Your First AASB S2 Climate Disclosure: What to Put in It

Group 1 ASRS reports started landing in early 2026. We've been reading them. Some were genuinely good. Many read like they were written by three different consultants who never spoke to each other, which is probably exactly what happened.

Your turn is coming. If you're a Group 2 entity (two of three: $200M+ revenue, $500M+ gross assets, 250+ employees, or an NGER reporter), your first mandatory AASB S2 climate disclosure covers financial years beginning on or after 1 July 2026. That means a 30 June 2027 year-end is the first reporting date for most. This goes inside your annual financial report. Directors sign off on it under the same liability provisions as the P&L.

And yet, most Group 2 companies we talk to still haven't started writing. Not because they don't care. Because they open the standard, see 33 paragraphs of disclosure requirements across four pillars, and don't know where to begin.

So here's the walkthrough. Pillar by pillar, paragraph by paragraph, what actually needs to go in the thing.

A quick note on what Year 1 actually requires

Before we get into content, some relief. Year 1 for Group 2 isn't the full AASB S2 experience. The legislation and ASSA 5010 assurance standard build in transitional provisions that matter.

Scope 1 and Scope 2 emissions are mandatory from day one. No grace period. If you're an NGER reporter, you already have this data, which is the entire point of the NGER pathway into Group 2.

Scope 3 emissions are deferred to your second reporting period. You don't need them in Year 1. But you should be planning for them now, because value chain emissions are where companies have consistently underestimated the data collection effort.

Modified liability applies for financial years commencing between 1 January 2025 and 31 December 2027. During this window, only ASIC (not private litigants) can bring civil proceedings over statements about Scope 3 emissions, scenario analysis, and transition plans. This isn't a free pass to write whatever you want. It's a controlled runway to get your disclosures right while the enforcement posture remains educational rather than punitive.

Directors' declarations use a transitional standard during years one through three: you must confirm you've "taken reasonable steps" to ensure compliance. From year four onward, that language tightens to a definitive statement that provisions "are in accordance" with the Corporations Act. The difference matters legally.

Limited assurance under ASSA 5010 in Year 1 covers governance, specific strategy paragraphs (AASB S2 paragraphs 9(a), 10(a) and 10(b) only), and Scope 1 and 2 emissions. Your scenario analysis, transition plan, risk management disclosures, and metrics beyond Scope 1 and 2 aren't subject to assurance in Year 1. They still need to be in the report. They just won't be reviewed by your auditor yet.

No prior-period comparatives required in your first year. That's one less thing to worry about.

Pillar 1: Governance (paragraph 6)

The governance pillar asks one fundamental question: who in your organisation is responsible for climate, and how do they exercise that responsibility?

Under paragraph 6 of AASB S2, you need to disclose the governance processes, controls, and procedures your organisation uses to monitor and manage climate-related risks and opportunities. Specifically, that means telling investors:

Which body or individual has oversight. Name the board committee or the board itself. If it's delegated to a specific management-level position or committee, say so and explain how the board maintains oversight of that delegation.

How often climate matters reach the board. Quarterly? Annually? Only when something goes wrong? Be honest. If the answer is "twice a year during strategy sessions," that's a legitimate disclosure for a Year 1 report. Don't pretend it's monthly if it isn't, because your auditor will ask for meeting minutes.

What skills and competencies exist or are being developed. This is where most Group 1 companies were weakest. If nobody on your board has climate expertise, say that and describe what you're doing about it: training programs, advisory panel, plan to appoint a director with relevant experience. Honesty about maturity is better than vague claims of competence.

How climate is integrated into strategy, risk oversight, and major transactions. Does the board consider climate risk when approving capital expenditure above a certain threshold? Is there a standing agenda item? Does the risk committee have a climate mandate?

Whether remuneration is linked to climate performance. If it isn't, say so. You aren't required to link pay to climate outcomes. You're required to disclose whether you do.

Here's the thing about governance disclosures for Group 2: your governance section can be short and still be compliant. What it can't be is fabricated. We've seen Group 1 companies describe governance frameworks that clearly didn't exist in practice. ASIC's Regulatory Guide 280 is explicit about this. Describe what you have, not what you think you should have.

A two-page governance section that honestly describes an early-stage climate governance framework is better than a five-page aspirational document that falls apart when your auditor asks to see the evidence.

Pillar 2: Strategy (paragraphs 8 to 21)

This is the most substantial section and the one that causes the most anxiety. Strategy disclosures require you to explain how climate-related risks and opportunities affect your business model and strategy, both now and going forward.

Identify your climate-related risks and opportunities (paragraphs 9 to 10). You need to describe the specific risks and opportunities you've identified that could reasonably affect your cash flows, access to finance, or cost of capital. Be concrete. "Physical risk from extreme weather" is too vague. "Increased frequency of heatwaves above 40C affecting our Western Sydney distribution centre, requiring $2.4M in cooling infrastructure by 2030" is the level of specificity AASB S2 is after.

These need to be mapped across time horizons: short-term, medium-term, and long-term, as you define them for your business. Disclose how you define those horizons and why.

Paragraphs 9(a), 10(a) and 10(b) are the specific strategy subparagraphs subject to limited assurance in Year 1. This means your auditor will be testing whether you've properly identified and described your climate risks and opportunities. Get these right.

Current and anticipated financial effects (paragraphs 14 to 18). This is the shift that caught Group 1 companies off guard. AASB S2 doesn't want qualitative narratives about how climate might matter someday. It wants quantified financial impacts on your balance sheet, income statement, and cash flows. Current period effects (what climate has already done to your numbers) and anticipated effects (what you expect it to do).

If you genuinely can't quantify anticipated effects yet, you can provide qualitative information and explain why quantification isn't possible. But "we haven't done the work" isn't a sufficient reason. The standard expects you to use all reasonable and supportable information available without undue cost or effort.

Transition plans (paragraphs 12 to 13). If you have a climate transition plan, disclose it. If you don't, you need to disclose that you don't. AASB S2 doesn't mandate having a transition plan. It mandates transparency about whether you have one. A statement like "We have not yet developed a formal climate transition plan but intend to do so by FY2028" is a valid Year 1 disclosure. Modified liability protections apply to transition plan disclosures through financial years commencing before 31 December 2027, so you have some room here. But only from private litigants. ASIC can still act. More detail on what the standard actually requires for transition plans is in our separate guide.

Climate resilience and scenario analysis (paragraphs 19 to 21). You need to assess your climate resilience using scenario analysis. AASB S2 requires at least two scenarios: one aligned with a 1.5C warming pathway (rapid decarbonisation) and one aligned with a pathway well exceeding 2C (high physical risk). The standard is deliberately flexible about methodology. You can use quantitative modelling or qualitative assessment, depending on your skills, capabilities, and resources.

The proportionality clause matters here. Paragraph 21 explicitly says an entity shall consider its available skills, capabilities, and resources when determining an appropriate approach. A mid-market manufacturer doing qualitative scenario analysis with clearly stated assumptions is compliant. You don't need to hire a climate modelling firm for Year 1.

What you do need is to disclose: which scenarios you used and why, what assumptions and parameters underpin them, the time horizons covered, and how the analysis informs your strategy. We wrote a full practical guide to scenario analysis that goes deeper on methodology.

We're still not sure how strictly auditors will test scenario analysis in Year 2 and beyond when assurance expands to cover it. Group 1 experience suggests wide variability in quality, and ASIC hasn't given strong signals about where the bar sits. Our advice: be reasonable, be transparent about your assumptions, and document your methodology so you can defend it.

Pillar 3: Risk Management (paragraphs 22 to 24)

Risk management disclosures are where most Group 2 companies will find they're closer to compliance than they think, because the pillar is really asking: how does your existing risk management framework handle climate?

You need to disclose:

Your process for identifying and assessing climate-related risks (paragraph 22). How do you determine which climate risks are material? What criteria do you use? Do you use scenario analysis as an input? How do you assess likelihood and magnitude? How do you prioritise?

Your process for managing climate-related risks (paragraph 23). Once identified, what do you do about them? Transfer, mitigate, accept, avoid? Be specific about material risks.

How these processes integrate with your overall risk management (paragraph 24). This is the critical one. AASB S2 explicitly asks whether your climate risk processes are integrated into your broader enterprise risk framework, or whether they sit in a separate sustainability silo. If they're separate, that's a legitimate Year 1 disclosure. But explain how you plan to integrate them.

Most NGER-reporting companies already have environmental risk registers and compliance processes. The gap is usually that climate-specific risks (transition risks like carbon pricing increases, physical risks like supply chain disruption from extreme weather) haven't been formally assessed through the same framework used for financial and operational risks. Closing that gap is often more of a governance exercise than a data exercise.

Risk management is not subject to assurance in Year 1 under ASSA 5010. But it still needs to be in the report, and it still needs to be accurate.

Pillar 4: Metrics and Targets (paragraphs 25 to 33)

This is where the numbers live, and where your NGER reporting history becomes your biggest advantage.

Scope 1 and 2 emissions (paragraphs 29 to 30). Mandatory from Year 1. Absolute gross greenhouse gas emissions in tonnes of CO2-e. AASB S2 requires disclosure of Scope 1 and Scope 2 using a location-based method.

If you're an NGER reporter, the standard provides explicit relief: you can use your NGER emissions calculations for your AASB S2 Scope 1 and 2 disclosures. The methodologies aren't identical (NGER uses AR5 global warming potentials, AASB S2 technically aligns with AR6), but the differences are small for most gases. CO2 is unchanged. Methane drops from 28 to 27.9 under AR6. For most companies, the practical impact on reported totals is negligible. The AASB acknowledged this overlap and built the NGER pathway specifically so companies aren't doing the same calculation twice with slightly different inputs.

This is a huge time-saver. Pull your NGER Scope 1 and 2 data, reformat it to AASB S2 disclosure requirements, and you're largely there. You need to add a disaggregation by gas type (CO2, CH4, N2O, and any fluorinated gases) and disclose the measurement approach used (whether that's direct measurement, calculation using emission factors, or estimation). NGER reporters already track most of this.

Scope 3 emissions (paragraphs 29(c) and 30(b)). Deferred for Group 2 Year 1. But when it arrives in Year 2, you'll need material Scope 3 categories identified and reported. Start your supplier engagement process now. Seriously. The data collection lead time is the constraint, not the calculation.

Emission intensity (paragraph 31). You need to disclose emission intensity, typically expressed as tonnes CO2-e per unit of revenue, per employee, or per unit of output. Pick a denominator that makes sense for your industry. If you're in logistics, per tonne-kilometre might be more meaningful than per dollar of revenue. The standard doesn't prescribe the denominator. It requires you to disclose what you chose and why.

Climate-related targets (paragraphs 32 to 33). If you've set targets, disclose them with specifics: the metric, the base year, the target year, whether the target is absolute or intensity-based, any interim milestones, and progress to date. If you haven't set targets, disclose that. There is no requirement to have a target. There is a requirement to be transparent about it.

Other cross-industry metrics. AASB S2 also asks about transition risk exposure (the proportion of assets or business activities vulnerable to transition risks), physical risk exposure, capital deployed toward climate-related opportunities, and whether you use internal carbon pricing. For Year 1, do what you can. The standard's "reasonable and supportable information without undue cost or effort" threshold applies. If you can't yet quantify transition risk exposure across your asset base, say so and explain your plan to get there.

What auditors will actually test in Year 1

Under ASSA 5010, your Year 1 limited assurance engagement covers three things: governance disclosures, the specific strategy paragraphs on identified risks and opportunities (9(a), 10(a), 10(b)), and Scope 1 and 2 emissions.

In practice, based on what we've seen from Group 1 assurance engagements, that means your auditor will:

Ask for board and committee minutes evidencing climate oversight. If your governance section says the board reviews climate quarterly, they'll want to see four sets of minutes.

Trace your Scope 1 and 2 numbers back to source documents. Every emission figure needs an evidence chain: the utility bill or fuel record, the emission factor applied, the calculation methodology. If you're using NGER data, they'll likely test a sample against your NGER submission.

Test whether your identified risks and opportunities are reasonable given your industry and circumstances. They won't tell you what risks you should have identified. But if you're a coastal logistics company that didn't mention sea-level rise, they'll ask questions.

The audit trail matters more than the polish of the prose. A clearly documented, traceable disclosure with honest limitations beats a beautifully written report with numbers that can't be verified. This is something we think about a lot at Carbonly, because the companies that struggle most with assurance are the ones whose emissions data lives in disconnected spreadsheets with no clear path from source document to reported figure.

The practical starting sequence

If you're a Group 2 company reading this in April 2026, you have roughly three months before your reporting period begins (if you're a 30 June year-end, you're already in it). Here's the order we'd suggest:

Start with your NGER data. If you already report under NGER, your Scope 1 and 2 numbers are the foundation. Map them to AASB S2 disclosure format. Add disaggregation by gas type. Confirm your emission factors match the NGA Factors workbook (2025 edition).

Write governance honestly. Describe what exists today. Document board oversight frequency, responsible individuals (by role, not name, in the report), skills gaps, and integration with strategy. If your governance is immature, say so and describe the improvement plan. Two pages. Done.

Run a basic risk and opportunity identification. Use your existing risk register as a starting point. Add transition risks (carbon pricing, regulatory changes, market shifts) and physical risks (extreme weather, water stress, supply chain disruption). Map them to your time horizons. This doesn't need to be a six-month consulting project. A two-day workshop with your risk, finance, and operations teams can produce a defensible first-year assessment.

Do proportionate scenario analysis. Two scenarios. Qualitative is fine for Year 1 if you document your assumptions clearly. State what warming pathways you used, what time horizon, what you assumed about carbon pricing and physical climate impacts, and what the implications are for your business model. Our scenario analysis guide walks through this step by step.

Don't fake what you don't have. If you haven't set targets, disclose that. If you can't quantify financial effects, explain why and give qualitative information. The modified liability regime protects you on Scope 3, scenario analysis, and transition plans through 2027. Use that runway honestly, not as an excuse to leave things blank.

The companies that will have the hardest time aren't the ones with imperfect data. It's the ones who try to make Year 1 look like Year 5. Start where you are. Document everything. Build from there.

If you need help getting your Scope 1 and 2 data structured for AASB S2 reporting, or you want to see how your NGER data maps to the metrics and targets pillar, reach out at hello@carbonly.ai. We price per project, not per seat.

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