Board insights from Australia’s first mandatory climate disclosures

Introduction

Australian Securities and Investments Commission (ASIC) Chair Joe Longo described the shift to mandatory climate-related disclosures as “the biggest change to corporate reporting in a generation.”¹

Australia’s first cohort of mandatory Group 1 climate reporters – the largest ASX-listed, unlisted, and not-for-profit reporting entities with 31 December 2025 year-ends – have completed their inaugural reporting cycle under the new climate disclosure standards (AASB S2), which were mandated by legislation in September 2024. Among these Group 1 reporters, the ASX-listed entities all received unqualified limited assurance opinions, demonstrating that baseline compliance with the new requirements is achievable.

But the headline results tell just part of the story. Beneath the surface, reporting entities invested significant time and resources to demonstrate compliance with AASB S2.

This publication captures a point-in-time snapshot of what ‘first reporters’ experienced: where these entities underestimated the task, where early preparation yielded dividends, and what boards would do differently. It draws on consultation with directors and expert advisers across March and April 2026 and is supplemented by analysis of the first published reports from ASX-listed entities.  

Noting that December year-end reporters make up a small portion of Group 1, as most report on a June year-end cycle, five lessons from the experiences of first reporters stand out for directors of organisations yet to report:

1. The content and concepts will feel familiar, but the discipline is new

Climate reporting draws on governance, risk and strategy thinking that boards already engage in through financial reporting. The shift lies in the statutory requirements, documentation and disclosure standards, sign-off expectations and assurance scrutiny that now apply to those material judgements.

Taking a prospectus or IPO-style approach gave the first reporters greater confidence that disclosures were verifiable and credible, particularly given the forward-looking nature of the statements compared to financial reporting, which primarily presents historical data.

2. Quantification of anticipated financial effects is an emerging practice

Quantifying anticipated financial effects over medium- to long-term time horizons (for example, five to 10 years or more) proved particularly difficult in practice. These difficulties largely stem from the need to rely on assumptions that are both dynamic and inherently uncertain, including decarbonisation pathways, market behaviour and demand shifts, technological developments, and government policy settings.

3. The effort and resources required for preparing the disclosures are consistently underestimated

Entities that based their resourcing on initial scoping exercises found those estimates to be insufficient. Achieving compliance required significant internal resourcing – at both management and board levels – as well as external support from advisers (commonly, legal advisers, consultants and other subject matter experts) and engagement with auditors.

The amount of board time, management bandwidth, internal integration and audit interaction all exceeded organisational expectations.

4. Early preparation significantly changes reporting outcomes

Entities that invested upfront in early preparation with auditors and advisers, resourced internal teams appropriately, and upgraded data infrastructure were better prepared and less rushed by the time of final board sign-off.

Engaging the board early in the reporting cycle was also beneficial and gave directors greater confidence by the time it came to approve the final report. This included testing significant judgements – such as decisions not to provide quantitative disclosures of current and anticipated financial effects – as well as areas of uncertainty and key concepts, including materiality determinations and findings on climate-related risks and opportunities.

5. The first year is about establishing a credible reporting baseline, not perfection

Without the benefit of seeing examples of mandatory climate disclosures in the market, the first wave of reporters expressed unease or uncertainty around what compliance looked like in practice, with market expectations and approaches still evolving. Front-of-mind issues for directors were achieving compliance with AASB S2 (noting the significant ‘step up’ required) and mitigating greenwashing risk.

During a roundtable convened to capture directors' experiences, participants highlighted that the climate reporting process enabled organisations to revisit net zero commitments, identify decarbonisation opportunities and refine existing climate-related priorities. Others noted that the process consumed significant internal resources. Directors also reported interest in whether, and how, investors and other users would utilise disclosures to inform capital allocation decisions.

The second year of reporting for first reporters will likely yield greater consistency and comparability, alongside increased investor expectations regarding the usefulness of disclosures.

The reporting context

Australia’s mandatory climate reporting regime was legislated through the Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) 2024 to the Corporations Act 2001 (Cth). It requires entities meeting certain size thresholds to disclose material information regarding climate related risks and opportunities that could reasonably be expected to affect their prospects over the short, medium or long term, in accordance with AASB S2. These forward-looking disclosures must be included in a ‘Sustainability Report’, which serves as another component of the Annual Report (alongside the Financial Report, Directors’ Report, Auditor’s Report on the Financial Report and now, Auditor’s Report on the Sustainability Report).

ASIC has made the legislative objective clear: to improve the quality, consistency and comparability of climate-related financial disclosures for investors and other users.² AASB S2 reflects this aim, with detailed disclosure requirements across governance, strategy, risk management, and metrics and targets. Assurance requirements apply from the first year, with scope increasing over time.³ In its 2026 outlook, ASIC highlights that as mandatory climate and sustainability reporting expands, the risk of misleading, deceptive, incomplete or unsubstantiated disclosures increases. This is driven by the complexity of the new requirements, the reliance on significant judgement and assumptions – particularly in forward-looking disclosures – and the absence of settled market practice.

For boards, the practical implication is that climate reporting now attracts expectations similar to financial reporting. Directors approve the sustainability report and must provide a declaration, based on reasonable grounds and a documented process, confirming that ‘reasonable steps' have been taken to ensure compliance with the reporting requirements. While CEO and CFO declarations are not formally required, many first reporters found it helpful to mirror financial reporting governance arrangements for their sustainability reports – an approach that auditors have come to expect.

The 2026–27 Federal Budget announced changes to the monetary thresholds for large proprietary companies, increasing the consolidated revenue threshold from $50 million to $100 million and consolidated gross assets from $25 million to $50 million. As the climate reporting regime is linked to these Corporations Act thresholds, the changes are expected to reduce the number of medium-sized entities captured under the phased Group 3 commencement from 1 July 2027.

In its early observations of the first wave of mandatory climate reports by listed entities, ASIC said reporting quality and consistency had improved compared with previous voluntary disclosures, but highlighted areas for improvement, including:

• clearer disclosure of judgements and assumptions;  

• avoiding misleading disclaimers; and  

• ensuring voluntary information does not obscure material disclosure. 

For a comprehensive overview of the regime's requirements, refer to the AICD's A director's guide to climate reporting, prepared with Deloitte and MinterEllison.

How boards approached the first year

Integration beats isolation

The most consistent finding across director consultations is that organisations that integrated climate reporting into existing systems – risk management, financial reporting, board governance – found the process more manageable than those that treated it as a parallel exercise. In practice, audit and risk committees took primary responsibility for the overall climate disclosures, and where climate metrics were linked to executive remuneration, people and remuneration committees were also engaged.

“Climate risk is on the Risk and Capital Committee agenda, climate reporting on the Audit Committee agenda and sustainability metrics in incentive plans are addressed in the Remuneration Committee.” – Steve Ferguson GAICD, QBE Insurance Group  

Several organisations updated committee charters during the reporting cycle to explicitly allocate responsibilities for climate disclosures. Connectivity and coordination between committees were key features, with directors sitting across multiple committees and proactively taking the opportunity to observe other committees.

Auditors carefully examined governance arrangements – including interviews with key personnel, process walkthroughs, and reviews of internal documentation such as policies, charters, and board committee minutes.

Other directors described a similar approach in practice. One noted that climate reporting only became manageable once it was treated as part of existing governance and reporting processes rather than something “bolted on at the end". Another reflected that cross-functional integration – across finance, risk, legal and sustainability – was one of the most resource-intensive, but ultimately valuable, parts of the process.

Finance function should lead

A clear finding from practitioners and directors alike is that climate reporting should be driven by finance teams. Finance teams already have the experience and expertise to prepare robust reports and handle financial audits. CFO involvement is critical for financial reporting-style rigour and audit readiness.

This was reinforced by directors who deliberately ran climate reporting through CFO-led processes, applying a level of verification closer to that of a transaction or an IPO-style disclosure. In contrast, organisations where emissions or sustainability teams operated outside financial governance frameworks described a steeper learning curve, particularly in adapting to audit expectations and documentation standards.

“Treat this like a prospectus-level exercise in discipline, not just a narrative report.”– Sarah Morgan GAICD, Intrepid Travel

Organisations that adopted an 'audit–ready from the start' philosophy, found the assurance process significantly less fraught than those that left documentation to the end. These observations continue trends seen in recent years, including the involvement of CFOs in climate risk and opportunity identification, prioritisation and analysis, transition planning and reporting.⁵

“The most successful organisations are those where finance teams are heavily supporting or driving the process – budgets, forecasts and scenario analysis are familiar territory for them. Where sustainability teams try to do this alone, they run into challenges.” – Carolyn Cosgrove, PwC Australia

Director education: oversight, not technical expertise

Director education was a consistent priority, though approaches varied. Organisations with higher direct emissions ran dedicated sessions, led by advisers and lawyers to bring all directors to a common level of understanding. Others ran high-level sessions focused on upskilling directors unfamiliar with Australian requirements, especially for overseas-based directors. In one report, a company outlined that all members of its board undertook the AICD Climate Governance for Australian Directors online course in 2025 as part of a package of climate education aimed at keeping directors current with climate oversight trends.

A recurring question in director consultations was how technically deep director education needed to go – particularly on topics such as emissions accounting methodologies, carbon markets, and long-run decarbonisation technologies. The prevailing view was that directors needed sufficient understanding to oversee disclosures and challenge management assumptions, rather than replicate the technical analysis themselves. Skills matrices updated to reflect climate competency across tiered levels also proved a useful governance mechanism. Some first reporters additionally recruited directors with relevant industry expertise to strengthen board discussions on climate-related matters.

In several organisations, education was not a one-off exercise, but an ongoing commitment staged across the reporting cycle. The breadth and depth of education evolved over time, beginning with early briefings on director obligations, followed by more targeted deep-dive sessions on climate science and scenario analysis, carbon markets and decarbonisation technologies, and climate policy developments.

See Box 2 for analysis of approaches to uplifting climate literacy on boards.

“We had pre‑assurance, board training and a dedicated whole‑of‑board session on director duties and the guidelines as they stood at the time.” – Trudy Vonhoff FAICD, Iress

Sign-off processes

Most boards implemented internal sign-off processes modelled on financial reporting governance. Strong practice included requiring the CEO and CFO to sign-off, supported by internal management attestations and detailed internal or external checklists; having chairs of relevant committees formally endorse key judgements; and conducting a structured legal review, which often utilised external counsel. In some cases, legal sign-off letters were also provided to the board.

“We had two levels of sign-off from management – one from the sustainability team which provided visibility over the source of information and level of assurance – and CEO and CFO sign-off." – Jann Skinner FAICD, Telix Pharmaceuticals

Auditors also closely examined legal review processes and documentation. In some organisations, this extended to formal management attestations, while others relied on iterative draft reviews throughout the reporting cycle to identify issues well before final sign-off. Early engagement with auditors also provided opportunities to shorten the final report, improving both clarity and confidence.

In consultations, several directors noted the cost and time involved in extensive legal review but regarded it as non-negotiable given the level of risk. Other challenges included managing commercially sensitive information and intellectual property while still providing useful disclosures.

Where judgement proved most consequential

Materiality

Determining what was material and documenting the underlying basis for those judgements in a way that would withstand audit and stakeholder scrutiny proved to be one of the more demanding aspects for first reporters.

“We were very conscious of getting a legal lens over everything to avoid any inadvertent greenwashing.” – Kathleen Bailey-Lord FAICD, AMP Ltd

Directors noted ambiguity around materiality thresholds. AASB S2 makes clear that materiality judgements are entity-specific and require consideration of both quantitative and qualitative factors taken as a whole. The AASB released education resources on materiality in March 2026, around the same time that the first reporters published their climate disclosures.

Directors emphasised that determining materiality was not approached as a one-time decision. Instead, it was seen as an evolving process, beginning with the identification of a comprehensive list of potential climate-related risks. Through ongoing evaluation, this initial list was progressively refined and reduced to focus on a smaller subset of risks and opportunities deemed most significant from both a strategic and financial perspective recognising that disclosure is required only where such risks are expected to affect the entity’s cash flows, access to finance or cost of capital. This refinement process was informed by scenario analysis and financial modelling to support and validate the final selection of material risks.

Anticipated financial effects

Quantifying anticipated financial impacts over longer time horizons proved particularly difficult in practice, especially when projections depended heavily on external factors including government policy, geopolitical developments and technology trajectories. Some organisations heavily relied on the proportionality mechanisms within AASB S2, often citing high measurement uncertainty.⁶ For some organisations, the recent conflict in the Middle East reinforced the level of qualification attached to quantifying longer-term impacts.

“Quantification is hard, especially when it is reliant on external macro factors like the oil price.” – Sarah Ryan MAICD, Viva Energy

A significant risk identified consistently by advisers during consultations was the conflation of scenario analysis – testing resilience of the organisation’s strategy under hypothetical climate conditions – with anticipated financial effects, which require management’s genuine assessment of plausible outcomes in relevant risks or opportunities were to eventuate.

“Although scenario analysis forms part of resilience testing, we are also seeing it used for estimating the anticipated financial impacts of different climate-related risks and opportunities. While scenarios might be inputs into that process, they are hypotheticals and won’t always reflect the company’s anticipated financial impacts of a particular risk or opportunity. This creates legal risk where there are gaps between the impacts publicly disclosed versus internal strategy planning and budgeting, impairment analysis and internal ‘base cases’.”  – Tim Stutt, HSF Kramer

Scenario selection

Most entities used globally recognised reference scenarios – for example, the Intergovernmental Panel on Climate Change Sixth Assessment Report (IPCC AR6), the Network for Greening the Financial System (NGFS), and the International Energy Agency (IEA) scenarios – though implementation varied considerably.⁷

Boards found scenario selection more difficult than expected. Several considered a broad range of scenarios before narrowing their analysis to meet the legislative requirement to disclose at least two scenarios: one consistent with 1.5°C warming and one that ‘well exceeds’ 2°C. Many organisations engaged external climate experts to strengthen the credibility of the underlying assumptions.

“We started off with 20 scenarios and narrowed down to 2 – having a large set of scenarios didn’t necessarily improve the decision-making process.” – Director roundtable attendee

Directors consistently highlighted one area of caution: do not over-engineer scenario analysis. The discipline was less about modelling all possibilities and more about selecting scenarios that could best inform board discussion and strategic decision making. The clear advice is to start with what is decision-useful for the organisation and resist the temptation to replicate another company’s or sector’s ‘gold standard’ report.

Some directors also recognised the challenge of modelling against the goals of the Paris Agreement, given the likelihood that those targets may not be met – and may potentially be overshot.

Greenwashing risk

The Federal Court’s ruling in ACCR v Santos Ltd [2026] (which is currently under appeal) was the first decision on a private greenwashing action against an Australian company over climate claims. It highlights implications for mandatory climate reporters. It is expected courts will closely scrutinise the governance, diligence and expert input behind target-setting and transition planning.

In consultations, directors were highly cognisant of greenwashing risk and its implications for the language (for example, understating versus overstating claims), location (for example, consistency of claims made across different reports), and length (for example, shorter versus longer reports) of their climate disclosures.

Legal teams reviewed multiple documents for inconsistencies in climate-related claims, particularly where underlying assumptions and judgements may have evolved over time.

“We’ve refined our language significantly – not because we’ve changed what we do, but because of the need to ensure alignment with new mandatory reporting standards.” – Kathleen Bailey-Lord FAICD, AMP Ltd

“The main challenge was high uncertainty in forward-looking disclosures, particularly around decarbonisation pathways over 5-20 years.” – Gary Smith MAICD, Ampol Ltd

As part of its ‘proportionate and pragmatic’ approach to supervision and enforcement, ASIC is expected to conduct proactive thematic reviews and reactive investigations in response to reports of misconduct. ASIC will also review information reproduced in other documents lodged with ASIC, such as disclosure documents or product disclosure statements (PDSs).⁸

Audit and assurance

All ASX-listed Group 1 December year-ends received unqualified limited assurance for their disclosures, but the process was more demanding in practice than boards anticipated.

Auditors observed reporting processes during the financial year, challenged disaggregation of specific numbers, and scrutinised whether assumptions and qualifications were sufficient.

Directors also noted that assurance often ran in parallel with financial reporting processes, with auditors engaged throughout the year, rather than only towards the end of the reporting cycle. Organisations that prepared evidence packs and supporting documentation early described the assurance process as far more manageable than those operating under significant time pressure.

“We invested early in a dedicated data platform, so information wasn’t sitting across hundreds of spreadsheets –that was a real benefit for consistency and assurance.” – Trudy Vonhoff FAICD, Iress

Additionally, organisations that extended assurance beyond the mandatory scope for year one were significantly more likely to disclose scope 3 emissions – a pattern that signals a more mature approach to disclosure overall, particularly given the availability of first-year transition relief.

This insight is especially relevant for Group 2 reporters. The consistent reflection from first reporters was clear: engage auditors 12 to 18 months before the first mandatory report.

Recommendations for boards

Many Group 2 and Group 3 entities face a steeper learning curve than Group 1 entities, with less financial resources for advisory services, depending on the sector and the entity's size, less supporting infrastructure and sustainability reporting experience. Directors from the first wave of Group 1 entities suggest the following recommendations.

Start significantly earlier than you think you need to

Organisations that began preparation at least a year before their reporting deadline still found the process resource intensive. Bringing in external advice early provided organisations with a gap analysis and a clear implementation roadmap, making the reporting process much smoother and more focused. Having a substantial chunk of the sustainability report already drafted made a material difference during a sign-off period already crowded with financial, remuneration and governance reports.

“Boards are going to need to be involved throughout the process, but they need to be knowledgeable to be able to understand what's being presented to them at that point in time. So, building that capability early is going to be quite important. Also understanding the need to build organisational capacity, cross divisional involvement and clarity on who's going to be doing this work.” – Karen McWilliams GAICD, Chartered Accountants & Australia New Zealand

Invest in data systems and documentation early

Scattered spreadsheets and unclear data ownership can create serious problems during assurance, particularly given the still-nascent nature of these disclosures. Organisations that invested in centralised carbon accounting platforms and prepared evidence packs ahead of assurance described the process as far more manageable. For organisations with extensive and complex supply chains, this becomes especially critical.

"We operate in 118 countries with a very dispersed supply chain –getting accurate data in a timely manner is challenging.” – Sarah Morgan GAICD, Intrepid Travel

Put finance in the lead

Establishing the objective of being ‘audit ready’ from the outset begins by placing the CFO in a central coordinating role across functions such as legal, risk, audit, finance, and sustainability. This reflects the CFO’s existing expertise in financial audit processes and understanding of the levels of verification, documentation, and traceability required for assurance.

“Treat disclosures like preparing an IPO prospectus, with fullverification and the process run by the finance function.” – Sarah Ryan MAICD, Viva Energy

Document judgements explicitly and secure governance sign-off early

The judgements that matter most – materiality definitions, value-chain boundaries, financial quantification, scenario selection – need to be formally documented and endorsed by the board (and/or relevant committee) before the year-end, not during the actual audit. Revisiting and refreshing underlying assumptions may be necessary and reflected consistently across different market documents.

“Scenario analysis decisions should be made thoughtfully, asscenarios tend to remain in place for several years.” – John Lydon GAICD, Santos

Keep disclosures focused and concise

While there is considerable variation in the length of Group 1 disclosures, the market appears to be focused on refining information where possible and ensuring ‘cut-through’ of key messages. Early drafts were often longer and more detailed, but directors said boards became more confident over time in focusing disclosures on what was decision-useful and defensible. ASIC has observed that index tables can be useful for setting out the location of information contained within the sustainability report.

“Don’t report more than you have to. Comply with the law, be true and correct, but avoid over-reporting.” – Director roundtable attendee

Begin preparing for scope 3 emissions

Even where first-year transition relief applies, the data infrastructure, methodology decisions, and auditor engagement required for scope 3 disclosures take considerable time to establish. Organisations that treat scope 3 as a future-year problem will face significant pressure once it becomes mandatory.

“Quite a lot of companies have had to rely on the Scope 3 relief because they are still in the process of trying to calculate Scope 3 in accordance with AASB 2 and in line with the application guidance that it gives.” – Tim Stutt, HSF Kramer

What's next?

Acknowledgments

This publication has been developed using qualitative insights from engagement with individual directors across the first wave of Group 1 reporters (including directors who are chairs of audit committees), and subject matter experts. It also draws on quantitative insights from analysis conducted by audit and legal firms.

In developing this resource, the AICD benefited greatly from the guidance and insights of members of the Climate Governance Initiative Australia Advisory Council and AICD Reporting Committee, who shared practical perspectives on the new mandatory climate reporting regime.