Explore the impact of AASB S2 on Australia’s fashion industry. Uncover opportunities to improve data accuracy, engage supply chains, and build resilient, low-carbon business models.

Sustainability in Style: How Climate Disclosures Are Shaping the Fashion Industry

Co-authored by 
Nick Jackson, Analyst, Circular Economy and Paula Saldias, Managing Consultant, Strategy 

The global fashion industry’s supply chain is a vast and intricate system, where raw materials are sourced, processed, and transformed into finished garments—often in ways that may be hidden from supply chain planners and consequently, difficult to regulate. 

While this system has enabled massive scale and efficiency, it also creates significant challenges in terms of sustainability and accountability. 

Clothing brand supply chain management (SCM) systems help brands export clothing from production to warehouses using complex dynamic logistical systems to distribute clothing through e-commerce and brick and mortar stores.   

However, the sheer complexity of this system creates a rigid armour around the global textile production chain. This armour refers to the day-to-day manufacturing of materials, transport across tiers of production, and delivery systems that have functioned to create the globalised fashion industry we know today.

This is difficult to penetrate, especially when we consider transparency, data validation, as well as governing environmental compliance and regulation, ultimately leaving gaps in accountability. 

Now more than ever, this once rigid armour is at risk to the effects of climate change. This leaves an opportunity to evolve to meet the emerging governance challenges and reevaluate the approaches to sustainable design, procurement, and circularity within fashion supply chains. 

Adapting Fashion Supply Chains to Climate Realities 

Supply chain production typically occurs across four tiers; spanning interconnected transport networks, raw material manufacturing, and and refining or processing factories.  

However, climate risks are creating issues in these production tiers. Specifically with raw material availability, water scarcity, fluctuating energy costs, climate taxes, shifting policy landscapes, and contingency plans for manufacturing facilities, in addition to potential damage to business assets and their operations from extreme weather.  

These risks—once hidden and deeply imbedded chinks in the layers of the supply chain—are now unavoidable realities for the global fashion trade. 

Understanding the complexities of the fashion supply chain 

The introduction of mandatory climate risk disclosures in 2025 offers a pivotal moment for the industry to enhance transparency, mitigate risks, and reimagine the future of sustainable fashion.

This is an opportunity to design a new type of armour—one that shields businesses from risks while propelling them toward sustainable growth. 

In October 2024, the Australia Accounting Standards Board (AASB) approved and published the mandatory climate-related financial disclosures. 

Eligible companies will have to disclose their climate-related risks and opportunities against at least two climate scenarios, demonstrating their management approach across governance, strategy, risk management, and metrics and targets.  

This reporting standard will help businesses align their financial strategies with the physical and transition climate change risks and opportunities imposed on their business model and supply chains.  

Understanding and defining these risks and opportunities will allow businesses to recognise and build a platform of governance and a strategic approach to reduce their impacts and enhance value-creation opportunities.  

For the fashion industry, this means tangible actions: 

Creating decarbonisation roadmaps for operations and supply chains,

Identifying new revenue streams with circular practices, 

or increasing data accuracy to manage their environmental impacts across a products lifecycle.

The more information fashion brands can gain, the deeper they can communicate their supply chain transparency to their customers, to their stakeholders, and ultimately provide reasonable assurance across the Australian fashion industry and reporting standards.

To reach this level of assurance, cracking open supply chains—particularly those tied to scope 3 emissions—is non-negotiable. 

A daunting task for many, but a necessary one. 

Sounds simple, right? Here’s what you’ll need to do to prepare. 

At Edge Impact, we specialise in helping fashion industry clients like you turn challenges into actionable strategies.

If you’re an Australian fashion brand that will report under Group 1, 2 or 3, preparation for ASSB S2 starts now. 

Understand the requirements of AASB S2, 

Identify gaps within your current operations, 

Prepare for reasonable assurance on the data and metrics you report  

Read that list again and you’ll understand it’s not that simple.  

However, taking the necessary steps and action can help navigate a clear transition to meet AASB S2 requirements and make this process as simple as possible. 

For any business, AASB S2 will require a breadth of work and commitment towards sustainability by integrating climate risk into their overall business strategy and the subsequent broader corporate objectives. 

But here’s where things get a bit challenging: the complexity of the fashion supply chain.

Transparency and traceability are challenging, and may leave you wondering: 

Where are the materials for that 32% polyester, 68% organic ribbed shirt sourced?  

What happens to the associated fibre waste, and what are the related emissions? 

What certification schemes can support a more sustainable industry? 

Where should you look for data and metrics to justify your supply chain investments? 

These questions require more than just logistical adjustments—they demand executive buy-in, robust data collection, and industry-wide collaboration.  

Tackling these challenges will ultimately pave the way for consistent sustainability outcomes and stronger circular economy practices in the Australian fashion market. 

For most fashion brands, it is likely that 95% of your associated emissions will be extracted from your Scope 3 (waste) emissions.

This includes packaging, chemical dye and fabric wastage, clothing end-of-life, and associated emissions and waste produced from transport in both e-commerce and brick-and-mortar models. 

Understanding the metrics of your Scope 3 emissions and the associated climate risks will require an in-depth approach and analysis across your supply chain leveraging a cradle-to-grave approach. 

Data collection, IT systems, and training resources, 

Strategic engagement with all relevant stakeholders across your tiers of production, and 

Expert guidance from auditors, consultants, and governance bodies to ensure compliance with AASB S2 standards. 

By mitigating the complexities of the supply chain, fashion businesses can:

Increase the accuracy and scale of their carbon accounting frameworks, 

Identify opportunities for progressive improvement,

Reduce waste at every stage— raw material usability, recycled content, verification data tools, and;

Reduce waste in the design methods and product stewardship. 

Preparing Your Brand for AASB S2 Compliance 

AASB S2 is more than just a compliance obligation; it’s a catalyst for transformation. 

Fashion brands that embrace this opportunity can disrupt outdated systems, future-proof their operations, and inspire confidence among investors and stakeholders alike.

The tools are here—it’s time to take the reins and lead the way. 

While aligning with climate-disclosure standards may be challenging for some companies, mandatory climate disclosures will also bring significant opportunities to transform and strengthen business practices: 

The AASB S2 requires increasing data accuracy over time, reaching reasonable assurance for Scope 1, 2, and 3 emissions in the fourth year of reporting.

This is an opportunity for companies to invest in data management systems that allow them to capture more precise data from their business operations and supply chains.

The result? Better data leads to smarter, more informed decisions. 

Building on the need for accurate data, engaging with stakeholders across the company’s supply chain will be key to improving the data collected and joining efforts to reduce emissions.

Whether your company is just starting or has an established supplier engagement process, the AASB S2 requirements offer a chance to deepen these relationships. 

This includes training, upskilling, and collaborating on emissions reduction pathways, fostering shared accountability and innovation. 

By strengthening supply chain engagement, companies can drive innovation and shared accountability for emissions reduction. 

Fashion businesses will need to provide a clear picture of how climate change affects their financial performance and business strategy, highlighting their capacity to transition and adapt to at least two climate scenarios.

This will be an opportunity to embed climate and sustainability risks and opportunities into financial decisions, opening the conversation to integrate alternative business models to achieve a low-carbon future across their upstream and downstream supply and value chain. 

Resilience isn’t just about compliance—it’s about future-proofing your business in a changing world.

Industry leaders are already exploring ways to build resilience.  

The Seamless Clothing Stewardship Group in Australia, for instance, is driving collaboration in circular economy practices.

Their efforts focus on redesigning methodologies, exploring alternative business models, and creating products designed for circularity—ensuring items can be reused across various markets. 

This shift is most visible in initiatives such as: 

Recycling and takeback programs: Ripcurl and Reformation are leading the way with robust recycling systems. 

Repair and reuse services: Patagonia provides repair services and DIY tutorials, promoting product longevity. 

Rental and subscription models: Glam Corner’s innovative approach allows consumers to rent and subscribe, reducing waste and maximising utility. 

Textile recycling and pulping: Companies such as Blocktexx are beginning to create circular partnerships to use their recycled textile fibres into new products. 

Ainsley Simpson, CEO of the Seamless Clothing Stewardship Scheme, also noted the importance of building stronger strategic foundations to support and scale circular and sustainable fashion practices: 

“Mandatory reporting can help safeguard and further align brands to a collective and collaborative approach towards data capturing methods, decarbonising fashion supply chains, and internal governance alignment to sector wide changes in the fashion industry. 

Sustainability is the only possible pathway forward for our sector, and we can only do it if all clothing brands join forces to do better.”

The journey may be complex, but the foundation for success is clear: start with a detailed inventory of your materials, waste, and supply chain.

Once you identify the stakeholders in your system and the key elements driving your impact, you can begin asking the right questions and tracking the data that matters. 

By embedding robust governance structures and sustainable practices into your operations, you can meet Australia’s climate reporting demands while strengthening your brand for the future. Get started today.

Are you trying to navigate what mandatory climate disclosure requirements mean for your business? Need to upskill your team, identify gaps in your roadmap, or tackle the complexities of Scope 3 emissions and operational waste? 

Paula Saldias, Managing Consultant, Strategy

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