Australia’s AASB S1 and AASB S2

Australia’s AASB S1 and AASB S2 standards are part of an initiative to enhance sustainability reporting and climate-related financial disclosures. These standards are aligned with global efforts to improve transparency and accountability in sustainability matters. The AASB standards are closely aligned with the International Financial Reporting Standards (IFRS) to maintain global comparability.

Applicability

AASB standards apply to a wide range of entities, including:

  • Publicly listed companies
  • Large proprietary companies
  • Government entities
  • Not-for-profit organizations
  • Certain other entities that are required by law to prepare financial statements in accordance with AASB standards

Phasing in of Standards

Australian businesses are split into 3 groups based on the following criteria for adoption of AASB sustainability disclosure standards:

  • Group 1 entities, which have their first annual reporting period starting on or after January 1, 2025, are those which fulfill 2 of the 3 following criteria:
    • Consolidated financial year revenue of AUD 500 million or more 
    • Consolidated gross assets of AUD 1 billion or more
    • 500 full time equivalent employees or more

Additionally, any entities above the National Greenhouse and Energy Reporting (NGER) threshold of 50,000 tCO2e Scope 1 and 2 emissions are included in Group 1

  • Group 2 entities, which have their first annual reporting period starting on or after January 1, 2026, are those which fulfill 2 of the 3 following criteria:
    • Consolidated financial year revenue of AUD 200 million or more 
    • Consolidated gross assets of AUD 500 million or more
    • 250 full time equivalent employees or more

Additionally, all other NGER reporters and asset owners with AUD 5 billion or more assets are also included in Group 2

  • Group 3 entities, which have their first annual reporting period starting on or after January 1, 2027, are those which fulfill 2 of the 3 following criteria:
    • Consolidated financial year revenue of AUD 50 million or more 
    • Consolidated gross assets of AUD 25 million or more
    • 100 full time equivalent employees or more

AASB S1: General Requirements for Sustainability-Related Financial Disclosures

Purpose: AASB S1 aims to provide a framework for entities to disclose sustainability-related financial information. It focuses on the relevance, reliability, and comparability of the information provided.

Specific Requirements:

  • Entities must disclose information on sustainability risks and opportunities that could affect their financial position, performance, and cash flows.
  • Requires a management approach to sustainability, outlining governance, strategy, risk management, and metrics used.
  • Emphasizes the need for consistency and comparability across reporting periods.

AASB S2: Climate-Related Disclosures

Purpose: AASB S2 focuses specifically on climate-related financial disclosures, ensuring entities provide comprehensive information about climate risks and opportunities.

Specific Requirements:

  • Entities must disclose climate-related risks and their impact on business operations and financial planning.
  • Requires detailed reporting on governance, strategy, risk management, and metrics related to climate change.
  • Encourages scenario analysis to assess the resilience of the entity’s strategy under different climate-related scenarios.

Key Components of Both Standards

  1. Governance:
    • Disclosures on the board’s oversight of sustainability and climate-related risks.
    • Management’s role in assessing and managing these risks.
  2. Strategy:
    • Impact of sustainability and climate-related risks on business strategy and financial planning.
    • Description of the resilience of the strategy under different scenarios.
  3. Risk Management:
    • Processes for identifying, assessing, and managing sustainability and climate-related risks.
  4. Metrics and Targets:
    • Metrics used to assess risks and opportunities.
    • Targets set by the entity and performance against these targets.

Relation to IFRS S1 and S2

The AASB standards are closely aligned with IFRS standards, including the new sustainability-related standards:

  • IFRS S1: General Requirements for Disclosure of Sustainability-related Financial Information. This standard requires entities to disclose sustainability-related risks and opportunities that could affect their financial position and performance.
  • IFRS S2: Climate-related Disclosures. This standard focuses specifically on climate-related risks and opportunities, requiring entities to provide detailed information on their climate impact and strategies.

These standards reflect a growing recognition of the importance of sustainability and climate-related issues in financial reporting. They are designed to improve the quality and consistency of disclosures, aiding investors and stakeholders in making informed decisions.

Contact us today to see how Carbon Impact can help your business prepare for AASB S1 and S2 compliance