Group 2 AASB S2 reporters: What executive teams should learn from year one 

For many CFOs, COOs and executive teams, this is a new responsibility. To manage it well, there are a few key issues to be across early. 

Group 2 applies to entities that meet at least two of three thresholds: more than 250 employees, consolidated gross assets of $500 million or more, or consolidated annual revenue of $200 million or more. It also captures asset owners with $5 billion or more in assets under management, and any entity that is already an NGER Scheme controlling corporation. 

Group 2 entities have one clear advantage: they can learn from the first wave of Group 1 reporters. Those early experiences show that AASB S2 reporting requires governance, risk, finance, strategy and operations to come together early, with CFOs and executive teams playing a critical role. 

AASB S2 is principles-based, so judgement is expected. In practice, there can be a gap between the wording of the standard and how it is interpreted. Auditors across the market are still working through how to apply it consistently, sometimes even within the same firm. 

Group 2 entities should engage auditors early to test the proposed approach and clarify what auditors will expect in terms of evidence, documentation and supporting artefacts. This is especially important where the entity expects to rely on proportionality mechanisms, qualitative disclosure or staged uplift, since these are areas likely to be questioned. 

Waiting until pre-assurance may leave limited time to fix gaps. By then, the issue may not be whether the disclosure can be written, but whether the process behind it can be evidenced well enough to avoid a qualified audit report.  

Many organisations initially view governance as an easy win. Most already have boards, committees, risk processes and executive accountabilities. In practice, climate disclosure governance often takes longer than expected. 

The issue is not whether governance structures exist but whether climate-related risks and opportunities are formally embedded into decision-making structures and processes. 

This may require board and committee charters, audit and risk committee terms of reference, executive position descriptions and reporting calendars that reference climate explicitly, along with evidence of how climate is factored into strategy, risk management, capital allocation and financial planning. 

This should not be reconstructed retrospectively, so uplift work needs to be substantially complete in the first six months of the reporting year. 

Climate risk assessment has similarities with traditional enterprise risk assessment, but treating it as the same process can create problems. 

Climate-related risks are often longer term, more uncertain, scenario-dependent and require greater coverage across the value chain. A tailored method should be developed early. For many entities, this means an initial screening followed by a more detailed assessment resulting in a climate risk register. Ideally this would be completed in the first six months of the reporting year, laying the foundation for quantification later. 

Recent floods, bushfires, cyclones or energy market shocks, while relevant, should not dominate simply because they are front of mind. Climate risk is forward-looking and assessments that lean too heavily on recent events or historical data may miss longer-term, slow-onset or compounding risks. 

A central focus of climate disclosure reporting is whether material climate-related financial risks and opportunities exist or can be reasonably expected, as has been discussed in the recent International Auditing and Assurance Standards Board (IAASB) guidance on the application of materiality under the International Standard on Sustainability Assurance (ISSA) 5000. 

Executive teams should discuss materiality early, even if the final definition or application is not settled until drafting the disclosure report. Left unresolved, materiality becomes a recurring argument: a risk gets identified, its relevance gets debated, the scoring approach gets revisited, and the same discussion resurfaces once drafting begins. 

Materiality needs to reflect what the board and management consider material, but also what a reasonable reader may expect to be material. This distinction matters where management sees a risk as low priority, but investors, lenders, insurers or other stakeholders may reasonably expect it to be addressed. Settling this at the executive level early, even loosely, prevents it from becoming a bottleneck later. 

Reporting entities may initially expect to rely on proportionality mechanisms such as undue cost or effort, or uncertainty in underlying data to avoid quantifying risk. In some cases, that may be appropriate. But year one has shown that entities still need to do the groundwork before they can support that conclusion. 

What is no longer sufficient, as ASIC's June observations on sustainability reporting made clear, is simply asserting that quantification was too hard. 

Entities need to show they explored the available calculation methods, understood what data existed and what did not, and considered what assumptions a credible estimate would require. Ideally this should start three to six months ahead of reporting. 

Where quantification cannot be completed in year one, entities should still leave enough time to prepare robust qualitative disclosures. A weak quantitative estimate is not necessarily better than a strong qualitative disclosure, but a qualitative disclosure still needs evidence behind it. 

Climate disclosure reporting is cross-functional, but the required skill set will likely change across the reporting cycle. 

Early in the reporting year, the work often relies on subject matter expertise from operations, assets, procurement, strategy, risk, finance, sustainability and governance. These teams are needed to understand the value chain, identify risks and opportunities, test assumptions and assess exposure. 

As the year progresses, the focus usually shifts towards governance, finance, reporting, evidence, disclosure drafting and assurance readiness. CFOs and finance teams become especially important at this point. 

Climate disclosure is not a sustainability workstream that gets handed to finance at the end, nor a finance-led reporting exercise that can be completed without operational insight.

The advantage for Group 2 is time 

Group 2 entities can learn from the first wave of reporters. That advantage could be lost if the first reporting year is treated as a compliance project that can be accelerated near the end. 

The harder parts of AASB S2 are the judgement calls, evidence trails, governance uplift, risk assessment methods, quantification pathways and cross-functional decisions that sit underneath the final disclosure. 

By bringing the right people in early and ensuring the CFO and executive team are close to the assumptions, judgements and implications behind the disclosure, Group 2 entities can turn AASB S2 from a reporting obligation into an opportunity to strengthen decision-making, resilience and confidence in their climate response.

Dr Mark Siebentritt is the Executive Director of Climate and Sustainability at Edge Impact, with over 25 years of experience in sustainability services, including 17 years specialising in climate risk and adaptation. His focus on combining technical rigour with stakeholder engagement helps organisations make more informed and practical climate-related decisions.