Preparing a first mandatory climate report raises far more questions than the Standard itself can answer. Drawing on our experience supporting Group 1 reporters through their first AASB S2 reporting cycle, we answer six questions that can help Group 2 organisations produce more credible, transparent and assurance-ready first-year disclosures.
Australia’s climate-related disclosure landscape is moving quickly. With AASB S2 now applying to Group 2 reporters, climate risk is no longer being treated as a standalone sustainability issue. It’s becoming embedded into governance, enterprise risk management, strategy, and financial decision-making.
Realistically, we know most Group 2 reporters will approach their first reporting cycle with one objective in mind: achieving compliance. That’s a sensible starting point. But after working alongside several Group 1 reporters, we’ve seen that the strongest reports weren’t necessarily the longest or the most technically complex. They were the ones that clearly explained the reasoning, evidence and judgment behind key decisions, giving stakeholders confidence in the disclosures.
Futureproof has supported organisations through this transition across multiple reporting frameworks, including GRI, SASB, TCFD and now AASB S2.
This article brings together two complementary perspectives. One is from an experienced ESG specialist who has guided organisations through climate reporting, emissions data management and broader sustainability reporting for many years; the other is from a Sustainability Analyst who is relatively new to the profession. Why? Because the questions that seem the simplest are often the most valuable. They’re the questions that come up in workshops, project meetings and Board discussions, helping to shape stronger disclosures and build confidence in the final report.
Rather than telling you what the Standard says, we’re focusing on what we’ve seen in practice. The questions below reflect the conversations, challenges and lessons that emerged from supporting Group 1 reporters, and how Group 2 organisations can use those insights to prepare for their own reporting journey.
Q1: AASB S2 compliant, but does it meet stakeholder expectations?
Robin’s response:
One of my observations from the Group 1 reporters is that disclosures become more useful when they explain the reasoning behind key management judgements. For example, explaining why particular climate-related risks were considered material, why others were not and how management reached those conclusions. That additional context helps build confidence in the disclosures and makes the report more meaningful to stakeholders.
Grace’s response:
When you’re in the depths of preparing an AASB S2 report, it’s natural to fixate on ensuring, first and foremost, that the disclosure will stand up in audit. Reading through published calendar year Group 1 reports, it’s relatively obvious which companies simply ticked the boxes, and which had also considered the needs of the “general purpose user” of the report: stakeholders and investors.
They technically achieved compliance, but they often left me wondering why management had reached certain conclusions. In my view, there’s an important difference between a report that meets the requirements and one that anticipates the questions stakeholders are likely to ask.
Q2: Why do some reports feel more credible than others?
Robin’s response:
Readers can tell the difference between a report that is more coherent and credible and one that simply ticks the disclosure boxes.
Where reports felt less convincing, it was often because different sections appeared to have been prepared independently. A climate risk identified in one section would disappear in another, or financial impacts were not linked back to the risks being discussed.
The best reports establish clear connections across governance, strategy, risk management and metrics & targets. Governance and Board oversight provides the foundation. Climate risks identified through risk assessment and scenario analysis, which then inform financial impact assessment. Assumptions and judgements remain consistent throughout the report, creating a coherent narrative for readers.
Grace’s response:
Coming in as a newbie in the Sustainability sector (but having an environmental science background), I would say it’s about the interconnectedness of not only climate science, but the story behind every disclosure. While the report is the public-facing deliverable, it’s the evidence trail, the governance processes and basis of prep docs, and Board discussions behind each disclosure that give it credibility. They’re also what determines whether an organisation has a smooth assurance process or a much more challenging one.
Q3: Why aren’t all climate risks and opportunities quantified?
Robin’s response:
AASB S2 recognises that there may be circumstances where quantitative information cannot be provided and requires entities to explain the reasons why.
That said, organisations should not treat this as an easy exemption. If a risk is considered material but cannot be quantified, stakeholders will expect to understand why. Is the necessary data unavailable? Is the uncertainty currently too high to produce meaningful estimates?
Group 1 reports who clearly explain these limitations tend to produce more credible disclosures than those who simply state that quantification was not possible.
Grace’s response:
Some published calendar-year Group 1 reports we’ve viewed over the past months concluded that no material climate risks had been identified for disclosure. My first question, then, was: how can that be? If two mining companies operate in similar regions, extract the same commodity, and face the same climate hazards, how can one identify a material climate-related risk while the other doesn’t? The more I worked through AASB S2 projects, the more I realised there isn’t always a single “right” answer. But there should absolutely be a well-supported one.
Materiality depends largely on management and Board judgement, the organisation’s specific circumstances and how those climate-related risks are expected to result in material financial effects. Some risks may not be material, while others may be material but cannot yet be reliably quantified. While different conclusions can be justified, readers will still expect to understand the reasoning behind them. One of my biggest takeaways from reading Group 1 reports and working with clients is that it’s not just the conclusion that matters, but whether you can clearly support how you got there. Where a risk has been assessed as immaterial or not quantified, consider whether additional context would help readers understand why.
Q4: When should assurance prep begin?
Robin’s response:
From the outset.
Many organisations still think of assurance as something that happens after the report is drafted. Assurance preparation begins well before the final report is prepared. Every climate workshop, management decision and Board discussion can become part of the assurance evidence base.
Grace’s response:
If I could give one piece of advice, it would be to build your evidence base for assurance as you go, rather than trying to reconstruct it at the end of the reporting process. It not only makes assurance more efficient but also helps demonstrate the reasoning behind any key decisions or variations throughout the process. I’d also recommend involving your auditors early, so you understand what evidence they’ll be looking for and when they’ll need it.
Q5: How mature does a first report need to be?
Robin’s response:
Stakeholders expect organisations to demonstrate that they have established appropriate governance, undertaken a climate risk assessment and disclosed their scope 1 and 2 emissions.
I think it’s acceptable to acknowledge limitations where methodologies continue to evolve or data quality is improving. What’s important is explaining those limitations and showing how the organisation intends to strengthen its approach over time.
Grace’s response:
When I first started working on quantifying the financial impacts of climate-related risks and opportunities, I expected ASX-listed companies to have sophisticated financial models and years of historical operational data tracked to a meticulous level of detail.
In environmental science, you’re trained to collect and analyse data, understand uncertainty and draw conclusions supported by the available evidence. You’re generally looking for the most scientifically robust answer. Climate-related financial reporting adds another dimension, because you’re not only considering the evidence, but also management and Board judgement, commercial context and financial materiality. The objective isn’t always to find a single optimal answer, but to reach a reasonable, supportable conclusion and clearly explain how you got there. I realised that’s what defines the maturity of a first report, rather than the sophistication of its modelling.
Q6: What’s the biggest mistake Group 2 should avoid?
Robin’s response:
In my opinion, the biggest mistake would be treating climate reporting as a reporting exercise rather than a business exercise. The companies that experienced the greatest challenges were often those that left climate reporting until late in the process. By then, they were trying to involve finance, risk, operations and executives under significant time pressure, while simultaneously gathering documentation and evidence to support assurance. This can add considerable time and complexity. The most successful projects started early, involved the right people from across the organisation and documented decisions as they were made.
Grace’s response:
The biggest mistake I think Group 2 could make is assuming that meeting the minimum disclosure requirements means you’ve answered the ‘general purpose users’ questions. While we’ve been working on Group 1 reports and benchmarking peer calendar-year reports, one thing that has stood out is that a vague disclosure quickly raises more questions than it answers. Sometimes, all it takes is adding an extra sentence or two explaining the rationale behind a disclosure to completely change how it’s received. Less isn’t always more. I think in this case, context helps build confidence.
Final thoughts
Working with Group 1 reporters has shown that credible climate reporting isn’t just about complying with AASB S2. It’s about making well-reasoned judgements, supporting them with evidence and communicating them clearly.
The strongest first-year reports weren’t defined by the sophistication of their modelling or the length of their disclosures. They were defined by how effectively they explained management’s thinking and built confidence in the decisions behind the report.
Knowing what good looks like is only the starting point. In our next article, we break down the ten biggest implementation challenges from the first reporting cycle and share practical lessons to help Group 1 refine their approach, and Group 2 get ready for what is coming next.