Climate-related financial effects under AASB S2: A practical guide for finance teams 

A flood-damaged warehouse, rising energy prices or growing demand for lower-emissions products can all affect a business financially. The harder question is how much, when and where those effects will appear in its numbers. 

Under AASB S2, organisations must explain how climate-related risks and opportunities affect their financial position, financial performance and cash flows. This includes effects already experienced and those expected in the future. For finance teams, that means tracing climate exposures to familiar financial drivers. 

What are current and anticipated financial effects under AASB S2? 

AASB S2 distinguishes between two types of financial effects. 

Current financial effects arise during the reporting period. Examples include higher insurance premiums, flood repairs or investment in energy-efficient equipment. AASB S2 requires organisations to explain the connections between these effects and their financial statements. 

Anticipated financial effects look ahead. They consider how an organisation expects its finances to change over the short, medium and long term, taking account of its strategy and financial plans. Planned flood protection, for example, may increase future capital expenditure while reducing potential repair costs. Future spending is not automatically a liability today, but it remains relevant to investors. 

Climate scenarios test how a business might perform under different plausible futures. Anticipated financial effects concern the outcomes management expects, informed by those scenarios and management's plans. They are not simply the worst-case results of a climate model. 

How do you quantify climate-related financial risks and opportunities? 

Start with the business impact, not the climate model. 

Consider a food manufacturer spending $2 million a year on electricity. A 10% increase in its electricity bill would add $200,000 to annual operating costs, before management responds. The financial effect depends on contracted prices, production volumes, the ability to pass costs on to customers and potential investment in more efficient equipment. Finance teams can then evaluate the implications for operating margins, capital expenditure and cash flow. 

For a property owner, flood exposure calls for different calculations. An asset portfolio worth $100 million in a flood-prone area does not imply $100 million in expected losses. Useful estimates might consider the probability and severity of damage, repair costs, rental income lost during disruption, insurance arrangements and the cost of protective works. This distinguishes exposed asset value from expected financial loss. 

Opportunities need the same discipline. A retailer considering lower-emissions products might estimate expected sales, gross margins and the upfront investment required. However, projected demand, pricing and customer preferences will depend heavily on its market and commercial strategy. 

What did ASIC's first sustainability reporting review reveal? 

ASIC's September 2026 review of 40 Group 1 sustainability reports found that 37.5% disclosed only qualitative information about current and anticipated financial effects. ASIC encouraged organisations to consider whether they could provide reliable figures or ranges and flagged weak connections between sustainability disclosures and financial statements. 

Qualitative disclosure is permitted in specified circumstances under AASB S2, but organisations still need to explain why they have not quantified an effect and identify the affected financial statement items. Year 2 offers an opportunity to strengthen the analysis. 

What is Edge seeing in Year 2? 

In our first-year engagements, much of the effort went into choosing methods, testing data availability and identifying gaps. Since ASIC's review, we have seen greater auditor scrutiny as clients prepare for broader limited assurance in Year 2. 

Clients increasingly want to use the work. Finance teams are asking how climate-related effects feed into capital expenditure decisions, cost management, EBITDA and cash flow forecasts. There is a clear appetite for estimates that can inform decisions as well as disclosures. 

The nature of the risk shapes the work. In physical risk assessments, we generally see confidence in the underlying climate science; the challenge is linking hazards to individual assets, operational disruption and financial consequences. Transition risks and opportunities often require more tailored assumptions because organisations have different strategies for energy procurement, decarbonisation, pricing and investment. 

Starting earlier has made a practical difference. Clients have more time to obtain asset and financial data, discuss findings with business owners, test assumptions and incorporate the analysis into budgeting and capital planning. The result is information that management can use, supported by a stronger evidence base for assurance. 

How can finance teams prepare for AASB S2 reporting? 

Review your material climate risks and opportunities, then trace each one to an identifiable financial driver. The starting data may already sit in asset registers, energy contracts, insurance records, capital plans and forecasts. Decide which effects warrant a simple sensitivity analysis, which need more detailed modelling and where uncertainty is better communicated as a range. 

Involve finance, operations, risk and sustainability teams early. The aim is to produce figures that make commercial sense, reflect management's plans and can be explained to auditors and report users.