AASB S2 has now moved from theory to practice. After supporting organisations through the first reporting cycle, these are the implementation challenges we incurred most often and the practical advice we’d give to anyone preparing their first or next report.
Unless your organisation has previously reported under frameworks such as TCFD or ISSB, implementing AASB S2 is likely to require a significant increase in time, effort and cross-functional collaboration. With the first Group 1 reporting cycle now largely complete, we have a much clearer picture of what implementation looks like in practice.
Reflecting on the first reporting cycle, several recurring implementation challenges became apparent across almost every project. Many of these arose well before drafting the report itself, as organisations worked through governance, data collection, scenario analysis, financial quantification, and assurance readiness.
1. Educate before you evaluate
Before organisations could meaningfully assess climate-related risks and opportunities, there was often a need to build a shared understanding of the tools and concepts used throughout the process. Many organisations already have established enterprise or operational risk management processes, but applying a climate lens requires a different way of thinking. Concepts such as physical and transition risks, scenario analysis, climate-related opportunities, time horizons and financial materiality were unfamiliar to many stakeholders outside the sustainability function.
Before climate risk workshops could begin, organisations first needed to establish a common understanding of these concepts and how they fit together within the broader AASB S2 process.
Our advice: Don’t underestimate the value of early capability building. Investing time upfront to explain the climate risk assessment process, the purpose of scenario analysis and the role of management judgement will lead to more productive workshops and stronger disclosures. For time-poor teams, concise pre-read materials before workshops can be equally effective.
2. Climate reporting is a team sport
Although climate reporting is often led by sustainability teams, it’s likely that Group 2 reporters won’t have this function pre-installed. Successful implementation depends on contributions from across the organisation. Finance, operations, environment, risk, legal, executive leadership and Boards all play important roles throughout the risk and opportunity assessment and reporting process. Coordinating those inputs, while balancing competing priorities and differing levels of climate knowledge, proved to be one of the most common implementation challenges we observed.
Our advice: Utilise the expertise in the room to your advantage. Operational teams will likely have already seen physical climate or weather-related risks occurring on the ground. They might just not have previously viewed it through a climate lens. The risk, finance and strategy teams are forward, analytical thinkers who will know how to plan for transition risks. Create a working group or task force to handle climate-related matters within the business, including reporting. Establish regular cross-functional meetings and identify lead decision-makers early to avoid delays later in the project. This is also an expectation within the Governance pillar of the requirements, so clearly defining roles and responsibilities, and contact persons, from the outset will make the climate reporting process run a bit more smoothly.
3. Data availability rarely aligns with reporting timelines
Mandatory climate disclosures need to be prepared well before the end-of-year operational emissions and financial datasets are finalised. The awkward timing of this meant that organisations found themselves between a rock and a hard place – trying to progress their climate-related disclosure and handover to the auditors, while simultaneously waiting on year-end emissions inventories, operational production data or financial information. This often meant that proxy datasets, forecasts, or documented management assumptions acted as placeholders until final information became available. While this is entirely manageable, it requires careful oversight and a clear audit trail to demonstrate which assumptions were made and when disclosures would be updated.
Our advice: Identify potential data gaps early in the reporting process and agree on an approach before drafting begins. Where assumptions or proxy data are used, ensure they are clearly documented and supported by an appropriate methodology. The fewer questions the auditor comes back with, the better.
4. Climate scenarios don’t provide all the answers
While scenario analysis is an incredibly valuable tool, one misconception is that the selected scenarios provide a complete methodology and assumptions for quantifying financial impacts.
Scenario analysis provides climate variables such as rainfall, temperature and carbon prices, together with qualitative assumptions about policy, technology and market developments. However, organisations still need to determine how those variables may affect their own operations and financial performance, whether through production, water availability, operating costs, capital expenditure or supply chains. In many cases, assumptions didn’t exist for certain cost drivers or business activities, and some impacts, such as heat-related costs, weren’t separately tracked in existing financial systems. This often required organisations to develop their own defensible financial methodologies that translated climate scenario assumptions into entity-specific operational and financial impacts, supported by management judgement and available evidence.
Our advice: Treat scenario analysis as the starting point for financial impact assessment, not the finished methodology. Allow sufficient time to iteratively develop, document and refine your approach, particularly where additional assumptions, proxies or management judgement are required.
5. Quantifying financial impacts is often the hardest part
Organisations were often surprised by how much work sat between scenario analysis and financial quantification.Developing defensible financial methodologies often became one of the most time-consuming parts of implementation, requiring organisations to determine how climate variables would realistically affect their own operations, cost base and financial performance.
Even where a climate-related risk had been identified as material, reliable quantitative information wasn’t always available. Limited datasets, significant uncertainty, immature methodologies or gaps between scenario assumptions and operational data often meant that qualitative disclosures required just as much analysis as quantitative ones.
Our advice: Don’t think of financial quantification as simply plugging numbers into a spreadsheet. Start by understanding how climate-related risks and opportunities could realistically affect your organisation, then develop and document a defensible methodology for translating those impacts into financial outcomes. Clearly identify where assumptions and management judgement have been applied, and where genuine limitations prevent reliable quantification. If the material risk or opportunity can’t be disclosed quantitatively, explain why. Stakeholders are generally far more interested in understanding the reasoning behind that decision than seeing a number that isn’t reliable and ultimately, isn’t meaningful.
6. Management judgement underpins almost every disclosure
Unlike more prescriptive reporting standards, the further we got into implementation projects, the mMany of the requirements within AASB S2 rely on management judgment. As a result, two like-for-like organisations may apply the Standard appropriately and still arrive at different conclusions because their circumstances, available data, governance processes and risk profiles differ. Rather than prescribing a single outcome, the Standard requires organisations to exercise judgement across a range of areas, including:
- whether a climate-related risk or opportunity is material;
- what time horizons are appropriate;
- which climate scenarios to use;
- whether anticipated financial effects should be qualitative or quantitative;
- what assumptions and methodologies are reasonable; and
- how uncertainty should be reflected in disclosures.
Our advice: Different organisations may legitimately reach different conclusions. What matters is that those conclusions are evidence-based, appropriate to the organisation’s circumstances and supported by clearly documented rationale. Capture that rationale as decisions are made, whether through Board and committee minutes, workshop outputs, management papers, decision logs or email correspondence. These records often become some of the most valuable evidence during assurance.
7. The report is only one piece of the puzzle
Climate reporting is an iterative process, and it’s not unusual for assessments to evolve as additional analysis is completed. Initial views formed during climate risk assessments may be refined following scenario analysis, financial quantification or management review, while methodologies often continue to evolve as better data and evidence become available. These changes are entirely reasonable, provided the rationale is clearly documented.
Because climate reporting is an iterative process, earlier workshop outputs won’t always mirror the final disclosures. As reporting projects evolve, it’s important to maintain a clear record of how key decisions progress from initial workshop discussions through to the final outputs within the disclosure. Without this, organisations may find themselves retracing discussions and revisiting assumptions during internal review or assurance.
Our advice: Use your Basis of Preparation document (or a similar decision log) to record significant changes in assumptions, methodologies and management judgements throughout the project. This creates a clear audit trail, keeps supporting documentation aligned and makes it much easier to explain how the final disclosures were reached during assurance.
8. Assurance preparation starts much earlier than expected
While limited assurance is the final step before publication, assurance preparation begins with the first governance discussion, the climate workshop, and the documented management judgement.
One practical challenge is ensuring that evidence remains traceable, complete and readily accessible once assurance begins. Organisations that organised their evidence progressively generally experienced a more efficient assurance process than those trying to compile documentation retrospectively.
Our advice: Engage with your assurance provider early to understand evidence expectations. Building your evidence pack alongside the project, which they’ll often provide a template for, will save considerable time and effort later.
9. Don’t mistake maturity for credibility
Some organisations entered their first reporting cycle believing they needed perfect datasets or highly sophisticated methodologies before they could produce a credible report. In practice, first-year reports are expected to establish a baseline. Stakeholders generally understand that methodologies and datasets will continue to mature over time, provided current limitations are clearly explained and there is a roadmap for improvement.
Our advice: Focus on producing a transparent, supportable baseline rather than trying to demonstrate a level of maturity your organisation hasn’t yet achieved. Clearly explaining current limitations and planned improvements often builds more confidence than overstating capability.
10. Look beyond Year 1
One question we often discussed with clients was what happens after the first report is published. Completing an AASB S2 report is a significant milestone, but it marks the beginning of the next stage of the journey, not the end.
The first report establishes a baseline. For Group 1 reporters, attention now shifts to completing the areas deferred under transition relief, while continuing to mature the governance, methodologies and datasets established during the first reporting cycle. As reporting and assurance expectations continue to evolve, organisations should also focus on strengthening the data and methodologies underpinning any material risks and opportunities that could only be disclosed qualitatively in the first reporting cycle.
Year 2 is an opportunity to build on the foundations established in the first reporting cycle, whether by commencing Scope 3 screening and value chain assessments, refining financial quantification methodologies or improving underlying data quality.
Our advice: Once the first report is published, conduct a formal lessons learned review while the experience is still fresh. Identify what worked well, where the biggest capability and data gaps remain, and develop a clear roadmap to address them. This may include progressing Scope 3 screening and value chain assessments, strengthening data collection and governance processes, or beginning to collect operational metrics that were previously unavailable, such as heat-related disruptions or downtime.
The work completed between reporting cycles will make the next reporting cycle significantly less stressful, while also helping build an assurance-ready evidence trail as reporting and assurance requirements continue to mature.
For Group 2 reporters, don’t wait until Year 2 to think about Year 2. Identifying capability and data gaps early will help avoid many of the implementation challenges experienced during the first reporting cycle.
Final thoughts
The first year of mandatory AASB S2 reporting has shown that ‘success’ isn’t determined by how well you can interpret the Standard. It’s determined by how well you can implement it.
Across the first reporting cycle, we found that the organisations producing the strongest disclosures weren’t necessarily those with the most sophisticated models or the largest sustainability teams. They were the ones that started early, invested in governance, documented management judgement and thought about follow-through, built robust methodologies and treated climate reporting as a whole-of-business initiative rather than a compliance exercise.
For Group 1 reporters, the focus now shifts to refining methodologies, strengthening governance processes and addressing areas deferred under transition relief. For Group 2, the benefit is that many of the first-year implementation challenges are now well understood.
At Futureproof, we’ve had the opportunity to support organisations through this first wave of mandatory climate reporting and see these challenges play out in practice. We hope these observations can help your organisation navigate its own reporting journey with greater confidence, fewer surprises and a clearer understanding of what successful implementation looks like.