Introduction to Mandatory Climate Reporting

Welcome to your first lesson in the AASB S2 Climate Reporting Professional Certificate. In this lesson, we’ll explore the fundamental shift from voluntary to mandatory climate disclosure in Australia and understand the regulatory landscape that’s reshaping how organizations report their climate-related information.

The Evolution from Voluntary to Mandatory

Historical Context

For years, climate reporting in Australia was primarily voluntary, with organizations choosing whether and how to disclose their climate-related risks and opportunities. This voluntary approach led to:

Inconsistent reporting across organizations
Limited comparability between companies
Gaps in disclosure of material climate risks
Varying quality of climate information

The Tipping Point

Several factors converged to drive the shift toward mandatory disclosure:

Investor demand for reliable, comparable climate information
International momentum with the ISSB standards and global regulatory developments
Financial system risks from climate-related exposures
Market failures in voluntary disclosure

Australia’s Legislative Framework

The Treasury Consultation Process

The Australian Treasury led an extensive consultation process to implement mandatory climate reporting, including:

First consultation (2022): Establishing the need for mandatory disclosure
Second consultation (2023): Detailed proposals for implementation
Final regulations (2024): Confirming the phased approach

Key Legislative Elements

The mandatory climate reporting framework includes:

Corporations Act Amendments

New requirements for climate statements in annual reports
Directors’ duties regarding climate-related matters
Penalties for non-compliance or misleading disclosures

AASB S2 Australian Standard

Based on IFRS S2 with Australian-specific modifications
Mandatory for eligible entities from specified dates
Detailed disclosure requirements across four pillars

Phased Implementation Timeline

Understanding the implementation timeline is crucial for planning your organization’s compliance strategy.

Group 1 Entities (2024-25)

ASX 200 listed entities
Largest Australian entities by market capitalization
Early adoption encouraged from 2024-25 financial year

Group 2 Entities (2025-26)

ASX 300 listed entities (excluding Group 1)
Large proprietary companies meeting specific thresholds
Certain public companies and registered schemes

Group 3 Entities (2026-27)

Smaller listed entities not captured in Groups 1 and 2
Medium-sized proprietary companies meeting thresholds
Other entities as prescribed by regulations

Determining Entity Capture

Size Thresholds

Organizations are captured based on specific criteria:

Consolidated Revenue Test

Total consolidated revenue exceeding $500 million
Calculated across financial year preceding disclosure year

Total Assets Test

Consolidated gross assets exceeding $1 billion
Assessed at end of financial year preceding disclosure year

Exemptions and Relief

Certain entities may be exempt or receive relief:

Subsidiary exemptions where parent provides consolidated disclosure
First-year relief for newly listed entities
Proportionality relief for smaller entities within each group

International Context

Global Convergence

Australia’s approach aligns with international developments:

International Sustainability Standards Board (ISSB)

IFRS S1 and S2 providing global baseline
Focus on enterprise value and investor needs
Jurisdictional building blocks approach

Task Force on Climate-related Financial Disclosures (TCFD)

Four-pillar framework forming foundation
Governance, strategy, risk management, metrics
Evolution toward mandatory adoption globally

Jurisdictional Comparisons

How Australia compares to other jurisdictions:

European Union: Corporate Sustainability Reporting Directive (CSRD)
United Kingdom: Task Force requirements for large companies
United States: SEC climate disclosure rules (proposed)
New Zealand: Climate-related disclosure requirements

Key Implications for Organizations

Immediate Actions Required

Organizations need to:

Assess applicability based on size and listing status
Map implementation timeline to financial year
Conduct gap analysis against current reporting
Build internal capability and governance structures

Strategic Considerations

Beyond compliance, organizations should consider:

Competitive advantage through superior disclosure
Stakeholder engagement and communication strategy
Integration with existing risk management and strategy
Technology and systems requirements

Summary

The shift to mandatory climate reporting represents a fundamental change in Australia’s corporate reporting landscape. Organizations must understand:

The regulatory drivers and consultation process
Phased implementation timeline and entity capture rules
International context and convergence trends
Strategic implications beyond mere compliance

In our next lesson, we’ll dive deep into the AASB S2 standard architecture and understand the four-pillar framework that forms the foundation of Australia’s climate disclosure requirements.

Key Takeaways

✅ Mandatory climate reporting is now law in Australia for eligible entities ✅ Phased implementation provides time for preparation and capability building ✅ Entity capture is based on size thresholds and listing status ✅ International alignment ensures global comparability and reduces complexity ✅ Strategic approach to compliance can create competitive advantage

Resources for Further Learning

Practical Exercise

Assessment Question: Determine whether your organization (or a case study organization) would be captured under the mandatory climate reporting requirements and identify the applicable group and timeline.

Consider:

Current financial metrics (revenue and assets)
Listing status and structure
Applicable financial year for first reporting
Any available exemptions or relief provisions