AASB S2: Australia’s Mandatory Climate Disclosure Standard

Starting in January 2025, Australian companies above set size thresholds began a phased move into mandatory climate-related financial disclosure under AASB S2. Unlike the voluntary frameworks before it, the regime carries civil penalties for directors and sets two minimum climate scenarios in law. It also requires limited assurance of core disclosures from the first year.

This guide covers who must report, what AASB S2 requires, how it differs from IFRS S2, and what the legislated scenario analysis and modified liability provisions mean for Australian businesses preparing their first climate statements.

What Is AASB S2?

AASB S2 is Australia’s mandatory climate-related financial disclosure standard, approved by the Australian Accounting Standards Board on 20 September 2024. The Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Act 2024 inserted new sustainability-reporting provisions into Chapter 2M of the Corporations Act 2001, including sections 292A, 296A, 296B and 296D, which set the legislative requirements that AASB S2 operationalises.

AASB S2 is based on the international IFRS S2 climate-related disclosure requirements but operates as a standalone standard. It incorporates the general sustainability disclosure content from AASB S1 (Australia’s voluntary adoption of IFRS S1) directly into Appendix D, scoped to climate-related information only. Australian entities applying AASB S2 do not need to also apply AASB S1 (see AASB S1 vs AASB S2).

The Australian Securities and Investments Commission (ASIC) enforces AASB S2. Directors who fail to take all reasonable steps to comply face civil penalties under section 344 of the Corporations Act. ASIC can also direct an entity to correct, complete or explain a statement in its report.

Who Must Report Under AASB S2?

AASB S2 applies to large and medium Australian entities through a three-group phased rollout. An entity is in a group if it must prepare a financial report under Chapter 2M and meets at least two of that group’s three size tests. Emissions or asset size can also bring an entity in, as set out below.

Two other routes bring entities in regardless of size. NGER registered corporations whose group emits 50 ktCO2-e or more are in Group 1. Other NGER registered corporations are in Group 2. Super funds, registered managed investment schemes and retail CCIVs with assets of AU$5 billion or more are also in Group 2.

An entity in scope only through the Group 3 size test can make a shorter climate statement. If it has no material climate-related financial risks or opportunities, its statement says so and explains why. That statement is subject to assurance from the first year.

What AASB S2 Requires

AASB S2 follows the same four-pillar structure established by the TCFD and carried forward by ISSB sustainability disclosure standards. Each pillar addresses a distinct dimension of climate-related financial disclosure.

Governance

Entities must disclose the governance processes, controls, and procedures used to monitor and manage climate-related risks and opportunities. This includes board-level oversight, management accountability structures, and how climate considerations factor into strategic decisions.

Strategy

The strategy pillar requires identification of climate-related risks and classification of each risk as physical or transition (Paragraph 10(b)). Entities must also specify time horizons for each risk (Paragraph 10(c)), describe geographic concentration of exposures (Paragraph 13), and quantify current and anticipated financial effects on position, performance, and cash flows (Paragraphs 15-21).

Risk Management

Entities must describe their processes for identifying, assessing, and monitoring climate-related risks (Paragraphs 24-26). This includes disclosing data sources used, the nature and likelihood of identified risks, and how climate risk management integrates with the entity’s broader risk framework.

Metrics and Targets

The metrics pillar includes cross-industry metrics that apply to all reporting entities. Paragraph 29(c) requires disclosure of the “amount and percentage of assets or business activities vulnerable to climate-related physical risks.” This asset vulnerability metric is one of the most data-intensive requirements in the standard, demanding location-level physical climate risk assessment across an entity’s asset portfolio. For how that one number plays out across IFRS S2, ESRS E1 and SB 261, see what counts as an asset at risk across four climate frameworks.

Scenario Analysis Requirements

Australia’s scenario analysis rules go further than IFRS S2. Section 296D(2B) of the Corporations Act requires at least two scenarios:

• 1.5°C scenario: aggressive-decarbonisation pathway commonly used in industry practice to test transition-risk resilience
• “Well exceeding 2°C” scenario: high-warming pathway commonly used in industry practice to test physical-risk resilience

The legislation itself does not tie either scenario to a specific risk category. Each scenario disclosure must cover the inputs, assumptions, time horizons and scope required by AASB S2 Paragraph 22(b). ASIC sets out its expectations in Regulatory Guide 280.

ASIC’s Regulatory Guide 280 notes that the Government’s explanatory memorandum treats a rise of 2.5°C or more as well exceeding 2°C. ASIC adds that a scenario below 2.5°C risks non-compliance. IFRS S2 leaves the choice of scenarios to the entity.

For each scenario, entities must disclose the sources used, whether the scenario addresses physical or transition risks, time horizons considered, the scope of operations covered, and key assumptions including policy, macroeconomic, technology, and regional climate variables. Entities with heightened physical risk exposure may use localized climate-related scenarios. Both qualitative and quantitative approaches are acceptable, with the level of sophistication expected to be “commensurate with its circumstances.”

In practice, ASIC’s 2.5°C reference point lines up with SSP climate scenarios used in climate modelling. By 2081-2100, SSP5-8.5 (best estimate 4.4°C) clears it comfortably, and SSP2-4.5 (2.7°C) clears it at the best estimate. SSP1-2.6 (1.8°C) is too warm for the 1.5°C scenario. The IPCC scenario closest to 1.5°C is SSP1-1.9 (1.4°C).

How AASB S2 Differs from IFRS S2

AASB S2 keeps the core structure and physical risk requirements of IFRS S2 substantially unchanged. Several Australian provisions change how entities comply, and most of them sit in the Corporations Act. For a section-by-section comparison, including what IFRS S2 reporters need to redo, see AASB S2 vs IFRS S2: key differences for 2026.

Reporting Entity and Foreign Subsidiary Rules

Under the Corporations Act, each entity that meets the tests prepares its own sustainability report. A parent that must prepare consolidated financial statements can elect to report for the whole group, and then only the parent reports. This flexibility matters for complex corporate structures where subsidiary-level climate risk profiles differ from the consolidated view.

Foreign companies with Australian subsidiaries that meet the Group 1, 2, or 3 size thresholds cannot rely on their parent’s climate report prepared under IFRS S2 (see worked IFRS S2 disclosure examples by sector) or another jurisdiction’s standard. Each Australian subsidiary that meets the tests prepares its own sustainability report, unless ASIC grants relief. An Australian parent in the group that prepares consolidated statements can elect to report for its part of the group.

December 2025 Amendments

Two changes in December 2025 affect AASB S2 reporters.

The AASB issued AASB S2025-1 on 15 December 2025. It amends the greenhouse gas emissions requirements only. It follows matching ISSB amendments to IFRS S2. It applies from 1 January 2027, and entities may apply it earlier.

Parliament also extended modified liability to voluntary reporters. The change took effect on 5 December 2025 and is explained in the next section.

Physical Risk Requirements Carry Over from IFRS S2

The physical risk disclosure requirements under AASB S2 substantially carry over from IFRS S2. Paragraphs 10, 11, 13-22, 24-31 carry over either unchanged or with limited AU-specific modifications. The Appendix A definition of “climate-related physical risks” (including the acute/chronic distinction) and Paragraph 29(c) (asset vulnerability metric) are unmodified. For the two measurement methods behind that one number, see AASB S2 physical risk: two methods behind one number. The AASB deleted Paragraphs 12, 23, 28(b), 32 and 37 from the main body, along with B65(d), B67 and one Appendix A definition. All of these deletions relate to the IFRS Industry-based Guidance. The key differences lie in enforcement, scenario prescriptiveness, and the supporting liability framework. For a comparison of how the UK adapted the same IFRS S2 baseline, see our guide to UK Sustainability Reporting Standards.

Modified Liability Safe Harbor

One of the most distinctive features of Australia’s climate reporting regime is its modified liability provision, which has no direct equivalent in IFRS S2 or CSRD. It sits in section 1707D of the Corporations Act 2001, the law that makes AASB S2 reporting mandatory. The closest US parallel was a safe harbor in the SEC’s 2024 climate rule for forward-looking statements about transition plans, scenario analysis, internal carbon prices, and targets, and that rule never took effect.

The provision blocks private legal action over certain statements in the sustainability report and in the auditor’s report on it. For example, an investor cannot sue claiming such a statement is misleading. ASIC can still take action, and criminal proceedings remain possible.

The window is fixed by calendar dates for every reporter. Group 1 entities get three years. Group 2 gets one or two, and Group 3 gets one or none, depending on year end.

Statements outside these two reports are not protected, unless another Commonwealth law requires the same statement. Marketing material, media releases and investor presentations stay fully exposed. Scope 1 and 2 emissions, governance and risk management disclosures sit outside the three-year categories.

Directors’ declarations follow the same window. For years commencing before 1 January 2028, directors state whether the entity has taken reasonable steps to make the report comply. After that, they state whether the report complies.

Voluntary reporters can also be protected. Since 5 December 2025, an entity not yet required to report can opt in under section 1707DA for a year commencing before 1 January 2028. Its directors must pass a resolution and sign a dated declaration in the report. The report then gets the same protection and becomes subject to ASIC directions and audit.

The practical effect is lower litigation risk on the hardest disclosures while reporting matures. Entities can build and refine scenario analysis and Scope 3 figures during the window with less exposure to investor claims.

Australia’s Physical Climate Risk Exposure

Australia’s first National Climate Risk Assessment (NCRA), prepared by the Australian Climate Service, was released on 15 September 2025. It identifies 63 nationally significant climate risks across eight systems, built on 10 priority hazards from heatwaves and drought to coastal flooding and ocean warming. The table shows four of the clearest projected changes.

Source: Australian Climate Service, Australia’s National Climate Risk Assessment 2025, Figure 6 and p.35.

For AASB S2 reporters, the NCRA also brings together cost estimates from earlier studies. Losses in Australian property values could reach $611 billion by 2050 and $770 billion by 2100 under a high emissions scenario (RCP8.5). Treasury estimates that lower labour productivity at 3°C to 4°C of warming could cut economic output by $135 billion to $423 billion by 2063. Treasury modelling also projects Commonwealth disaster recovery payments could reach about six times 2023-24 levels by 2090 at just under 3°C of warming.

For sectors with concentrated geographic exposure, including mining, agriculture, banking, insurance, and real estate, AASB S2’s requirement to disclose the amount and percentage of assets vulnerable to physical risks will require granular, location-level assessment of each asset.

Continuuiti’s physical climate risk platform maps 12 climate hazards under three emissions scenarios (SSP1-2.6, SSP2-4.5 and SSP5-8.5). Its hazards include heat, drought, bushfire, river flooding, sea level rise, wind and tropical cyclones, and its asset-level results feed the Para 29(c) disclosure. SSP2-4.5 and SSP5-8.5 can support the scenario well exceeding 2°C. For financial institutions subject to both AASB S2 and APRA CPG 229 prudential guidance, the same physical risk data serves both disclosure and risk management workflows.

Assurance and Enforcement

The Corporations Act requires the sustainability report to be assured. Assurance starts as limited assurance of core disclosures and rises to reasonable assurance over time. The AUASB made ASSA 5000, the assurance standard, and ASSA 5010, which sets the year-by-year timeline, on 28 January 2025.

Treasury consulted in 2026 on changing these settings. Nothing has changed yet.

ASIC published Regulatory Guide 280 on 31 March 2025, setting out its enforcement approach. ASIC says it will take a “proportionate and pragmatic” approach while the requirements phase in. Where a statement looks incorrect or incomplete, ASIC will first engage with the entity and may direct a correction. It is more likely to investigate serious or reckless misconduct, or a failure to prepare a report.

The entity must keep written sustainability records, such as board and committee minutes and working papers, for seven years after the report is completed. This documentation requirement applies from the first reporting period, creating an immediate need for structured data collection and climate risk assessment methodology documentation.

How to Prepare for AASB S2 Compliance

Whether an entity falls in Group 1 (already reporting), Group 2 (starting July 2026), or Group 3 (starting July 2027), a structured preparation approach reduces compliance burden and improves disclosure quality.

Conduct a gap assessment. Map current climate-related disclosures against AASB S2’s four pillars. Entities already reporting under TCFD can use their existing framework as a starting point, though AASB S2 requires greater specificity on scenario analysis and financial effects quantification.

Establish governance structures. Assign board-level oversight for climate risk and designate management accountability. Document governance processes early, as these disclosures are not protected by the modified liability provision and require assurance from Year 1.

Identify and classify climate risks. Catalogue physical and transition risks across all business operations. For physical risks, assess geographic concentration of assets and operations against acute hazards (floods, bushfires, cyclones) and chronic shifts (temperature, drought, sea level rise).

Build scenario analysis capability. Select scenarios that meet the legal minimum: one limited to 1.5°C and one well exceeding 2°C. ASIC points to 2.5°C or more for the second. Physical risk scenario analysis requires location-specific climate projection data at sufficient resolution to assess individual asset exposure.

AASB S2 inherits Paragraph 29(c) verbatim from IFRS S2, including the four silent definitional choices on amount, denominator, vulnerability, and scope. The Continuuiti walkthrough of Paragraph 29(c) covers each.

Quantify asset vulnerability. Para 29(c) requires the amount and percentage of assets vulnerable to physical climate risks. For companies with distributed asset portfolios, this demands systematic, location-level risk assessment.

Prepare for assurance. Engage with assurance practitioners early. Limited assurance applies from Year 1. It covers governance, the description of climate risks and opportunities, and Scope 1 and 2 emissions. Reasonable assurance starts in each group’s fourth year: financial years from 1 July 2028 for Group 1, 1 July 2029 for Group 2 and 1 July 2030 for Group 3. It requires a higher standard of evidence and documentation.

Frequently Asked Questions

What is the AASB S2 standard?

AASB S2 is Australia’s mandatory climate-related financial disclosure standard, made in September 2024 and given legal force by the Corporations Act 2001. It requires Australian companies meeting size thresholds to disclose climate-related risks, scenario analysis, and asset vulnerability metrics. ASIC supervises compliance, and directors who fail to take reasonable steps to comply face civil penalties.

What is the difference between IFRS S2 and AASB S2?

AASB S2 is based on IFRS S2 but includes several Australian modifications. AASB S2 is legally mandatory, and the SASB industry metrics are removed. Scenario analysis must use at least two scenarios set in law, one limited to 1.5°C and one well exceeding 2°C (ASIC guidance points to 2.5°C or more for the second). A modified liability provision blocks private claims over Scope 3, scenario analysis and transition plan statements for financial years commencing before 1 January 2028. Limited assurance of core disclosures applies from Year 1. Physical risk disclosure requirements substantially carry over from IFRS S2 to AASB S2. The five deletions in the main body (Paragraphs 12, 23, 28(b), 32 and 37) all relate to removing industry-based requirements. The acute/chronic definitional content in Appendix A and Paragraph 29(c) (the asset vulnerability metric) are unchanged.

Is AASB S2 mandatory in Australia?

Yes. AASB S2 is mandatory for Australian entities that meet size thresholds across three phased groups. Group 1 applies it to financial years beginning on or after 1 January 2025, Group 2 from 1 July 2026 and Group 3 from 1 July 2027. Each group uses a two-of-three test on revenue, assets and employees. NGER registration, and assets of AU$5 billion or more for super funds, registered schemes and retail CCIVs, also bring entities in.

What are the 4 pillars of AASB S2?

AASB S2 follows the same four-pillar structure as IFRS S2: (1) Governance, covering board oversight and management accountability for climate risks; (2) Strategy, requiring risk identification, geographic concentration disclosure, and financial effects quantification; (3) Risk Management, describing processes for identifying and monitoring climate risks; and (4) Metrics and Targets, including cross-industry metrics such as the amount and percentage of assets vulnerable to physical risks.

What are the changes to AASB S2 compared to IFRS S2?

The law sets two minimum scenarios: 1.5°C and well exceeding 2°C. SASB industry-based metrics are removed as an interim measure, with Australian industry-based metrics expected from 2030. A modified liability provision covers Scope 3, scenario analysis and transition plan statements in reports for financial years commencing 1 January 2025 to 31 December 2027. Assurance phases in from limited to reasonable, and directors give a reasonable-steps declaration for the same years.

What does AASB stand for?

AASB stands for Australian Accounting Standards Board. The AASB is the independent Australian government body responsible for developing and maintaining financial reporting standards. AASB S2 (Climate-related Disclosures) and AASB S1 (General Requirements for Disclosure of Sustainability-related Financial Information) are the board’s sustainability reporting standards.

Is AASB S2 the same as ASRS?

ASRS (Australian Sustainability Reporting Standards) is the umbrella term for Australia’s sustainability disclosure framework. AASB S2 (climate-related disclosures) is the mandatory standard within ASRS. AASB S1 (general sustainability disclosures) is also part of ASRS but remains voluntary. When people refer to “ASRS requirements,” they typically mean AASB S2’s climate disclosure obligations.

What is the materiality assessment under AASB S2?

AASB S2 uses the same materiality definition as IFRS S2: information is material if omitting or misstating it could reasonably influence investor decisions. An entity in scope only through the Group 3 size test can make a shorter climate statement. If it has no material climate-related financial risks or opportunities, its statement says so and explains why. That statement is subject to assurance from the first year.

Key Takeaways

AASB S2 moves climate disclosure from voluntary to mandatory for Australian companies, with legislated scenarios, enforced penalties, and phased assurance requirements. The standard’s physical risk provisions, substantially unchanged from IFRS S2, demand granular asset-level data that goes beyond what most entities have prepared to date. Group 2 entities with 30 June year ends are already in their first reporting year, and Group 3 entities still have time to build the governance structures, data pipelines and scenario analysis capabilities needed. Modified liability protection covers only reports for financial years commencing before 1 January 2028, so later groups get less of it.