Where should climate disclosures be presented in the annual reports of listed entities?

With sustainability reports (climate-related disclosures) now mandatory for Group 1 entities with years ending 31 December 2025 and thereafter, preparers are asking: Where does this sustainability report belong within the annual report?

And what about Group 2 and Group 3 entities? Climate-related disclosure is still voluntary for these entities, but is there an expectation that some level of climate disclosure will be provided, particularly for listed entities?

This article explains the why and where of climate-related disclosures for Australian listed entities in their 31 December 2025 annual reports.

Group 1 listed entities

Group 1 listed entities must provide climate-related disclosures (as part of their sustainability report) for the first time for the year ended 31 December 2025 (and subsequent years). The sustainability report required by the Corporations Act 2001 consists of:

  • The climate statements
  • Notes to the climate statements
  • Any statements prescribed by legislation (none at present)
  • The director’s declaration about the above.

The sustainability report, together with the financial report and directors’ report, forms part of the annual report prepared under Part 2M.3 of the Corporations Act 2001 and must be prepared and lodged with the ASX and the Australian Securities and Investments Commission (ASIC) as one package.

The climate-related disclosures referred to above must be prepared in accordance with AASB S2 Climate-related Disclosures.

Group 1 listed entities must still comply with the general requirement in section 299A(1)(c) of the Corporations Act 2001 to include a discussion in their directors’ report or Operating and Financial Review (OFR) about the business strategies and prospects for future financial years. This includes discussion about climate risks and opportunities.

However, it is not necessary to disclose this information twice. We recommend that the OFR discussion about business strategies and prospects refer to climate risks and opportunities by cross-referencing to the AASB S2 sustainability report. Cross-referencing information required in the directors’ report is permitted by ASIC Corporations (Directors’ Report Relief) Instrument 2016/188.

Group 2 and Group 3 listed entities – Should ‘voluntary’ disclosures be prepared using AASB S2 or TCFD?

Both the ASX Corporate Governance Principles and Recommendations and the Corporations Act 2001 strongly encourage listed entities to follow the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD) recommendations when disclosing information about climate risk in their annual reports.

Group 2 and 3 entities have a choice of two different approaches:

  • Apply TCFD (and present disclosures in the OFR), or
  • Early adopt AASB S2 (and if you want to apply the limited immunity provisions, disclosures must be presented within the annual report).

ASX Corporate Governance Principles and Recommendations

ASX Listing Rule 4.10.3 requires all Australian listed entities to prepare a Corporate Governance Statement and disclose the extent to which it has followed the recommendations of the ASX Corporate Governance Council during the reporting period, i.e. the Fourth Edition of the Corporate Governance Principles and Recommendations.

‘A listed entity should disclose whether it has any material exposure to environmental and social risks and, if it does, how it manages or intends to manage those risks.’

Recommendation 7.4 of the Corporate Governance Principles and Recommendations

In referring to ‘environmental risks’, Recommendation 7.4 requires disclosures about climate risk in a listed entity’s Corporate Governance Statement.

Even if an entity considers its exposure to climate risk to be immaterial, we believe that the ‘if not, why not’ approach to corporate governance disclosures requires the entity to explain how it arrived at that conclusion. This is supported by the Commentary to Recommendation 7.4 which notes that ‘The Council would encourage entities that believe they do not have any material exposure to environmental or social risks to consider carefully their basis for that belief and to benchmark their disclosures in this regard against those made by their peers.’

The Commentary to Recommendation 7.4 notes that one particular source of environmental risk relates to climate change. Recommendation 7.4 also encourages listed entities to consider the recommendations of the TCFD when assessing whether they have a material exposure to climate change risk, and to make the appropriate TCFD disclosures.

Corporations Act 2001

Section 299A(1)(c) of the Corporations Act 2001 requires listed entities to include a discussion in their directors’ report or OFR about the business strategies and prospects for future financial years of the entity reported on.

Although s299A(1)(c) does not specifically refer to discussing business risks in the OFR, ASIC Regulatory Guide 247 Effective disclosure in an operating and financial review (RG 247) notes that it is important that the discussion about future prospects is balanced. That is, discussing future prospects without discussing material business risks that could adversely affect the entity’s achievement of those prospects is likely to be misleading. RG 247 also identifies climate change as a systemic risk that could materially impact the entity’s future financial position, performance and prospects and directors may also consider whether it would be worthwhile to disclose additional information from the TCFD.

Where to include TCFD disclosures?

Regarding location of disclosures, the 2017 TCFD Final Report notes that preparers should include climate-related financial disclosures in their mainstream (public) annual financial filings.

Although strongly encouraged by the ASX and ASIC, we note that TCFD disclosures are still technically voluntary in Australia. Nevertheless, in order to comply with section 299A, TCFD disclosures should be included within the 31 December 2025 annual report for non-Group 1 entities, and preferably within the OFR.

All information required under s299A (and therefore climate risks and TCFD disclosures) must be included in the body of the directors’ report, or in a separate OFR that is cross-referenced Note 1 from the directors’ report. Entities cannot cross-reference information otherwise required by s299A in the directors’ report to documents outside the annual report package.

Note 1: Cross-referencing information required in the directors’ report is permitted by ASIC Corporations (Directors’ Report Relief) Instrument 2016/188.

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