Climate Transition Plans: What AASB S2 Actually Requires

Over 57% of Australian companies surveyed by the ACCC were making environmental claims they couldn't properly substantiate. That was 2023. Since then, regulators have imposed more than $42 million in greenwashing penalties. And now, under AASB S2, transition plan disclosures sit inside your annual financial report — the same document your directors sign off on under personal liability.

Here's the thing that trips people up about climate transition plan requirements under AASB S2: the standard doesn't actually require you to have one. It requires you to disclose whether you have one. And if you do, it requires you to explain it properly — with assumptions, dependencies, resourcing, and progress updates. That's a different obligation than most boards think they're facing, and it creates a genuinely awkward strategic question we'll get to in a moment.

But first, what does the standard actually say? Because we've seen too many companies spend $80K on consultant-developed "climate transition plan templates" that don't even address the right paragraphs.

What AASB S2 actually requires (paragraph by paragraph)

The transition plan disclosure requirements sit under the Strategy pillar of AASB S2, primarily in paragraph 14. They don't live in their own standalone section — they're woven into the broader strategy disclosures alongside scenario analysis and financial impacts. This matters because it means your transition plan can't be a standalone PDF sitting on your website. It needs to connect to your climate risk assessment, your financial projections, and your emissions targets.

Paragraph 14(a)(iv) is the core provision. It requires disclosure of "any climate-related transition plan the entity has, including information about key assumptions used in developing its transition plan, and dependencies on which the entity's transition plan relies."

Read that again. Three distinct elements: the plan itself, the assumptions behind it, and the dependencies it relies on.

Paragraph 14(a)(v) then connects the transition plan to targets. You need to disclose "how the entity plans to achieve any climate-related targets it has set, and any targets it is required to meet by law or regulation." This is where your transition plan meets your emissions reduction targets — and where most plans fall apart, because there's often a massive gap between the target someone announced in a press release and the operational steps to get there.

Paragraph 14(b) adds a resourcing requirement. You need to explain how you're funding and resourcing the activities in your transition plan. Not "we intend to invest in decarbonisation." Specifically: how much, allocated where, over what timeline.

And paragraph 14(c) — this one only kicks in from your second reporting period — requires "quantitative and qualitative information about the progress of plans disclosed in previous reporting periods." Your transition plan isn't a set-and-forget document. You're on the hook for reporting progress against it every single year.

Then there are the target disclosures in paragraphs 33-36, which work in tandem with the transition plan. For every greenhouse gas emissions target, you need to disclose which gases are covered, which scopes (1, 2, or 3), whether it's gross or net (and if net, you must separately disclose the gross target too), whether it uses a sectoral decarbonisation approach, and your planned use of carbon credits. That last point is particularly pointed — if your "net zero" plan leans heavily on offsets, auditors and investors can see exactly how heavily.

The strategic question nobody wants to answer

So AASB S2 doesn't mandate that you create a transition plan. It mandates that you disclose information about one if you have it. Which means technically, you could file your sustainability report and simply state that you don't have a climate-related transition plan.

Legally, that's fine. Strategically, it's a minefield.

Think about what you're signalling to investors, lenders, insurers, and major customers. You're saying: "We're aware of climate-related risks and opportunities. We've assessed them. We've done scenario analysis. And we've decided not to plan for the transition." That's a hard position to hold if you've also identified material climate risks in your strategy disclosures — which AASB S2 requires you to do.

Our view — and we know not everyone agrees with this — is that any company disclosing material climate risks under AASB S2 effectively needs a transition plan. Not because the standard forces it. Because the absence of one, sitting right next to your risk disclosures, tells a story you probably don't want told.

The Group 1 reporters who published their first ASRS-aligned reports in early 2026 showed a clear pattern. Companies that disclosed transition plans — even imperfect ones — received less pushback from assurance providers than those that tried to explain why they didn't have one. The "explain" option in practice turned out harder than the "comply" option. We've heard the same from auditors across Sydney and Melbourne.

If you're a Group 2 entity preparing for July 2026 reporting, this means you should be developing a transition plan now, not debating whether you technically need one.

The modified liability protection (and why it isn't a blank cheque)

Here's where it gets interesting. The Australian government built a three-year modified liability period into the ASRS legislation, covering financial years commencing between 1 January 2025 and 31 December 2027. Transition plan disclosures are explicitly included as "protected statements" during this window.

What does that protection actually mean? During those three years, only ASIC can bring action against you for transition plan disclosures — no private litigation, no class actions. And ASIC's remedies are limited to injunctions and declarations. No fines. No damages.

That's a meaningful safety net. It was designed to encourage companies to disclose transition plans — even nascent ones — without fear that an imperfect first attempt would trigger litigation.

But here's what it doesn't protect. Your Scope 1 and 2 emissions data carries full liability from day one. So if your transition plan says "we'll reduce Scope 1 emissions by 30% by 2030" and your baseline Scope 1 number is wrong, the protected status of the transition plan doesn't shield the underlying emissions figure. The plan is protected. The data it sits on isn't.

And the protection expires. From financial years beginning 1 January 2028, transition plan disclosures carry the same liability as everything else in your annual report. That includes penalties up to $15 million or 10% of annual turnover and personal director liability. So a transition plan you rush out in 2026 under the safety of modified liability had better be one you can stand behind in 2028 without it.

Directors also need to sign a qualified declaration during the modified liability period — affirming that the entity has "taken reasonable steps" to ensure compliance. After the three years, that shifts to an unqualified declaration. "Reasonable steps" gives you some breathing room. Not having a plan at all makes it hard to argue you took reasonable steps on anything.

What makes a transition plan credible (and what doesn't)

The Climateworks Centre published an Australian-first credibility guide for corporate transition plans in July 2025, identifying seven criteria across 31 sub-criteria. Treasury released its own consultation paper on transition plan guidance in August 2025, explicitly endorsing the IFRS Transition Plan Taskforce (TPT) framework as the recommended structure. That consultation proposed the final guidance would land before the end of 2025 — though as of early 2026, we haven't seen the finalised version published.

Between the Climateworks criteria and the Treasury consultation, the picture of what "credible" looks like is getting clearer. And it's bad news for anyone whose transition plan is a two-page PDF that says "net zero by 2050."

A credible plan needs science-based interim targets. Not just a 2050 endpoint — specific, measurable milestones for 2030 and 2035 that cover Scope 1, 2, and material Scope 3 emissions. The ACCC has explicitly warned that future representations about emissions reductions must have "reasonable grounds" — and a distant target with no interim waypoints doesn't meet that bar. ASIC pursued Vanguard for $12.9 million over sustainability claims that lacked reasonable basis. Net zero claims without credible pathways are in the same category of risk.

A credible plan prioritises actual emissions reduction over carbon credits. Climateworks' third criterion is blunt: "emissions reductions before carbon credits." If your plan to reach net zero relies on buying Australian Carbon Credit Units to bridge a gap you haven't genuinely tried to close through operational changes, assurance providers will flag it. So will investors who've been burned by offset scandals.

A credible plan is financially integrated. It connects to your capex budget, your asset replacement schedules, your procurement strategy. Paragraph 14(b) of AASB S2 requires you to explain resourcing — and "we'll fund it from operational cash flows" isn't specific enough. A property company transitioning to all-electric HVAC across a 40-site portfolio, for example, needs to show the capital allocation timeline and where those dollars appear in its financial statements.

And a credible plan has governance wrapped around it. Board oversight, management accountability, performance incentives tied to transition milestones. Not a committee that meets twice a year to "review progress." Actual decision-making authority over capital allocation and operational changes.

We're still not sure how strictly assurance providers will test transition plan credibility in year one. There's no established benchmark yet — the framework landscape is still settling. But the direction is clear: plans that don't pass a basic sniff test will draw questions, even under limited assurance.

The "net zero by 2050" problem

ASIC's own analysis of early sustainability claims found that many net zero commitments were "very general and not able to be measured" and that "several businesses did not have a clear plan to reach their Net Zero targets." That was before mandatory reporting. Now those same vague commitments are going into audited financial reports.

Here's what a "net zero by 2050" statement without interim targets actually looks like under AASB S2. You'd need to disclose the target under paragraphs 33-36 — which means specifying which scopes it covers, whether it's gross or net, and your planned use of carbon credits. Then under paragraph 14(a)(v), you'd need to explain how you plan to achieve it. And under paragraph 14(a)(iv), you'd need the assumptions and dependencies.

If the honest answer to "how will you achieve net zero by 2050?" is "we don't know yet," that's what you'd need to disclose. Which circles back to the strategic question. A disclosed uncertainty is fine — the standard accommodates it. But "we have a target and no idea how to get there" is not a transition plan. It's a press release with a date on it.

The smarter approach, based on what we've seen from Group 1 reporters, is to set near-term targets you can actually back with operational plans — 2028, 2030 — and be transparent about longer-term uncertainty. A company that says "we're targeting a 25% reduction in Scope 1 and 2 by 2030 through fleet electrification and renewable energy procurement, and we're developing our longer-term pathway as technology and market conditions evolve" is in a much stronger position than one that stamps "NET ZERO 2050" across the front of its sustainability report with nothing behind it.

The ACCC isn't going to fine you for having an imperfect plan. They're going to fine you for making claims you can't substantiate — and under the ACCC's active greenwashing enforcement program, that includes forward-looking environmental claims without reasonable grounds.

Practical steps if you're starting from zero

If you're a Group 2 or Group 3 entity that doesn't have a transition plan yet, here's what we'd suggest. Not as a template — templates are part of the problem — but as a sequence of work.

Start with your emissions baseline. You can't plan a transition if you don't know where you're starting from. Get your Scope 1 and 2 inventory right first. These carry full liability from day one, and they form the foundation everything else builds on. If you're still pulling emissions data from spreadsheets, that's the first thing to fix. Carbonly.ai was built specifically for this problem — extracting emissions data from utility bills at scale so you're not burning weeks on data entry.

Then identify your material climate risks. Your transition plan needs to respond to the risks you've identified under AASB S2's strategy disclosures. If physical risk to coastal assets is material, your plan should address adaptation. If regulatory transition risk from the Safeguard Mechanism is material, your plan should address emissions reduction in line with declining baselines.

Set interim targets you can resource. Five-year targets tied to specific actions — energy efficiency upgrades, fleet electrification, renewable energy PPAs, process changes. Each target should have a cost estimate and a responsible owner. This is where it gets real, and it's where most consultant-developed plans fail. They produce beautiful diagrams of decarbonisation pathways without a single line item in the budget.

Document assumptions and dependencies explicitly. AASB S2 requires this, and it's actually your friend. If your plan depends on the availability of green hydrogen at commercial scale by 2032, say so. If it assumes continuation of the current Renewable Energy Target, say so. Assumptions aren't weaknesses — they're evidence of rigour.

Build governance around the plan. Assign board-level oversight. Put transition milestones into executive KPIs. Report progress quarterly, not just annually. When your assurance provider looks at your transition plan, they want to see evidence it's embedded in how you run the business — not bolted on as a compliance exercise.

Where the data meets the plan

We built Carbonly because transition plans without accurate underlying data are fiction. A climate transition plan that says "reduce Scope 2 emissions by 40% by 2030" means nothing if you can't reliably measure your Scope 2 emissions today. And we've seen — over and over — that companies manually processing utility bills get their baselines wrong. Not by a rounding error. By 10-15%, sometimes more, because they miss invoices, use the wrong emission factors, or apply a single national factor when state-based grid factors differ by nearly 4x (Tasmania at 0.20 kg CO2-e/kWh versus Victoria at 0.78).

That measurement problem becomes a transition plan problem. Wrong baseline means wrong targets means a plan that's either unachievable or insufficiently ambitious. Neither is good when your assurance provider comes knocking.

Getting the data right isn't the exciting part of transition planning. It's the boring, essential part that nobody wants to talk about — and the part we obsess over.

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