Australian companies are entering a new era of sustainability reporting. With increasing global scrutiny on climate-related risks, the Australian Accounting Standards Board (AASB) has introduced AASB S2—a new mandatory standard designed to bring climate disclosures in line with global best practices while accounting for local context.

If your role involves ESG strategy, risk oversight, or sustainability reporting, here’s what you need to know to get ahead.

What is AASB S2?

AASB S2 is focused specifically on climate-related disclosures. Its goal is to help investors and stakeholders understand how climate change impacts a company’s financial position, performance, and outlook. It aligns closely with the IFRS S2 standard developed by the ISSB, but with Australian-specific tailoring to fit legal and regulatory norms.

The standard is mandatory for large companies, financial institutions, and other regulated entities under the Corporations Act 2001—with more entities expected to fall in scope over time.

AASB S1 vs AASB S2—What's the Difference?

• AASB S1 is broader and currently voluntary—it covers general sustainability risks (not just climate) like biodiversity, water, and human capital.

• AASB S2 is mandatory and laser-focused on climate, requiring companies to disclose how climate risks could affect cash flow, capital access, and business resilience.

Together, these standards aim to embed sustainability into core financial reporting, and AASB S2 is the first step on that path.

Who Needs to Report?

Reporting will be phased in over three groups based on company size and emissions profile:

• Group 1: Starts FY26 (July 2025–June 2026)

• Group 2: Starts FY27

• Group 3: Starts FY28

Entities in scope include large listed and private companies, NGER reporters, investment schemes with >$5B in assets, superannuation funds, and some public sector entities. SMEs are excluded for now but may be included later.

What’s the Timeline?

While reporting starts from 2025 for the largest companies, Scope 3 emissions disclosures get a one-year grace period. That means the time to prepare is now. Knowing your group classification and aligning reporting with your financial year is critical to avoid scrambling later.

How Does It Compare to IFRS?

AASB S2 is built on the same foundation as IFRS S2, meaning it's globally interoperable. It requires:

• Governance, risk management, and scenario analysis

• Disclosures around strategy, metrics, and targets

• Integration of IFRS-aligned processes with Australian specifics

Importantly, you don’t need to adopt AASB S1 to comply with S2—but it can strengthen your broader sustainability strategy.

How Should ESG Teams Prepare?

Here’s how to get your organization ready:

• Pinpoint your timeline: Know your group and when your first reporting period begins.

• Educate your teams: Build internal knowledge on emissions, scenario analysis, and materiality.

• Update your materiality assessment: Climate risks that could sway investor decisions must be disclosed.

• Launch scenario analysis: Start testing your business resilience under different climate futures.

• Build your GHG reporting muscle: You’ll need systems to capture Scope 1, 2, and eventually Scope 3 data.

• Link strategy to risk: Embed climate into your strategic planning and capital allocation.

• Coordinate with finance: Prepare for potential impacts on asset valuations and financial statements.

AASB S2 is not just a compliance obligation—it’s a strategic opportunity. It gives ESG leaders a clear framework to showcase how their organizations are managing climate risk and building long-term value. Aligning now with AASB S2 will future-proof your reporting and put you in a stronger position to navigate global sustainability expectations. Stay ahead of the curve, and if you're looking for tools or guidance, now’s the perfect time to act.