Overview
Introduced: 2024
Effective from: January 1, 2025
Region(s): Australia
About
The Australian Accounting Standards Board (AASB) finalized the Australian Sustainability Reporting Standards (ASRS) on 20 September 2024. The ASRSs are designed to provide mandatory climate-related and broader sustainability disclosures for eligible entities, aligning closely with the IFRS® Sustainability Disclosure Standards.
The ASRS introduces two primary standards:
- AASB S2 – Climate-related disclosures: A mandatory standard for in-scope entities, focusing solely on climate-related risks and opportunities.
- AASB S1 – General requirements for disclosure of sustainability-related financial information: A voluntary standard that allows entities to report on broader sustainability topics beyond climate, such as biodiversity and water usage.
The final standards are designed to help meet government commitments to mandatory climate reporting in Australia and align closely with global standards to ensure international credibility.
- Broadened scope of AASB S1: AASB S1 has expanded from climate-only disclosures to cover broader sustainability topics on a voluntary basis, including biodiversity and water usage.
- Adoption of GHG measurement hierarchy: Entities reporting under the National Greenhouse and Energy Reporting (NGERs) framework can use either the NGERs measurement methodology or the GHG Protocol, while entities not covered by NGERs must use the GHG Protocol.
- Mandatory financed emissions disclosure: Asset management, banking, and insurance entities are now required to disclose financed emissions, making these disclosures mandatory rather than optional.
- Scope 2 GHG emissions disclosure: Removal of the requirement to disclose market-based Scope 2 GHG emissions; only location-based Scope 2 emissions are required.
- Scope of reporting: AASB S2 is a climate-only standard, whereas IFRS covers a broader range of sustainability topics. As such, mandatory reporting under the ASRS is narrower.
- Industry-specific requirements: Unlike IFRS, the AASB does not require entities to refer to SASB Standards or provide industry-specific disclosures. However, a future project will address industry-specific requirements.
- Scenario analysis: Unlike IFRS S2, which leaves scenario analysis to the judgment of management, Australian legislation retains a requirement for entities to assess at least two climate scenarios, including one aligned with a 1.5°C global temperature increase and one with a 2°C or higher increase.
- Governance: Disclosures related to governance processes, controls, and procedures for managing climate-related financial risks and opportunities.
- Strategy: Disclosure of material climate-related risks and opportunities, the impact on business models, and climate resilience, including scenario analysis results and transition plans.
- Risk management: Identification and management of material climate-related risks and opportunities.
- Metrics and targets: Disclosure of Scope 1, 2 (location-based), and Scope 3 emissions (Scope 3 required from year two). Metrics must be consistent with transition plans and reduction targets.
Criteria for compliance
Entities covered and compliance timelines
Entities required to comply are categorized into three groups:
- Group 1 (from 1 January 2025): Large entities meeting two of three size criteria (≥ $500m revenue, ≥ $1bn assets, or ≥ 500 employees) and NGER reporters with Scope 1 and 2 emissions above 50 ktCO2-e.
- Group 2 (from 1 July 2026): Entities with ≥ $200m revenue, ≥ $500m assets, or ≥ 250 employees, and asset owners with ≥ $5bn in assets.
- Group 3 (from 1 July 2027): Entities with ≥ $50m revenue, ≥ $25m assets, or ≥ 100 employees.
Reporting requirements
Entities must prepare an annual sustainability report, which includes:
- A climate statement for the year.
- Notes to the climate statement outlining methodologies and assumptions.
- Any statements required by legislative instruments concerning environmental sustainability.
- A directors’ declaration covering compliance with the relevant standards.
The report must be lodged with the Australian Securities and Investments Commission (ASIC). There is no exemption for subsidiaries of overseas companies; these entities must report locally, meeting Australian standards.
Third-party auditing
The Auditing and Assurance Standards Board (AUASB) has proposed a phased approach to assurance:
- Year 1: Limited assurance over Scope 1 and 2 emissions, governance, and strategy.
- Year 2: Reasonable assurance over Scope 1 and 2 emissions; limited assurance over other disclosures.
- Year 4: Reasonable assurance over all disclosures.
Penalties for non-compliance
A transitional limited immunity is provided for disclosures related to Scope 3 emissions, scenario analysis, and transition plans for financial years beginning during a three-year period from 1 January 2025. This immunity does not apply if the action is brought by ASIC or involves criminal activity.
