AASB S2 governance disclosures: What boards need to be able to show
AASB S2 governance disclosures: What boards need to be able to show
Mandatory climate reporting is exposing a governance gap. Many boards can point to structures that oversee climate-related risks and opportunities, but far fewer can clearly demonstrate how those structures operate in practice and influence decision-making.
Under AASB S2 Climate-related Disclosures, that distinction matters. Governance may be only one pillar of disclosure, but it underpins the credibility and usefulness of reporting. For many organisations, the challenge isn’t building governance, it’s explaining it clearly and convincingly.
Insights from BDO’s April 2026 sustainability webinar highlighted a consistent theme: it’s not enough to say what your governance structure is; you need to be able to clearly demonstrate how it operates. This is where many organisations are currently falling short, but also where there is a significant opportunity to strengthen reporting quality and underlying governance practices.
Why governance sits at the centre of AASB S2
AASB S2 requires organisations to disclose information about climate-related risks and opportunities that is useful to investors and other capital providers. These disclosures are designed to show how climate-related risks could impact an organisation’s prospects – including its cash flows, access to finance, and cost of capital over time.
Governance is the foundation of this, providing the lens through which investors can assess whether climate-related issues are appropriately considered at both the board and management levels. Put simply, these nine governance disclosures answer the question, “Can we trust that this organisation understands and is actively managing its climate risk?”
Directors’ responsibilities are already here
One of the most important shifts under mandatory sustainability reporting is that directors’ existing duties now extend to the sustainability report, introducing a directors’ declaration over sustainability reporting. This can create a “directors’ expectation gap” – where some areas may not yet be subject to assurance, but directors are still expected to sign off with confidence. Strong governance processes, documentation and oversight are essential to bridging that gap. For boards navigating this, our article What boards need to ask about mandatory sustainability reporting is a good place to start.
The governance objective: Focus on processes, not statements
A common mistake in early disclosures is relying on high-level statements such as “the Board oversees climate-related risks and opportunities.” While technically correct, this is not useful.
AASB S2 is built on the four pillars originally established by the Task Force on Climate-related Financial Disclosures (TCFD): governance, strategy, risk management, and metrics and targets. Together, these pillars provide a framework for explaining how organisations identify, assess and respond to climate-related risks and opportunities, and how these considerations connect to financial outcomes.
The governance pillar sits at the foundation of this framework. Its objective is to enable investors to understand the processes, controls and procedures used to monitor, manage and oversee climate-related risks and opportunities. In practice, this means disclosures need to clearly demonstrate how oversight operates within the organisation, not just describe its existence.
Disclosures need to explain:
- How information flows from management to the board
- How often is climate discussed?
- How decisions are made, and
- How oversight is evidenced in practice.
The word “how” sits at the centre of all nine disclosures. It's not just about stating which structures exist, but how they exist. Without this level of detail, disclosures risk being too generic, and failing to meet the objective of being decision-useful.
The nine governance disclosures
The nine disclosures are split across two areas: those charged with governance (typically the board and its committees) and management. These disclosures are designed to build a complete picture of governance, from board-level oversight to day-to-day implementation.
- Identify the governance body responsible
Organisations must clearly state who is responsible for oversight of climate-related risks and opportunities. This could be the full board, a specific committee, or a delegated individual.
- Explain how responsibilities are formalised
This disclosure goes one step further. It requires organisations to explain how these responsibilities are embedded in documentation such as board charters, committee terms of reference and policies. It’s not enough to assign responsibility – it needs to be formally reflected.
- Explain how skills and competencies are assessed
Boards need to demonstrate how they determine whether they have the right skills and competencies to oversee climate-related matters. If not, what is the plan to develop these skills and competencies in the future?
- Explain how and how often the board is informed
Investors want to understand the cadence and quality of internal information flows. How frequently does management report to the board on climate? What kind of information is provided? Is this built into regular reporting cycles?
- Explain how climate is considered in decision-making
This disclosure focuses on how climate-related risks and opportunities are factored into strategy, capital allocation and major transactions. It should be clear how climate considerations influence real business decisions.
- Explain how targets are overseen
If an organisation has climate targets, it needs to explain how the Board oversees development and monitors its progress. This also includes explaining whether climate performance is linked to remuneration.
- Describe management’s role
At a management level, organisations must explain who is responsible for implementing governance processes and overseeing climate risks and opportunities.
- Explain the delegation and oversight of management roles
If responsibilities are delegated within management, disclosures should clearly identify who holds them and how oversight of those roles is exercised.
- Explain controls and integration
Organisations must explain whether management uses controls and procedures to monitor climate risks, and how these are integrated into broader internal functions such as risk management, finance and operations.
The most common issue: A lack of detail
Across all nine disclosures, the most common issue is insufficient detail. Many organisations describe what their governance structure looks like, but do not explain how it works in practice.
Strong disclosures should be supported by evidence, such as:
- Board and committee minutes showing climate discussions
- Documented delegations of authority
- Formal policies and procedures
- Defined reporting cycles and templates.
Tip: If a disclosure could apply equally to any organisation, it’s likely too generic.
Strengthening governance without overcomplicating
Importantly, organisations don’t need to create entirely new governance frameworks for climate. In most cases, governance structures already exist. The focus should be on embedding climate-related considerations into those existing frameworks and clearly articulating how that integration works.
This might include updating board charters, adding climate as a standing agenda item, integrating climate into risk management processes, or formalising management reporting lines. The goal is alignment, not duplication.
What to do now
For Australian organisations preparing for mandatory reporting, there are several immediate actions that can strengthen governance:
- Clearly define board and management responsibilities for climate-related matters
- Update governance documentation to reflect those roles
- Agree on how and how often management updates the board
- Assess and document board and management capability in climate-related areas
- Ensure climate considerations are embedded in strategy and decision-making processes
- Build an evidence base that supports disclosures.
These steps not only improve reporting quality but also build confidence at board level when it comes time to sign off.
Key takeaways
- There may only be nine governance disclosures, but they require detailed, specific and evidence-backed responses.
- The quality of disclosure depends on explaining how governance operates in practice, not just describing structures.
- Directors’ responsibilities make it critical that governance processes are robust, documented and defensible.
- Existing governance frameworks can often be leveraged, but climate must be clearly embedded.
- Organisations that focus on process, evidence and clarity will be better positioned to produce decision‑useful disclosures.
Preparing for AASB S2 governance disclosures? Our Sustainability Reporting specialists can support you in strengthening governance, building evidence for disclosures, and getting ready for board sign‑off. Contact our team to learn more.
