ASIC has completed its first review of sustainability reports under Australia’s mandatory climate reporting regime, providing an early indication of what good AASB S2 reporting is starting to look like.
ASIC reviewed 40 sustainability reports for reporting periods ending 31 December 2025 and observed an improvement in the quality, quantity and consistency of climate related financial information compared with previous voluntary reporting.
However, the review also identified several areas where reporting needs to mature.
For organisations preparing their first AASB S2 report, and Group 1 entities heading into Year 2, there are seven important lessons.
1. Climate reporting needs to connect to the financial statements
AASB S2 is not simply a sustainability reporting exercise.
The standard focuses on climate related risks and opportunities that could reasonably be expected to affect an organisation’s cash flows, access to finance or cost of capital over the short, medium or long term.
ASIC’s review identified opportunities to improve the connection between climate disclosures and information appearing elsewhere in financial reporting.
This means sustainability, finance, risk and strategy teams increasingly need to work together.
Climate assumptions should be considered alongside financial planning, asset values, capital expenditure, operating costs and strategic investment decisions.
2. Financial quantification is the next challenge
Identifying a climate risk is one thing.
Determining what it could cost the business is much harder.
ASIC found that 37.5% of the reports reviewed provided only qualitative information about current and anticipated financial effects.
There will naturally be uncertainty when estimating climate related financial impacts. However, businesses should start building the methodologies, assumptions and datasets required to progressively quantify these effects.
This could include impacts on operating expenditure, capital expenditure, asset values, insurance, energy costs, supply chains and revenue.
The important shift is from:
“This is a material climate risk.”
to:
“This is the potential financial exposure, this is how we estimated it and this is how we are managing it.”
3. Your assumptions and judgements need an evidence trail
AASB S2 requires significant management judgement.
Organisations need to determine what is material, which climate risks and opportunities could affect their prospects, appropriate time horizons, relevant climate scenarios and how financial impacts should be assessed.
Those decisions need to be supportable.
Businesses should maintain clear documentation covering:
- materiality assessments
- climate risk and opportunity assessments
- scenario selection and assumptions
- emissions calculations and methodologies
- organisational and operational boundaries
- financial assumptions
- management reviews and approvals
- source data and supporting evidence
This becomes increasingly important as assurance requirements expand.
The objective should be to create a repeatable and auditable reporting process, rather than rebuilding the sustainability report from scratch each year.
4. Scenario analysis needs to become useful to the business
Climate scenario analysis should do more than satisfy a disclosure requirement.
It should help management understand how resilient the organisation’s strategy and business model are under different potential climate futures.
ASIC found that organisations were generally identifying the scenarios used, but there remains an opportunity to better explain why those scenarios were selected and how they connect with identified risks, resilience and potential financial impacts.
A useful scenario analysis should help answer questions such as:
What happens to our assets under different physical climate conditions?
Which operations or locations are most exposed?
How could energy, insurance, carbon or supply chain costs change?
Could customer demand change?
Would our current capital plan remain appropriate?
Where might additional investment be required?
The Australian Government has also released National Climate Scenario Guidance to support organisations undertaking physical climate scenario analysis.
View the National Climate Scenario Guidance
5. Scope 3 cannot be left until the reporting deadline
Scope 3 is likely to become one of the biggest implementation challenges for many organisations.
AASB S2 provides transitional relief from Scope 3 disclosure during an organisation’s first annual reporting period. ASIC found that 82.5% of organisations reviewed used this relief.
That relief is temporary.
Scope 3 can require organisations to collect and calculate emissions across purchased goods and services, capital goods, transport, business travel, waste, leased assets, investments and other parts of their upstream and downstream value chain.
The difficult part is often not calculating the emissions.
It is finding the data.
Businesses need to identify data owners, suppliers, systems and evidence sources before they can establish a reliable Scope 3 inventory.
Starting this process early can significantly reduce the workload and risk in the following reporting year.
6. Climate risk extends beyond your own operations
A business can have relatively low direct exposure to a climate risk while still having significant exposure through its value chain.
A critical supplier affected by flooding can create an operational risk.
Extreme weather can disrupt transport infrastructure.
Energy market changes can affect procurement costs.
Regulation or changing customer expectations can affect demand.
AASB S2 requires organisations to consider climate related risks and opportunities across their business model and value chain.
For many organisations, this means climate reporting cannot sit solely with the sustainability team.
Procurement, finance, operations, logistics, risk, strategy and commercial teams may all hold information required to understand the organisation’s true exposure.
7. Year 2 will be about maturity
Year 1 has understandably focused on establishing the foundations.
Governance structures have been developed.
Climate risks and opportunities have been identified.
Emissions inventories have been established.
Scenario analysis has been undertaken.
Reporting processes have been created.
Year 2 should increasingly focus on improving what sits underneath the report.
That means better data, stronger controls, clearer evidence, improved Scope 3 information, more meaningful scenario analysis and stronger financial quantification.
ASIC has indicated that during FY2026 to FY2027 it will review further sustainability reports from Group 1 entities and continue engaging with large audit firms regarding assurance methodologies.
Read ASIC’s FY2026 to FY2027 reporting focus areas
What should businesses be doing now?
One of the biggest mistakes organisations can make is treating AASB S2 as a report writing exercise.
The sustainability report is the output. The real work is building the system behind it.
That system needs to bring together governance, emissions data, climate risks and opportunities, scenario analysis, financial impacts, methodologies, evidence and internal controls.
For organisations approaching their first mandatory reporting year, ASIC’s initial findings provide an opportunity to learn from the first group of reporters rather than repeat the same challenges.
For Group 1 organisations moving into Year 2, the focus should now be on making the reporting process more efficient, more quantitative and more assurance ready.
How Super Smart Energy can help
Super Smart Energy supports Australian organisations through the practical implementation of AASB S2 and mandatory climate reporting.
Our support includes:
- AASB S2 readiness and gap assessments
- Board and management climate governance
- Scope 1, Scope 2 and Scope 3 emissions
- Basis of Preparation development
- climate risk and opportunity assessments
- climate scenario analysis
- financial impact quantification
- disclosure preparation
- data, evidence and audit trails
- assurance readiness
- ongoing reporting systems and automation
Our focus is not simply producing a sustainability report. It is establishing a practical, repeatable and auditable process that reduces the reporting burden each year.
If your organisation is preparing for its first AASB S2 reporting year, or looking to improve its Year 2 approach, contact Super Smart Energy to discuss your climate reporting requirements.