Mandatory Climate Reporting: Keep Your Disclosures Crystal Clear

As Group 2 entities commence their first reporting period under Australia's mandatory climate reporting regime, ASIC's early observations highlight key disclosure expectations and areas for caution.

Australia's mandatory climate reporting commenced on 1 January 2025, and is phased in across three groups based on entity size and other key criteria. Group 1 entities with financial years ending 31 December 2025 were the first to lodge sustainability reports.

Group 2 entities have commenced their first mandatory climate reporting period from 1 July 2026, with a deadline of 31 October 2026 for their first sustainability reports.

ASIC has issued early observations based on its review of a subset of the first sustainability reports lodged by Group 1 entities. While intended to assist Group 1 entities with financial years ending 30 June 2026, the observations provide useful guidance for Group 2 entities as they prepare their first sustainability reports ahead of the 31 October 2026 deadline.

ASIC’s early observations

ASIC has identified six key observations for entities to consider when preparing reports:

1. Disclaimers: It is not permissible to make broad disclaimers in sustainability reports stating that users should not rely on the information to make investment decisions, or disclaimers that the entity is not responsible for the accuracy of such information.
2. 'Reasonable and supportive' information: Use all information available covering 'past events, current conditions and forecast future conditions'. Climate-related events previously disclosed in ASX announcements, investor packs or other public disclosures may also be material information for the sustainability report.
3. Disclosure of judgments, assumptions and areas of uncertainty: Entities are required to disclose judgment calls, assumptions and areas of measurement uncertainty. ASIC will likely scrutinise entities' approaches in relation to exceptions and application of proportionality mechanisms in Australian Sustainability Reporting Standard S2 (AASB S2).
4. Disclosure of voluntary, additional climate-related material must not obscure material climate-related financial information: ASIC observed instances where entities have not clearly distinguished between material and voluntary information included in sustainability reports. ASIC suggests using index tables for outlining the location of information contained in the report.
5. Cross-referencing must meet the requirements in AASB S2 and ASIC Regulatory Guide 280: ASIC expects that reports that have been cross-referenced must also be lodged with the sustainability report.
6. Climate-related targets disclosures: Entities should carefully consider whether they have a disclosable 'climate-related target', with this extending to targets the entity is required to meet by law or regulation, including greenhouse gas emissions targets.

Implications for you

ASIC warns that its early observations in relation to the first wave of reporting should be treated as a baseline, rather than the expected long-term standard. Sustainability reports, financial statements, websites, and investor packs will be publicly comparable, making inconsistencies in climate information easier to identify. Following ASIC's early observations, the content of Group 1's sustainability reports may attract closer scrutiny by investors and other key stakeholders in relation to the entities' ESG activities.

There is an emergence of ESG-related securities class actions in the United States and the United Kingdom, including allegations that a company has implemented ESG initiatives without adequate disclosure, leading to increased scrutiny and share price drops.

The increasing regulatory focus on mandatory climate reporting, coupled with the growing trend of ESG-related class actions overseas, may increase the risk of claims against companies, their directors, and officers concerning alleged ESG representations and disclosures.

Entities should therefore ensure climate-related disclosures are accurate, well supported and consistent across all public-facing communications.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.