
B36 If an entity elects to use the exemption specified in paragraph B34, the entity shall, for each item of information omitted:
(a) disclose the fact that it has used the exemption; and
(b) reassess, at each reporting date, whether the information qualifies for the exemption.
B37 An entity is prohibited from using the exemption specified in paragraph B34 in relation to a climate-related risk or as a basis for broad non-disclosure of climate-related financial information.
Reporting entity (paragraph 20)
B38 \[Not included\]
AusB38.1 Unless otherwise permitted by law, paragraph Aus20.1 requires that climate-related financial disclosures shall be for the same reporting entity as the related financial statements. For example, consolidated financial statements prepared in accordance with Australian Accounting Standards provide information about the parent and its subsidiaries as a single reporting entity. Consequently, that entity’s climate-related financial disclosures shall enable users of general purpose financial reports to understand the effects of the climate-related risks and opportunities on the cash flows, access to finance and cost of capital over the short, medium and long term for the parent and its subsidiaries.
Connected information (paragraphs 21–24)
B39 Paragraph 21 requires an entity to provide information in a manner that enables users of general purpose financial reports to understand connections both between the items to which the information relates and between disclosures provided by the entity in its general purpose financial reports.
B40 Connected information provides insight into connections between the items to which the information relates. For example:
(a) if an entity pursued a particular climate-related opportunity and that resulted in an increase in the entity’s revenue, connected information will depict that relationship between the entity’s strategy and its financial performance;
(b) if an entity identified a trade-off between two climate-related risks it is exposed to and took action on the basis of its assessment of that trade-off, connected information will depict the relationship between those risks and the entity’s strategy; and
(c) if an entity committed to a particular climate-related target, but that commitment has not yet affected the entity’s financial position or financial performance because the applicable recognition criteria have not been met, connected information will depict that relationship.
B41 Connected information includes:
(a) connections between various types of information about a particular climate-related risk or opportunity, such as:
(i) between disclosures on governance, strategy and risk management; and
(ii) between narrative information and quantitative information (including related metrics and targets and information in the related financial statements).
(b) connections between disclosures about various climate-related risks and opportunities. For example, if an entity integrates its oversight of climate-related risks and opportunities, the entity shall integrate the disclosures on governance instead of providing separate disclosures on governance for each climate-related risk and opportunity.
B42 Drawing connections between disclosures involves, but is not limited to, providing necessary explanations and cross-references and using consistent data, assumptions, and units of measure. In providing connected information, an entity shall:
(a) explain connections between disclosures in a clear and concise manner;
(b) avoid unnecessary duplication if Australian Sustainability Reporting Standards require the disclosure of common items of information; and
(c) disclose information about significant differences between the data and assumptions used in preparing the entity’s climate-related financial disclosures and the data and assumptions used in preparing the related financial statements.
B43 For example, in providing connected information an entity might need to explain the effect or likely effect of its strategy on its financial statements and financial planning, or explain how that strategy relates to the metrics the entity uses to measure progress against targets. Another entity might need to explain how its use of natural resources or changes within its supply chain could amplify or, in contrast, reduce its climate-related risks and opportunities. The entity might need to link the information about its use of natural resources or changes within its supply chain to information about current or anticipated financial effects on the entity’s production costs, its strategic response to mitigate those risks and its related investment in new assets. The entity might need to link narrative information to the related metrics and targets and to information in the related financial statements.
B44 Other examples of connected information include:
(a) an explanation of the combined effects of the entity’s climate-related risks and opportunities and its strategy on its financial position, financial performance and cash flows over the short, medium and long term. For example, an entity might face decreasing demand for its products because of consumer preferences for lower-carbon alternatives. The entity might need to explain how its strategic response, such as closing a major factory, could affect its workforce and local communities, and the effect of such a closure on the useful lives of its assets and on impairment assessments.
(b) a description of the alternatives that an entity evaluated in setting its strategy in response to its climate-related risks and opportunities, including a description of the trade-offs between those risks and opportunities that the entity considered. For example, an entity might need to explain the potential effects of its decision to restructure its operations in response to a climate-related risk on the future size and composition of the entity’s workforce.
Information included by cross-reference (paragraph 63)
B45 Information required by an Australian Sustainability Reporting Standard might be available in another report published by the entity. For example, the required information could be disclosed in the related financial statements. Material information can be included in an entity’s climate-related financial disclosures by cross-reference, provided that:
(a) the cross-referenced information is available on the same terms and at the same time as the climate-related financial disclosures; and
(b) the complete set of climate-related financial disclosures is not made less understandable by including information by cross-reference.
B46 Information included by cross-reference becomes part of the complete set of climate-related financial disclosures and shall comply with the requirements of Australian Sustainability Reporting Standards. For example, it needs to be relevant, representationally faithful, comparable, verifiable, timely and understandable. The body(s) or individual(s) that authorises the general purpose financial reports takes the same responsibility for the information included by cross-reference as it does for the information included directly.
B47 If information required by an Australian Sustainability Reporting Standard is included by cross-reference:
(a) the climate-related financial disclosures shall clearly identify the report within which that information is located and explain how to access that report; and
(b) the cross-reference shall be to a precisely specified part of that report.
Interim reporting (paragraph 69)
B48 In the interest of timeliness and cost considerations, and to avoid repetition of information previously reported, an entity may be required or choose to provide less information at interim dates than it provides in its annual climate-related financial disclosures. Interim climate-related financial disclosures are intended to provide an update on the latest complete set of annual disclosures of climate-related financial information. These disclosures focus on new information, events and circumstances and do not duplicate information previously reported. Although the information provided in interim climate-related financial disclosures may be more condensed than in annual climate-related financial disclosures, an entity is not prohibited or discouraged from publishing a complete set of climate-related financial disclosures as specified in this Standard as part of its interim general purpose financial report.
Comparative information (paragraphs 52, 70 and 83–86)
B49 Paragraph 70 requires an entity to disclose comparative information in respect of the preceding period for all amounts disclosed in the reporting period.
Metrics
B50 In some cases, the amount disclosed for a metric is an estimate. Except as specified in paragraph B51, if an entity identifies new information in relation to the estimated amount disclosed in the preceding period and the new information provides evidence of circumstances that existed in that period, the entity shall:
(a) disclose a revised comparative amount that reflects that new information;
(b) disclose the difference between the amount disclosed in the preceding period and the revised comparative amount; and
(c) explain the reasons for revising the comparative amount.
B51 In applying the requirement in paragraph B50, an entity need not disclose a revised comparative amount:
(a) if it is impracticable to do so (see paragraph B54).
(b) if the metric is forward-looking. Forward-looking metrics relate to possible future transactions, events and other conditions. The entity is permitted to revise a comparative amount for a forward-looking metric if doing so does not involve the use of hindsight.
B52 If an entity redefines or replaces a metric in the reporting period, the entity shall:
(a) disclose a revised comparative amount, unless it is impracticable to do so;
(b) explain the changes; and
(c) explain the reasons for those changes, including why the redefined or replacement metric provides more useful information.
B53 If an entity introduces a new metric in the reporting period, it shall disclose a comparative amount for that metric unless it is impracticable to do so.
B54 Sometimes, it is impracticable to revise a comparative amount to achieve comparability with the reporting period. For example, data might not have been collected in the preceding period in a way that allows retrospective application of a new definition of a metric, and it might be impracticable to recreate the data. If it is impracticable to revise a comparative amount for the preceding period, an entity shall disclose that fact.
Errors
B55 Paragraph 83 requires an entity to correct material prior period errors.
B56 Such errors include: the effects of mathematical mistakes, mistakes in applying the definitions for metrics or targets, oversights or misinterpretations of facts, and fraud.
B57 Potential reporting period errors discovered in that period are corrected before the climate-related financial disclosures are authorised for issue. However, material errors are sometimes not discovered until a subsequent period.
B58 If an entity identifies a material error in its prior period(s) climate-related financial disclosures, it shall disclose:
(a) the nature of the prior period error;
(b) the correction, to the extent practicable, for each prior period disclosed; and
(c) if correction of the error is impracticable, the circumstances that led to the existence of that condition and a description of how and from when the error has been corrected.
B59 When it is impracticable to determine the effect of an error on all prior periods presented, the entity shall restate the comparative information to correct the error from the earliest date practicable.
Qualitative characteristics of useful climate-related financial information (from AASB S1, Appendix D)
Introduction
D1 The Conceptual Framework for Financial Reporting (as amended to December 2021) and the Framework for the Preparation and Presentation of Financial Statements (as amended to March 2020) (the Conceptual Frameworks) were issued by the AASB. They describe the objective of, and the concepts that apply to, general purpose financial reports. One purpose of the Conceptual Frameworks is to assist the AASB to develop Australian Accounting Standards for preparing financial statements based on consistent concepts.
D2 Climate-related financial disclosures are part of general purpose financial reports. The qualitative characteristics in the Conceptual Frameworks, therefore, apply to climate-related financial information. However, the nature of some of the information required to meet the objective of this Standard differs in some respects from the information provided in financial statements.
D3 Climate-related financial information is useful if it is relevant and faithfully represents what it purports to represent. Relevance and faithful representation are fundamental qualitative characteristics of useful climate-related financial information. The usefulness of climate-related financial information is enhanced if the information is comparable, verifiable, timely and understandable. Comparability, verifiability, timeliness and understandability are enhancing characteristics of useful climate-related financial information.
Fundamental qualitative characteristics of useful climate-related financial information
Relevance
D4 Relevant climate-related financial information is capable of making a difference in the decisions made by primary users. Information may be capable of making a difference in a decision even if some users choose not to take advantage of it or are already aware of it from other sources. Climate-related financial information is capable of making a difference in decisions made by users if it has predictive value, confirmatory value or both.
D5 Climate-related financial information has predictive value if it can be used as an input to processes employed by primary users to predict future outcomes. Climate-related financial information need not be a prediction or forecast to have predictive value. Climate-related financial information with predictive value is employed by primary users in making their own predictions. For example, information about water quality, which can include information about the water being polluted, could inform the expectations of users about the ability of an entity to meet local water-quality requirements.
D6 Climate-related financial information has confirmatory value if it provides feedback about (confirms or changes) previous evaluations.
D7 The predictive value and confirmatory value of climate-related financial information are interrelated. Information that has predictive value often also has confirmatory value. For example, information for the current year about greenhouse gas emissions, which can be used as the basis for predicting greenhouse gas emissions in future years, can also be compared with predictions about greenhouse gas emissions for the current year that were made in past years. The results of those comparisons can help a user to correct and improve the processes that were used to make those previous predictions.
Materiality
D8 Information is material if omitting, misstating or obscuring that information could reasonably be expected to influence decisions that the primary users of general purpose financial reports make on the basis of those reports, which provide information about a specific reporting entity. In other words, materiality is an entity-specific aspect of relevance. The materiality of information is assessed in the context of an entity’s climate-related financial disclosures and is based on the nature or magnitude of the item to which the information relates, or both.
Faithful representation
D9 Climate-related financial information represents phenomena in words and numbers. To be useful, the information must not only represent relevant phenomena, it must also faithfully represent the substance of the phenomena that it purports to represent.
D10 To be a faithful representation, a depiction would be complete, neutral and accurate. The objective of general purpose financial reports is to maximise those qualities to the extent possible.
D11 A complete depiction of a climate-related risk or opportunity includes all material information necessary for primary users to understand that risk or opportunity.
D12 Climate-related financial information shall be neutral. A neutral depiction is one without bias in the selection or disclosure of information. Information is neutral if it is not slanted, weighted, emphasised, de-emphasised or otherwise manipulated to make it more likely that primary users will receive that information favourably or unfavourably. Neutral information is not information without purpose or without influence on behaviour. On the contrary, relevant information is, by definition, capable of making a difference in users’ decisions.
D13 Some climate-related financial information—for example, targets or plans—is aspirational. A neutral discussion of such matters covers both aspirations and the factors that could prevent an entity from achieving these aspirations.
D14 Neutrality is supported by the exercise of prudence. Prudence is the exercise of caution when making judgements under conditions of uncertainty. The exercise of prudence means that opportunities are not overstated and risks are not understated. Equally, the exercise of prudence does not allow for the understatement of opportunities or the overstatement of risks.
D15 Climate-related financial information shall be accurate. Information can be accurate without being perfectly precise in all respects. The precision needed and attainable, and the factors that make information accurate, depend on the nature of the information and the nature of the matters to which it relates. For example, accuracy requires that:
(a) factual information is free from material error;
(b) descriptions are precise;
(c) estimates, approximations and forecasts are clearly identified as such;
(d) no material errors are made in selecting and applying an appropriate process for developing an estimate, approximation or forecast;
(e) assertions and inputs used in developing estimates are reasonable and based on information of sufficient quality and quantity; and
(f) information on judgements about the future faithfully reflects both those judgements and the information on which they are based.
Enhancing qualitative characteristics of useful climate-related financial information
D16 The usefulness of climate-related financial information is enhanced if it is comparable, verifiable, timely and understandable.
Comparability
D17 The decisions made by the primary users of general purpose financial reports involve choosing between alternatives; for example, selling or holding an investment, or investing in one reporting entity or another. Comparability is the characteristic that enables users to identify and understand similarities in, and differences among, items. Unlike the other qualitative characteristics, comparability does not relate to a single item. A comparison requires at least two items. Information is more useful to users if it is also comparable, that is, if it can be compared with:
(a) information provided by the entity in previous periods; and
(b) information provided by other entities, in particular those with similar activities or operating within the same industry.
D18 Climate-related financial disclosures shall be provided in a way that enhances comparability.
D19 Consistency is related to, but is not the same as, comparability. Consistency refers to the use of the same approaches or methods for providing disclosures about the same climate-related risks and opportunities, from period to period, both by a reporting entity and other entities. Comparability is the goal; consistency helps to achieve that goal.
D20 Comparability is not uniformity. For information to be comparable, like things shall look alike and different things shall look different. Comparability of climate-related financial information is not enhanced by making unlike things look alike any more than it is enhanced by making like things look different.
Verifiability
D21 Verifiability helps to give users confidence that information is complete, neutral and accurate. Information is verifiable if it is possible to corroborate either the information itself or the inputs used to derive it. Verifiable information is more useful to primary users than information that is not verifiable.
D22 Verifiability means that various knowledgeable and independent observers could reach consensus, although not necessarily complete agreement, that a particular depiction is a faithful representation. Quantified information need not be a single point estimate to be verifiable. A range of possible amounts and the related probabilities could also be verified.
D23 Climate-related financial information shall be provided in a way that enhances its verifiability. Verifiability can be enhanced by, for example:
(a) including information that can be corroborated by comparing it with other information available to primary users about an entity’s business, about other businesses or about the external environment in which the entity operates;
(b) providing information about inputs and methods of calculation used to produce estimates or approximations; and
(c) providing information reviewed and agreed by the entity’s board, board committees or equivalent bodies.
D24 Some climate-related financial information will be presented as explanations or forward-looking information. That information can be supportable, for example by faithfully representing fact-based strategies, plans and risk analyses. To help primary users decide whether to use such information, an entity shall describe the underlying assumptions and methods of producing the information, as well as other factors that provide evidence that the information reflects the actual plans or decisions made by the entity.
Timeliness
D25 Timeliness means having information available to decision-makers in time to be capable of influencing their decisions. Generally, the older information is, the less useful it is. However, some information may continue to be timely long after the end of a reporting period because, for example, some users may need to identify and assess trends.
Understandability
D26 Climate-related financial information shall be clear and concise. For climate-related financial disclosures to be concise, they need:
(a) to avoid generic information, sometimes called ‘boilerplate’, that is not specific to the entity;
(b) to avoid duplication of information in the general purpose financial reports, including unnecessary duplication of information also provided in the related financial statements; and
(c) to use clear language and clearly structured sentences and paragraphs.
D27 The clearest form a disclosure can take will depend on the nature of the information and might include tables, graphs or diagrams in addition to narrative text. If graphs or diagrams are used, additional text or tables might be necessary to avoid obscuring material detail.
D28 Clarity might be enhanced by distinguishing information about developments in the reporting period from ‘standing’ information that remains unchanged, or changes little, from one period to the next—for example, by separately describing features of an entity’s climate-related governance and risk management processes that have changed since the previous reporting period.
D29 Disclosures are concise if they include only material information. Any immaterial information included shall be provided in a way that avoids obscuring material information.
D30 Some climate-related risks and opportunities are inherently complex and might be difficult to present in a manner that is easy to understand. An entity shall present such information as clearly as possible. However, complex information about these risks and opportunities shall not be excluded from general purpose financial reports to make those reports easier to understand. Excluding such information would render those reports incomplete and, therefore, possibly misleading.
D31 The completeness, clarity and comparability of climate-related financial information all rely on information being presented as a coherent whole. For climate-related financial information to be coherent, it shall be presented in a way that explains the context and the connections between the related items of information.
D32 If climate-related risks and opportunities located in one part of an entity’s general purpose financial reports have implications for information disclosed in other parts, the entity shall include the information necessary for users to assess those implications.
D33 Coherence also requires an entity to provide information in a way that allows users to relate information about its climate-related risks and opportunities to information in the entity’s financial statements.
Deleted IFRS S2 text Deleted IFRS S2 text
Deleted IFRS S2 text
Note: Deleted IFRS S2 text is not part of AASB S2.
12 In identifying the climate-related risks and opportunities that could reasonably be expected to affect an entity’s prospects, the entity shall refer to and consider the applicability of the industry-based disclosure topics defined in the Industry-based Guidance on Implementing IFRS S2.
23 In preparing disclosures to meet the requirements in paragraphs 13–22, an entity shall refer to and consider the applicability of cross-industry metric categories, as described in paragraph 29, and industry-based metrics associated with disclosure topics defined in the Industry-based Guidance on Implementing IFRS S2 as described in paragraph 32.
28 To achieve this objective, an entity shall disclose:
…
(b) industry-based metrics that are associated with particular business models, activities or other common features that characterise participation in an industry (see paragraph 32);
32 An entity shall disclose industry-based metrics that are associated with one or more particular business models, activities or other common features that characterise participation in an industry. In determining the industry-based metrics that the entity discloses, the entity shall refer to and consider the applicability of the industry-based metrics associated with disclosure topics described in the Industry-based Guidance on Implementing IFRS S2.
37 In identifying and disclosing the metrics used to set and monitor progress towards reaching a target described in paragraphs 33–34, an entity shall refer to and consider the applicability of cross-industry metrics (see paragraph 29) and industry-based metrics (see paragraph 32), including those described in an applicable IFRS Sustainability Disclosure Standard, or metrics that otherwise satisfy the requirements in IFRS S1.
Appendix A – the definition of ‘disclosure topic’
A specific sustainability-related risk or opportunity based on the activities conducted by entities within a particular industry as set out in an IFRS Sustainability Disclosure Standard or a SASB Standard.
B65 In preparing disclosures to fulfil the requirements in paragraph 29(b)–(g), an entity shall:
…
(d) consider whether industry-based metrics, as described in paragraph 32—including those defined in an applicable IFRS Sustainability Disclosure Standard or those that otherwise satisfy the requirements in IFRS S1—could be used to satisfy the requirements in whole or in part.
B67 In identifying and disclosing the metric used to set a climate-related target and measure progress, an entity shall consider the cross-industry metrics and industry-based metrics. If the metric has been developed by the entity to measure progress towards a target, the entity shall disclose information about that metric in accordance with paragraph 50 of IFRS S1.
C1 An entity shall apply this Standard for annual reporting periods beginning on or after 1 January 2024. Earlier application is permitted. If an entity applies this Standard earlier, it shall disclose that fact and apply IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information at the same time.
Introduction Introduction
This Basis for Conclusions summarises the Australian Accounting Standards Board’s (AASB’s) considerations in developing AASB S2. In making decisions, individual Board members gave greater weight to some factors than to others.
Reasons for issuing this Standard Reasons for issuing this Standard
Reasons for issuing this Standard
The AASB issued AASB S2 to support the Australian Government’s decision to require large businesses and financial institutions to prepare climate-related financial disclosures.
Following multiple consultations and responding to calls from investors for more consistent, complete, comparable and verifiable information about an entity’s climate-related risks and opportunities, in 2023 the Australian Government confirmed its intention to make climate-related financial disclosures mandatory for large businesses and financial institutions. In June 2023, the Commonwealth Treasury released the proposed design for a mandatory reporting framework, with an approach for Australia to be aligned as far as practicable with the standards developed by the International Sustainability Standards Board (the ISSB) to the extent relevant to climate-related financial disclosure. The Australian Government’s policy intention is to improve the quality and comparability of climate-related financial disclosures across different companies and sectors, which, in turn, should help investors make more informed decisions.
In September 2024, the Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Act 2024 was passed, introducing mandatory climate-related financial disclosures for certain corporations and other entities through amendments to the Corporations Act 2001.
Approach to developing AASB S2 Approach to developing AASB S2
Approach to developing AASB S2
In March 2022, the ISSB published an Exposure Draft on [Draft] IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and an Exposure Draft on [Draft] IFRS S2 Climate-related Disclosures, which integrated and built on the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), created by the Financial Stability Board (FSB).
In April 2022, the AASB published Exposure Draft ED 321 Request for Comment on ISSB [Draft] IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and [Draft] IFRS S2 Climate-related Disclosures. Comments received on ED 321 indicated that the proposals in IFRS S1 and IFRS S2 would be an appropriate baseline on which to develop climate-related financial disclosure requirements for Australian entities.
Considering the commitment from the Australian Government to introduce internationally aligned mandatory climate-related financial reporting for large businesses and financial institutions and the feedback to ED 321, the AASB decided:
Australian sustainability-related reporting requirements would be in a separate suite of standards from Accounting Standards;
to use the work of the ISSB as a foundation, with modifications for Australian circumstances where necessary to meet the needs of Australian stakeholders; and
to initially develop climate-related financial disclosure requirements that can be applied independently of any broader sustainability reporting framework.
The AASB noted that it may develop reporting requirements for other sustainability-related risks and opportunities in Australia over time.
In June 2023, the ISSB finalised IFRS S1 and IFRS S2. In October 2023, the AASB published Exposure Draft ED SR1 Australian Sustainability Reporting Standards – Disclosure of Climate-related Financial Information. ED SR1 proposed three draft Australian Sustainability Reporting Standards, as described below.
[Draft] ASRS 1 General Requirements for Disclosure of Climate-related Financial Information, developed using the requirements of IFRS S1 as the baseline but with a scope limitation to climate-related disclosure.
[Draft] ASRS 2 Climate-related Financial Disclosures, developed using the requirements of IFRS S2 as the baseline. The main proposed modifications to the baseline requirements related to:
consideration and disclosure of industry-based information;
measurement of greenhouse gas emissions; and
temperature outcomes for scenario analysis.
[Draft] ASRS 101 References in Australian Sustainability Reporting Standards, developed as a service Standard that would be updated when required to list the relevant versions of any non-legislative documents published in Australia and foreign documents that are referenced in Australian Sustainability Reporting Standards. Under section 14 of the Legislation Act 2003, Australian legislative instruments (such as mandatory Standards) cannot make provisions in relation to a non-legislative document as existing from time to time. Therefore, the proposed Standards identify the relevant version of all non-legislative Australian documents and foreign documents referenced in the Standards to be clear as to the versions referred to. A service Standard is one possible approach to identifying those documents.
When the AASB was developing ED SR1, Treasury’s Exposure Draft Treasury Laws Amendment Bill 2024: Climate-related financial disclosure (January 2024) had not yet been published. The AASB proposed modifications to the requirements in IFRS S1 and IFRS S2 after considering Treasury’s second Consultation Paper, Climate-related financial disclosure (June 2023), and informal feedback from stakeholders, including the Treasury, the Australian Government Department of Climate Change, Energy, the Environment and Water (DCCEEW) and the Commonwealth Scientific and Industrial Research Organisation (CSIRO). At the time, the AASB discussed whether to defer the publication of ED SR1 until it had considered the Treasury’s exposure draft legislation and undertaken targeted outreach to gauge stakeholders’ preliminary views on some of its proposals. However, the AASB decided it was important to publish ED SR1 in October 2023 to enable the issuance of the final Australian Sustainability Reporting Standards in time for implementation in annual periods beginning on or after 1 July 2024, which was then the anticipated first application date for mandatory climate-related financial disclosures by the first group of entities.
When deciding to publish ED SR1 ahead of the Treasury’s exposure draft legislation and targeted stakeholder outreach, the AASB acknowledged that it might need to reconsider some of its proposals in light of the Treasury Exposure Draft (and the ultimate legislation) and stakeholder feedback on ED SR1. In particular, the AASB noted that its proposed modifications to the requirements set out in IFRS S2 for measuring greenhouse gas emissions and temperature outcomes for scenario analysis would likely require further consideration.
ED SR1 was exposed for 130 days, with a comment period to 31 March 2024. Extensive outreach was conducted on the proposals in ED SR1, with a total of 500 attendees at the in-person roundtables in Adelaide, Brisbane, Canberra, Geelong, Hobart, Melbourne, Newcastle, Perth and Sydney, as well as virtual roundtables.
Much of the feedback on ED SR1 favoured the requirements in IFRS S2 being incorporated in Australian Sustainability Reporting Standards with minimal or no modifications. Many stakeholders were of the view that there are few, if any, Australian-specific circumstances that would warrant departure from the baseline of IFRS S2 in accordance with the AASB Sustainability Reporting Standard-Setting Framework (September 2023). The AASB also noted that a closer alignment to the IFRS S2 requirements would be consistent with the Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Act 2024 (the Act).
In May–September 2024, the AASB discussed stakeholder feedback and reconsidered its proposed modifications to the baseline requirements. The AASB decided to issue two Australian Sustainability Reporting Standards, as described below:
the voluntary Standard AASB S1 General Requirements for Disclosure of Sustainability-related Financial Information, to incorporate all IFRS S1 requirements without modification. Consistent with the Australian Government’s decision to address climate-related financial disclosures first and to consider the development of reporting requirements for other sustainability-related risks and opportunities in Australia over time, the AASB decided to issue AASB S1 as a voluntary Standard so that an entity applying AASB S2 is not required to apply AASB S1 to disclose information on other sustainability-related risks and opportunities; and
the mandatory Standard AASB S2 Climate-related Disclosures, to incorporate all IFRS S2 requirements, with modifications only in respect to the following matters:
general requirements for disclosure of climate-related financial information;
options under the legislative amendments regarding consolidated reporting;
consideration and disclosure of industry-based information; and
users of a not-for-profit entity’s general purpose financial report (GPFR).
The AASB considered whether further consultation or formal re-exposure of the proposed Standard should be carried out before issuing AASB S2. The AASB noted that extensive stakeholder engagement and consultation had been undertaken in developing AASB S2. The AASB received 117 comment letters and 289 survey responses on ED SR1 across various stakeholder groups, including financial report preparers and auditors, user groups, professional bodies, industry bodies and academics, covering both the private sector and the public sector. Considering the extensive feedback received and the AASB’s decision to adopt all IFRS S2 requirements (except for industry-based disclosures), which is consistent with views supported by most stakeholders, as well as the future projects to address scalability and cost-benefit concerns and public sector application matters that the AASB added to its workplan (see paragraphs BC79–BC84), the AASB decided that further consultation or re-exposure was not required.
Since the AASB decided to issue only one mandatory Standard (i.e. to make only AASB S2 as an Australian legislative instrument), the AASB decided not to issue the service Standard [draft] ASRS 101 proposed in ED SR1. Instead, AASB S2 directly identifies the relevant versions of non-legislative Australian documents and foreign documents referenced in the Standard (for example, see paragraphs AusB22.1 and AusB63.1). The AASB will amend AASB S2 as soon as practicable when required to refer to later versions of referenced documents.
The following paragraphs summarise the key matters considered by the AASB in developing AASB S2, including the Board’s decisions on how to address stakeholders’ feedback.
General requirements for disclosure of c General requirements for disclosure of climate-related financial information
General requirements for disclosure of climate-related financial information
IFRS S1 sets out the general requirements for a complete set of sustainability-related financial disclosures. IFRS S1 is designed to be applied in conjunction with IFRS S2, which is a topic-based Standard that specifies disclosures relating to climate. As noted in paragraph BC14(a), consistent with the Australian Government’s decision to address climate-related financial disclosures first and to consider the development of reporting requirements for other sustainability-related risks and opportunities in Australia over time, the AASB decided to issue AASB S1 as a voluntary Standard so that an entity applying AASB S2 is not required to apply AASB S1 to disclose information on other sustainability-related risks and opportunities.
Consequently, the AASB added paragraphs Aus7.1 and Aus26.1 to clarify that the requirements set out in IFRS S2 paragraphs 7 and 26 apply particularly if an entity elects to also apply AASB S1 to disclose information about other sustainability-related risks and opportunities in addition to climate-related risks and opportunities in GPFR. The paragraphs require an entity to avoid unnecessary duplication of disclosures by providing integrated disclosures instead of separate disclosures for each sustainability-related risk and opportunity, if oversight of sustainability-related risks and opportunities is managed on an integrated basis.
Since AASB S1 is a voluntary Standard, the AASB included Appendix D General Requirements for Disclosure of Climate-related Financial Information in AASB S2 to incorporate the content of IFRS S1 necessary to enable AASB S2 to function as the standalone mandatory Standard containing all of the requirements regarding climate-related disclosures. Consequently, where IFRS S2 cross-references to IFRS S1 paragraphs, AASB S2 cross-references to Appendix D paragraphs.[2] Accordingly, AASB S2 contains all the requirements an entity would need to apply in reporting climate-related financial disclosures in accordance with AASB S2.
In assessing the contents of IFRS S1 needed to make AASB S2 function as intended, the AASB considered whether:
an IFRS S1 principle, disclosure or guidance is already incorporated in AASB S2;
an IFRS S1 principle reflects content already in the AASB’s Conceptual Framework for Financial Reporting (in respect to for-profit entities) and the Framework for the Preparation and Presentation of Financial Statements (in respect to not-for-profit entities) that are available as support material for applying AASB S2,[3] including considering the extent to which that content is the same; and
the IFRS S1 content reflects corresponding content in Accounting Standards, i.e. material considered necessary to include in Accounting Standards to enable them to function.
The AASB’s Conceptual Framework for Financial Reporting and the Framework for the Preparation and Presentation of Financial Statements are not legislative instruments and do not form part of the authoritative Australian Accounting Standards. While some Australian Accounting Standards refer to aspects of those Frameworks, the Frameworks themselves are not enforceable. Accordingly, ED SR1 proposed that the conceptual content set out in IFRS S1 should not be made enforceable.
Some stakeholders commented that the context for sustainability reporting is different from the context for financial statements, for which there is a comprehensive set of Accountings Standards prescribing reporting requirements for a set of general purpose financial statements. They consider that conceptual content would be needed to help preparers ensure reported climate-related financial information is relevant to users and faithfully represents the substance of the effects of climate-related risks and opportunities on an entity’s cash flows, its access to finance or cost of capital over the short, medium or long term. The AASB also re-evaluated the context in which the conceptual content set out in IFRS S1 is provided, and its nature, and observed that the content:
does not seek to be a framework for evaluating proposed standards, as the role of a Conceptual Framework not having the force of an accounting standard is described in the AASB’s enabling legislation;[4] and
is largely similar in nature to counterpart principles incorporated in some Australian Accounting Standards.
Accordingly, the AASB concluded it would include the conceptual content in IFRS S1 in Appendix D in AASB S2, together with the other general principles in IFRS S1 that are considered necessary to enable AASB S2 to function as intended.
In concluding that the general disclosure requirements needed to make AASB S2 function as intended should be located in Appendix D, the AASB noted its convention of including mandatory content supporting the body of a Standard in an Appendix, which is consistent with international conventions.[5]
Options for consolidated reporting Options for consolidated reporting
Options for consolidated reporting
In accordance with IFRS S1 paragraphs 20 and B38, an entity’s climate-related financial disclosures are required to be prepared for the same reporting entity as the related financial statements. That is, to comply with IFRS S2, an entity would prepare climate-related financial disclosures for its consolidated group if the related financial statements are prepared for that consolidated group.
However, the AASB observed that the Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Act 2024 does not require the parent entity of a consolidated group to prepare climate-related financial disclosures for its consolidated group. Under section 292A(2) of the Corporations Act, as inserted by the legislative amendments, a parent entity has the choice of preparing a sustainability report for either the consolidated entity or the parent entity. Accordingly, the AASB added paragraphs Aus20.1 and AusB38.1 to Appendix D of AASB S2 to specify that an entity’s climate-related financial disclosures shall be for the same reporting entity as the related financial statements unless otherwise permitted by law.
Consideration and disclosure of industry Consideration and disclosure of industry-based information
Consideration and disclosure of industry-based information
The AASB decided, as an interim measure, not to require industry-based disclosures to be provided and therefore also not to require entities to consider the applicability of disclosure topics (and the industry-based metrics associated with those disclosure topics) defined in the Sustainability Accounting Standards Board (SASB) Standards and Industry-based Guidance on Implementing IFRS S2 issued by the ISSB. Consequently, the AASB:
modified or omitted the requirements set out in IFRS S2 paragraphs 12, 23, 28(b), 32, 37, B65(d) and B67; and
omitted the definition of “disclosure topic” set out in IFRS S2 Appendix A Defined terms.
Feedback on ED 321 indicated strong support among respondents for developing mandatory requirements for industry-based disclosures as part of the ISSB’s approach to standard-setting for sustainability-related financial information. However, many of those respondents did not support the ISSB's proposed industry-based disclosure requirements, which became the Industry-based Guidance on Implementing IFRS S2. The majority of respondents to ED SR1 supported the AASB’s proposal to omit these requirements, but requested the AASB undertake further work to develop industry-based disclosure requirements for Australian entities.
Acknowledging this feedback, the AASB made decisions regarding the consideration and disclosure of industry-based information as an interim measure, signalling its intention to redeliberate this matter in the near future. The AASB added a project to its workplan with respect to industry-based disclosure requirements. This project will focus on determining the appropriate basis and content of the industry-based disclosures, including assessing the industry-based classification system, the applicability of the industry-based disclosure topics and the industry-based metrics defined in the Industry-based Guidance on Implementing IFRS S2. The Treasury Policy Position Statement Mandatory climate-related financial disclosures (January 2024) states that “Entities should only be required to disclose against well-established and understood industry-based metrics from 1 July 2030 onwards.” Accordingly, the AASB intends to finalise mandatory requirements for industry-based disclosures by 2030.
Users of a not-for-profit entity’s GPFR Users of a not-for-profit entity’s GPFR
Users of a not-for-profit entity’s GPFR
Under the Corporations Act amendments, some not-for-profit entities will be required to disclose climate-related financial information. To support those requirements, as noted in the AASB Sustainability Reporting Standard-Setting Framework, the AASB has determined that it will, as far as is practicable, focus on developing sector-neutral Australian Sustainability Reporting Standards. That is, it is the AASB’s intention to develop transaction-neutral sustainability reporting Standards where possible. A transaction (or sector) neutrality approach to sustainability reporting Standards means that like transactions, other events and conditions are considered in a like manner for all types of entities, whatever their sector of activity, unless there is a justifiable reason not to do so. Accordingly, the AASB considered whether any modifications to the IFRS S2 baseline requirements might be needed for not-for-profit entities.
The AASB decided to add paragraph AusA1 in Appendix A Defined terms to require a not-for-profit entity to refer to the meaning of “general purpose financial reports” and “primary users of general purpose financial reports” specified in the Framework for the Preparation and Presentation of Financial Statements when applying AASB S2. The AASB also added guidance in paragraphs AusB14.1 and AusB15.1 in Appendix D General Requirements for Disclosure of Climate-related Financial Information to AASB S2.
The AASB added those paragraphs because:
IFRS S2 defines “primary users of general purpose financial reports” as existing and potential investors, lenders and other creditors, whereas users of a not-for-profit entity’s GPFR described in the Framework for the Preparation and Presentation of Financial Statements also include parliaments, taxpayers, donors and recipients of goods and services; and
the definition of “general purpose financial reports” in IFRS S2 states that users’ decision-making involves decisions about (1) buying, selling or holding equity and debt instruments; (2) providing or selling loans and other forms of credit; or (3) exercising rights to vote on, or otherwise influence, the entity’s management’s actions that affect the use of the entity’s economic resources. In respect to not-for-profit entities, paragraph AusOB3.1 of the Framework for the Preparation and Presentation of Financial Statements states that “users (such as certain existing and potential resource providers) are generally not concerned with obtaining a financial return on an investment in the entity. Rather, they are concerned with the ability of the entity to achieve its objectives (whether financial or nonfinancial), which in turn may depend, at least in part, on the entity’s prospects for future net cash inflows. Users will, for example, be interested in the capability of the entity’s resources to provide goods and services in the future.”
Additionally, paragraph AusOB2.1 of the Framework for the Preparation and Presentation of Financial Statements provides examples of the resource allocation decisions of users of a not-for-profit entity’s GPFR. The examples include:
parliaments decide, on behalf of constituents, whether to fund particular programmes for delivery by an entity;
taxpayers decide who should represent them in government;
donors decide whether to donate resources to an entity, and
recipients of goods and services decide whether they can continue to rely on the provision of goods and services from the entity or whether to seek alternative suppliers.
ED SR1 proposed to modify the objective of the Standard so that a not-for-profit entity would be required to consider the effect of climate-related risks and opportunities on “the entity’s ability to further its objectives” in addition to considering the effect on the entity’s cash flows and its access to finance or cost of capital over the short, medium and long term. Some stakeholders expressed concerns that the proposed modifications would imply a different basis of reporting for not-for-profit entities, compared to for-profit entities, either narrowing or widening the scope of climate-related risks and opportunities to be considered, which was not the AASB’s intention. The AASB decided not to introduce the phrase “the entity’s ability to further its objectives” in describing the objective of the Standard for not-for-profit entities, but to require a not-for-profit entity to refer to the Framework for the Preparation and Presentation of Financial Statements when applying AASB S2, as noted above.
Measurement of greenhouse gas emissions Measurement of greenhouse gas emissions
Measurement of greenhouse gas emissions
For the measurement of greenhouse gas (GHG) emissions, the AASB decided to align with the measurement hierarchy in IFRS S2 without modification. That hierarchy requires an entity to apply a method in the Greenhouse Gas Protocol: A Corporate Accounting and Reporting Standard (2004) to measure GHG emissions, but permits an entity to apply a different method when required to do so by a jurisdictional authority or an exchange on which the entity is listed.[6] Accordingly, if an entity is required by an Australian authority (e.g. Australian legislation) to use a specific method for measuring its GHG emissions (e.g. methodologies in NGER Scheme legislation[7]), doing so would mean that such an entity would not have departed from IFRS S2.
ED SR1 proposed requiring an entity to prioritise relevant methodologies in NGER Scheme legislation. This was consistent with Treasury’s second consultation paper in June 2023, which indicated that the Australian Government would require an entity to apply methodologies set out in NGER Scheme legislation as the default methodologies in measuring its GHG emissions. Considering stakeholders’ interest in closer alignment with IFRS S2, the AASB decided to align with the GHG emission measurement requirements set out in IFRS S2 paragraph 29(a), and therefore prioritise the GHG Protocol, and not NGER Scheme legislation, as the default framework for measuring GHG emissions.
The AASB considered that aligning with IFRS S2 would:
support interoperability with other GHG reporting frameworks, such as European Sustainability Reporting Standards (ESRS), that also refer to the GHG Protocol;
allow flexibility for both NGER and non-NGER reporters to determine the most appropriate and cost-effective methods to report their GHG emissions, including determining appropriate reporting boundaries for GHG emissions; and
facilitate implementation by avoiding the need for an entity to determine whether applying a method in NGER Scheme legislation is practicable.
AASB S2 paragraphs B22 and B29 require an entity to use emission factors that best represent the activity that is generating the GHG emissions. This requirement would apply irrespective of whether an entity measures GHG emissions in accordance with the Greenhouse Gas Protocol: A Corporate Accounting and Reporting Standard (2004) or in accordance with the methods required by a jurisdictional authority or an exchange on which the entity is listed.
Definition of greenhouse gases
The AASB decided to retain the IFRS S2 definition of greenhouse gases as the seven greenhouse gases listed in the Kyoto Protocol, as proposed in ED SR1.
The AASB observed that nitrogen trifluoride (NF3) is not listed in NGER Scheme legislation as a class of greenhouse gas. Upon considering feedback received on ED SR1, the AASB decided to retain NF3 in the definition of greenhouse gases. This is because it would:
not conflict with the NGER Scheme legislation—it would be an addition to the requirements in NGER Scheme legislation;
be unlikely to have a significant effect on Australian entities reporting under NGER Scheme legislation. The CSIRO informed the AASB that NF3 emissions are currently immaterial in Australia because NF3 is primarily produced in the manufacture of semiconductors, liquid crystal display (LCD) panels, certain types of solar panels and chemical lasers and Australia does not have a significant presence in the manufacturing of these items; and
accommodate the potential increase of NF3 in Australia, in particular, considering Australia’s policy ambition to be a renewable energy superpower with allied downstream manufacturing industries which may lead to more NF3 emissions given it is used in the manufacture of renewable technologies (e.g. solar panels).[8] Should NF3 emissions become material in Australia in the future, the Clean Energy Regulator and DCCEEW may consider requiring NGER reporters to also report on NF3 to align with the reporting needed under the Paris Agreement.
Converting greenhouse gases into a CO2 equivalent value
The AASB decided to incorporate in AASB S2 without modification the requirements set out in IFRS S2 paragraphs B21 and B22 with respect to the requirement to convert greenhouse gases into a CO2 equivalent value.
To align with the reporting requirements related to the Paris Agreement and NGER Scheme legislation, ED SR1 proposed to require an entity to convert greenhouse gases into a CO2 equivalent value using the global warming potential (GWP) values from the Intergovernmental Panel on Climate Change (IPCC) Fifth Assessment Report (AR5), instead of the GWP values from the latest IPCC assessment available at the reporting date (the Sixth Assessment Report (AR6), which is the latest report available at the time of issuing this Standard).
Considering stakeholders’ significant support for closer alignment with IFRS S2, the AASB decided not to modify the requirements set out in paragraphs B21 and B22 of IFRS S2. In making this decision, the AASB noted that in accordance with paragraph B22 of this Standard, if an entity uses appropriate emission factors that have already converted the constituent gases into CO2 equivalent values, the entity would not be required to recalculate the emission factors using GWP values from the latest IPCC assessment available at the reporting date. The Australian National Greenhouse Accounts Factors have already converted greenhouse gases into CO2 equivalent values using the GWP values from IPCC AR5, which is consistent with the Paris Agreement.
Market-based Scope 2 GHG emissions
The AASB considered but decided not to mandate disclosure of market-based Scope 2 GHG emissions.
Consistent with the Treasury’s second consultation paper, ED SR1 proposed to require an entity to disclose its market-based Scope 2 GHG emissions from the fourth year of applying Australian Sustainability Reporting Standards. Upon considering stakeholder feedback, the AASB decided that such a mandate is unnecessary. This is because:
under IFRS S2 (and AASB S2), entities might provide information about their market-based Scope 2 GHG emissions if they consider it would be useful to the users of their climate-related financial disclosures; and
if NGER Scheme legislation is updated in the future to require the reporting of market-based Scope 2 GHG emissions, NGER reporters may elect to disclose that information when preparing climate-related financial disclosures under AASB S2.
Scope 3 GHG emission categories
Consistent with IFRS S2, the AASB decided to require an entity to disclose the sources of its Scope 3 GHG emissions using the 15 categories in the GHG Protocol.
ED SR1 proposed not to prescribe specific categories an entity must use to categorise its sources of Scope 3 GHG emissions. Instead, ED SR1 included the 15 categories in the GHG Protocol as examples of categories that an entity could consider when categorising the sources of its emissions.
The AASB observed that there was a consensus among stakeholders that the 15 categories in the GHG Protocol are well understood, sufficiently broad, and widely applied by entities in Australia and internationally. Accordingly, the AASB decided to incorporate in AASB S2 the requirements set out in IFRS S2 paragraphs B32–B33 without modification.
The ISSB noted in paragraph BC110 of the Basis for Conclusions to IFRS S2 that the categories included in an entity’s Scope 3 measurement will depend on the entity’s facts and circumstances. An entity is required to consider the relevance of all 15 categories, but might determine that not all categories are applicable to the entity and therefore do not need to be included in the disclosure of its Scope 3 GHG emissions.
Chapter 5 of the Greenhouse Gas Protocol Corporate Value Chain (Scope 3) Accounting and Reporting Standard (2011) states that any Scope 3 activities not captured by the 15 categories may be reported separately. Consistent with IFRS S1 paragraphs 15(b) and B26 (incorporated in Appendix D of AASB S2) regarding providing additional information to ensure a fair presentation in the GPFR, an entity separately reports material Scope 3 GHG emissions that are not captured by the activities under the 15 categories in the GHG Protocol.
Reporting Scope 3 GHG emissions using information for a period different from the entity’s reporting period
The AASB observed that paragraph B19 of the Standard (and IFRS S2) allows an entity to measure its GHG emissions using information for reporting periods that are different from its own reporting period, if certain conditions are met. Therefore, the AASB decided to omit from AASB S2 paragraph AusB39.1 in [draft] ASRS 2 as proposed in ED SR1, which proposed to permit an entity to measure and disclose its Scope 3 GHG emissions using data for the immediately preceding reporting period if reasonable and supportable data related to the current reporting period is unavailable. That proposal was consistent with the Treasury’s second consultation paper that Australian Sustainability Reporting Standards were expected to provide additional relief to allow entities to disclose estimates of their Scope 3 GHG emissions relating to any one-year period, up to 12 months prior to the relevant reporting period.
There was general support from stakeholders for the flexibility to allow entities to use Scope 3 GHG emission information obtained from its value chain partners for a period that differs from its reporting period in certain circumstances, which is consistent with the provision in paragraph B19 of the Standard (and IFRS S2).
Financed emissions
Consistent with IFRS S2, the AASB decided to require entities participating in financial activities of asset management, commercial banking or insurance to provide the additional and specific financed-emission disclosures set out in IFRS S2 paragraphs B61–B63.
ED SR1 proposed to require such an entity to consider the applicability of those additional disclosures, rather than requiring disclosure of the financed emission information, to solicit feedback from stakeholders on whether all such financed emission information would be relevant and useful to Australian entities that participate in asset management, commercial banking or insurance activities.
Some stakeholders expressed concerns that:
the requirement in IFRS S2 paragraphs B62 and B63 for an entity to disclose disaggregation of an entity’s absolute gross financed emission by Scope 1, 2 and 3 emissions for each industry by asset class could be challenging due to potentially limited availability of value chain data and would create an unnecessary administrative burden for reporting entities; and
there is currently no industry standard for calculating financed emissions for undrawn commitments.
The AASB acknowledged the stakeholders’ concerns described in paragraph BC56 and that more time may be needed for entities to prepare the additional financed emission information. However, the AASB observed that the transition relief provided by paragraph C4(b) for an entity to not disclose its Scope 3 GHG emissions in the first year of applying the Standard means that an entity that participates in financial activities of asset management, commercial banking or insurance is required to prepare the additional financed emission information set out in paragraphs B61–B63 only from the second year of applying AASB S2. Accordingly, the AASB decided that no modification is needed relating to the requirements set out in those IFRS S2 paragraphs.
The AASB noted the ISSB confirmed that IFRS S2 requires financed emission disclosure only for insurance-related financial activities associated with an insurer’s assets. In other words, IFRS S2 does not require disclosure of the ‘associated emissions’ of underwriting portfolios in the insurance and reinsurance industries. The AASB also noted that, for all financial activities, the ISSB decided to remove the proposal for an entity to include derivatives when calculating its financed emissions. The AASB adopted the same position as the ISSB for insurance-related financial activities and derivatives.
Other key matters considered by the AASB Other key matters considered by the AASB in developing AASB S2
Other key matters considered by the AASB in developing AASB S2
Other key matters considered in developing AASB S2 but for which the AASB decided that no modification or addition to the baseline of IFRS S2 is warranted included:
whether to specify temperature outcomes for scenario analysis;
cross-industry remuneration disclosure;
internal carbon prices;
definition of carbon credits;
carbon offsets and greenhouse gas removals; and
superannuation entity application issues.
Whether to specify temperature outcomes for scenario analysis
The AASB decided to align with the requirements in IFRS S2 and not prescribe specific temperature outcomes for scenario analysis.
Consistent with the Treasury’s second consultation paper, ED SR1 proposed to require assessment against at least two relevant possible future states, one of which must be consistent with the most ambitious global temperature goal set out in the Climate Change Act 2022 (i.e. 1.5°C above pre-industrial levels). Most stakeholders who responded to ED SR1 on this topic supported additional requirements to the baseline of IFRS S2 with respect to scenario analysis, on the basis that any additional requirements would not be a departure from IFRS S2. Specifically:
most stakeholders supported the proposals in ED SR1;
many stakeholders preferred the Standard to also specify a requirement to assess a high-warming scenario to ensure that a high-warming world is considered. Some of those stakeholders preferred the Standard to specify the temperature outcome to assess, but there was no consensus among stakeholders on which high-warming outcome to specify; and
some of those stakeholders described in (a) and (b) who preferred the Standard to prescribe temperature outcome(s) also preferred specifying the scenario pathway, or the time horizon, required for each prescribed temperature outcome.
The AASB observed that those stakeholder preferences have been addressed by the Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Act 2024. That Act specifies the minimum requirements relating to climate scenario analysis, which includes assessing both a high-warming scenario and a low-warming scenario. Subsection 296D(2B) of the Corporations Act (as amended) states that:
“… disclosure of a scenario analysis, information derived from a scenario analysis or information about a scenario analysis is taken not to satisfy that requirement unless the scenario analysis is carried out using at least both of the following scenarios:
(a) the increase in the global average temperature well exceeds the increase mentioned in subparagraph 3(a)(i) of the Climate Change Act 2022;
(b) the increase in the global average temperature is limited to the increase mentioned in subparagraph 3(a)(ii) of that Act.”
Subparagraph 3(a)(i) of the Climate Change Act states “… holding the increase in the global average temperature to well below 2°C above pre-industrial levels”, and subparagraph 3(a)(ii) states “… pursuing efforts to limit the temperature increase to 1.5°C above pre-industrial levels.” Paragraph 2.17 of the supplementary Explanatory Memorandum accompanying the Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Act 2024 states that an increase of 2.5°C or higher would be considered to well exceed the increase mentioned in subparagraph 3(a)(i) of the Climate Change Act.
The AASB considered whether to specify in AASB S2 the minimum requirements relating to scenario analysis as set out in the legislation. The AASB decided not to do so because:
AASB S2 sets out the principles for assessing an entity’s climate resilience using scenario analysis. The number of relevant scenarios to assess would depend on the entity’s facts and circumstances, including the nature and location of its operations and the physical and transition risks to which it is exposed (see paragraphs BC66–BC69 of the Basis for Conclusions to IFRS S2). It is not the role of the Standard to prescribe specific temperature outcomes for scenario analysis; and
prescribing specific temperature outcomes in AASB S2 would require future amendments to ensure the prescribed temperature outcomes remained consistent with Australian legislation.
Cross-industry remuneration disclosure
The AASB decided to align with the requirements in IFRS S2 with respect to cross-industry remuneration disclosure.
Some stakeholders commented that:
the degree of interpretative uncertainty relating to the terms ‘executive’, ‘executive management’ and ‘remuneration’ is unlikely to be sufficiently significant to warrant modification from the baseline of IFRS S2. Consequently, the AASB decided to omit paragraph Aus29.1 proposed in [draft] ASRS 2 that referred to the ‘key management personnel’ and ‘compensation’ definitions in AASB 124 Related Party Disclosures; and
there may be challenges in calculating the percentage of remuneration linked to climate-related considerations based on remuneration recognised under Accounting Standards. The AASB determined that any challenges identified by stakeholders in applying the requirements set out in paragraph 29(g) of IFRS S2 do not represent matters specific to the Australian environment that would warrant departure from the baseline of IFRS S2 in accordance with the AASB Sustainability Reporting Standard-Setting Framework (September 2023).
Additionally, some stakeholders commented that information prepared under the requirements set out in paragraph 29(g) of IFRS S2, on a standalone basis, might appear out of context relative to the existing remuneration disclosure requirements set out in Australian legislation for ASX-listed and APRA-regulated entities. The AASB observed that under paragraph 63 of IFRS S1, entities (including ASX-listed entities and APRA-regulated entities) are permitted to disclose information required under paragraph 29(g) of AASB S2 by cross-referencing to their remuneration reports, if the conditions in paragraphs B45–B47 of IFRS S1 are met. The AASB decided to incorporate those IFRS S1 paragraphs in Appendix D of AASB S2.
Internal carbon prices
Paragraph 29(f) requires an entity to disclose the following information:
an explanation of whether and how the entity is applying a carbon price in decision-making (for example, investment decisions, transfer pricing and scenario analysis); and
the price for each metric tonne of greenhouse gas emissions the entity uses to assess the costs of its greenhouse gas emissions.
Some stakeholders commented that the internal carbon price adopted by an entity is commercially sensitive. They commented that, in the energy sector, mandatory disclosure of this information could give competitors valuable insight into the cost structures, operational efficiencies and strategic decision making (including risk management) of the entity.
The AASB noted that paragraphs 73 and B34–B37 of IFRS S1 relieve an entity from disclosing information about a sustainability-related opportunity that is commercially sensitive. The AASB decided to incorporate those IFRS S1 paragraphs in Appendix D.
Definition of carbon credits
The AASB decided to align with the IFRS S2 definition of carbon credits with no modification.
ED SR1 proposed to amend the definition of carbon credits to include an explicit reference to the Australian Carbon Credit Unit (ACCU) Scheme. The AASB considered stakeholder feedback and observed that modifying the definition of carbon credits could have the unintended consequences of:
implying that all emission units recognised under the ACCU Scheme are not ‘carbon credits’ under IFRS S2, and that other Australian domestic emission units (e.g. Safeguard Mechanism credit units) should be treated differently from ACCUs in the context of reporting net GHG emission targets;
reducing an entity’s application of judgement regarding which offsetting measures meet the carbon credit definition; and
reducing the ability of the Standard to accommodate the future development of any new emission offset programs if the ACCU Scheme is specifically included in the definition of carbon credits.
Carbon offsets and greenhouse gas removals
Some stakeholders commented that IFRS S2 specifies the disclosure requirements about carbon credits (in paragraph 36(e)) but is unclear about the reporting requirements relating to carbon offsets and GHG removals. IFRS S2 paragraph B68 establishes the principle that net GHG emissions targets are the entity’s targeted gross GHG emissions minus any planned offsetting efforts. The AASB is of the view that when reporting net GHG emissions targets an entity could include the effects of any material carbon credits, carbon offsets and GHG removals.
In accordance with IFRS S1 paragraphs 15(b) and B26 (incorporated in Appendix D of AASB S2) regarding providing additional information to ensure a fair presentation in the GPFR, to meet the disclosure objective related to metrics and targets the AASB is of the view that where information about carbon offsets or GHG removals is material, an entity would be required to disclose sufficient information about these offsetting efforts to enable users of GPFR to understand progress towards any climate-related targets.
Superannuation entity application issues
The AASB did not identify any superannuation-specific issues that would warrant modifications to the requirements set out in IFRS S2.
Some stakeholders raised concerns about the costs that might be incurred by superannuation funds to prepare climate-related financial disclosures and commented that there are multiple entities associated with the operation of a superannuation fund. They requested the AASB to clarify which entities related to operating a superannuation fund would be within the scope of AASB S2. The AASB observed that this issue is not unique to the superannuation industry and is relevant also to any collective managed investment vehicle. IFRS S1 paragraph 20 (incorporated in Appendix D as paragraph Aus20.1) states that an entity’s sustainability-related disclosures shall be for the same reporting entity as the related financial statements. Accordingly, entities subject to climate-related disclosure requirements should be the same as those to which AASB 1056 Superannuation Entities applies. The Basis for Conclusions to AASB 1056 (paragraphs BC23–BC41) discusses the reporting entity concept and superannuation entities.
Many stakeholders who responded to this topic also commented that the users of GPFR of a superannuation entity, as described in paragraph BC12 of the Basis for Conclusions to AASB 1056, are broader than the users of GPFR defined in Appendix A of IFRS S2. Most of these stakeholders indicated that the differences could lead to different climate-related disclosure requirements for superannuation entities compared with other types of entities. Some stakeholders indicated that the reporting requirements for superannuation entities should be calibrated to generate information that would be useful to the average member of a superannuation fund.
In contrast, some other stakeholders commented that there are no superannuation entity-specific challenges associated with the requirements set out in IFRS S1 and IFRS S2. They commented that superannuation entities are no different from other types of entities that make investments as a profit-making activity, including insurers, and the same climate-related disclosure requirements should apply to such investment activities regardless of the entity type.
Public sector application issues Public sector application issues
Public sector application issues
The AASB does not have the authority to mandate which entities are required to comply with AASB S2. In respect to public sector entities, the relevant authority in each jurisdiction in Australia will decide which, if any, of their public sector entities would need to comply with all or some of the requirements set out in AASB S2.
The AASB is aware that the Treasury/Finance Departments and the Offices of Local Government in a few jurisdictions are planning to develop climate-related financial disclosure requirements for their public sector entities based on AASB S2. Similar to the feedback on ED SR1, some AASB members were concerned that AASB S2 might not be suitable for application by not-for-profit public sector entities without further modification, noting differences in the governance structure, objectives and functions of such entities compared to private sector entities. For example, there are public-sector-specific implications associated with the application of AASB S2, including:
the appropriate identification of the reporting entity and the subsequent level of reporting (e.g. whole of state, whole of government or individual agencies); and
how to determine the value chain of a government and public sector entities with multi-stakeholder groups.
The feedback received by the AASB from Australian stakeholders on the IPSASB Consultation Paper Advancing Public Sector Sustainability Reporting (May 2022) indicated their preference for the Australian reporting requirements to align with any future global public-sector-specific sustainability reporting guidance. The IPSASB is undertaking its own Climate-related Disclosures project to develop a Standard that would provide not-for-profit public-sector-specific guidance on climate-related disclosures.
In accordance with the AASB Sustainability Reporting Standard-Setting Framework, the AASB added a project to its workplan to consider whether modifications to AASB S2 or guidance would need to be developed for Australian not-for-profit public sector entities. The AASB decided that the project would begin by considering the forthcoming IPSASB Exposure Draft on climate-related disclosures, which is expected to be published in October 2024.
Scalability and cost-benefit considerati Scalability and cost-benefit considerations for not-for-profit and smaller entities
Scalability and cost-benefit considerations for not-for-profit and smaller entities
The AASB noted scalability and cost-benefit concerns raised by stakeholders representing not-for-profit private and public sector entities and smaller entities (large proprietary companies) that would be required to comply with AASB S2 under the phase-in requirements of the Corporations Act amendments. Some of those stakeholders commented that:
the proportionality mechanisms in the baseline of IFRS S2 are insufficient to address scalability and cost-benefit concerns for not-for-profit entities and smaller entities in Australia; and
the level of education and upskilling required by preparers in order to implement the proposed Standards, including involving external consultants or specialists, would be expensive, require significant time and investment, and be potentially cost-prohibitive for not-for-profit entities and smaller unlisted entities.
The AASB observed that the areas of concern mainly related to the requirements to measure Scope 3 GHG emissions and to undertake climate-related scenario analysis, which are specifically mentioned in the Corporations Act amendments. The AASB decided to undertake a project to explore potential solutions for addressing scalability and cost-benefit concerns for not-for-profit entities and smaller entities.
Impact analysis Impact analysis
Impact analysis
The AASB issued AASB S2 to support the Australian legislation (as outlined in the Corporations Act amendments) that requires large businesses and financial institutions to prepare climate-related financial disclosures. The AASB has been advised by the Office of Impact Analysis that the AASB does not need to undertake an Impact Analysis for the mandatory climate-related disclosure Standard on the basis that the regulatory impact has already been calculated by the Treasury in relation to the proposed legislative amendments and assessed by the OIA (refer OIA, Published Impact Analysis “Climate risk disclosure”, January 2024).
As described in paragraphs BC79–BC84, some AASB members have concerns that some public sector application issues have not yet been addressed and the benefits of applying AASB S2 may not exceed the costs for some entities. However, they note that these issues will be considered in the future AASB projects described in paragraphs BC82 and BC84, and AASB S2 will be the subject of a post-implementation review which will commence shortly after entities begin application.
Furthermore, the AASB notes that the Australian Government will conduct a review of climate disclosure requirements in 2028–29. The Treasury Policy Position Statement Mandatory climate-related financial disclosures (January 2024) states that the Australian Government will conduct a review of climate disclosure requirements in 2028–29. The review will be led by Treasury, working with the Council of Financial Regulators. At a minimum, the review will examine the effectiveness of coverage settings (particularly the approach to Group 3 entities), appropriateness of the liability framework and whether there are any other barriers that may be affecting a company’s ability to make quality disclosures, including data availability, and supporting materials.
Effective date Effective date
Effective date
The financial period in which an entity is first required to apply AASB S2 is specified in the Corporations Act as amended by the Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Act 2024. It specifies three application dates (financial years beginning on or after 1 January 2025, 1 July 2026 and 1 July 2027) for the various classes of entity, based on entity size or, for NGER reporters, on level of emissions.
To support the Corporations Act requirements, AASB S2 has an effective date of annual reporting periods beginning on or after 1 January 2025. However, entities required to comply with the Standard follow their application date as set out in the legislation. Earlier application is permitted.
DV1 I consider the AASB did what was necessary in the circumstances to develop AASB S2 to support the Australian Government’s decision to require certain large businesses and financial institutions to prepare climate-related financial disclosures in annual reporting periods beginning on or after 1 January 2025. However, given this internationally-aligned Standard is developed based on IFRS S1 and IFRS S2, which have been designed for larger for-profit entities to meet their investors’ needs, I am not confident that application to smaller and not-for-profit entities in the private and public sectors meets the threshold for my support as an AASB Board member, of being in ‘the best interests of the private and public sectors in the Australian economy’.
DV2 In particular, I have concerns around the cost, the usefulness and the auditability of these reporting requirements. As far as I can discern, they have never been fully implemented or audited anywhere in the world, even for the largest reporting entities.
DV3 I am particularly concerned about the cost relative to benefit overall for smaller and not-for-profit entities in the private and public sectors, while recognising that identifying which entities are required to apply AASB S2 is beyond the role of the AASB.
DV4 I also have strong concerns around the requirements to disclose Scope 3 greenhouse gas emissions when the concepts of reporting entity control, as well as verifiability and usefulness to report users regarding allocating scarce resources to an entity and across entities, are not established in my view. My concerns in this regard are heightened for smaller and not-for-profit entities in the private and public sectors.
DV5 While AASB S2 contains some useful terminology and concepts, most of Australia’s significant financial impacts of climate-related physical and transition risks, opportunities and resilience, are (and will be) evident through existing corporate reporting and analysis mechanisms. Moreover, Australia’s large energy producers, consumers and greenhouse gas emitters are already captured through mandatory National Greenhouse and Energy Reporting Scheme obligations.
DV6 A further consideration for adoption of AASB S2 in the public sector is its different role and obligations in relation to climate-related financial risk. The public sector often acts as both the emergency first responder and the funder of last resort when adverse events occur in the community. The complexity of the circumstances and multitude of drivers of adversity response and recovery decisions, and therefore financial impacts, cannot be reliably estimated on a whole of jurisdiction scale – therefore, I do not consider they could sensibly fit within the requirements set out in AASB S2.
DV7 Sustainability reporting as required by the recent Corporations Act amendments and specified in AASB S2 represents a profound shift and cost escalation in Australian corporate reporting. However, the practical benefits of mandatory reporting in accordance with AASB S2 for users and the Australian financial system and environment have not yet been demonstrated or clearly articulated. When combined with acute shortages in reporting and auditing capability and capacity, which particularly affect smaller and not-for-profit entities in the private and public sectors, implementation of AASB S2 is, in my view, unworkable.
Dissenting view Dissenting view
Dissent of Caroline Spencer Dissent of Caroline Spencer