Climate reporting clarity: Practical answers for finance and sustainability leaders

Article

Updated: June 18, 2025 |

You’re not alone in navigating the complexities of climate reporting. From deciding where to start, risk assessment or carbon accounting, to navigating scenario analysis and board governance, the path to compliance can feel overwhelming.

Over the past few months, thousands of professionals have joined BDO’s sustainability webinars to better understand what’s required, what’s coming, and how to get started with mandatory climate-related financial disclosures. During these sessions, we heard a wide range of thoughtful, practical questions, many of which were shared across industries and roles.

You asked and we listened.

This article combines the most frequently asked questions from our webinar attendees with straightforward responses designed to support your organisation’s sustainability reporting journey. Whether you’re in finance, sustainability, or governance, our goal is to help you prepare with clarity, confidence, and tools you can apply immediately.

Who needs to report, and what’s required

With mandatory climate reporting now legislated in Australia, one of the most common questions is simply: “Does this apply to us?” This section helps you determine whether your organisation is in scope, and what that means in practical terms.

How do I know if my organisation is required to report under the new climate disclosure laws?

Answer: For entities preparing financial statements under Part 2M of the Corporations Act 2001, the Australian Government has introduced a phased approach to mandatory climate-related financial disclosures, starting from 1 January 2025. Whether your organisation is in scope depends on it meeting one of the following criteria:

Criteria 1: Size thresholds

Criteria 2: National Greenhouse Energy Reporting (NGER) reporters

Criteria 3: Asset owners

The entity and its controlled entities satisfy at least two of the following three criteria:

Consolidated revenue for the financial year of $50 million or more
End-of-year consolidated gross assets of $25 million or more
End-of-year employees of 100 or more.

Section 292A(3)

Under the National Greenhouse and Energy Reporting Act 2007 (NGER Act), the entity is either:

A registered corporation, or
Required to apply to be registered under section 12(1).

Section 292A(5)

Both the following criteria are met:

The entity is a registered scheme, registrable superannuation entity or retail corporate collective investment vehicle (CCIV)
The value of its assets at the end of the financial year of the entity and the entities it controls is $5 billion or more.

Section 292A(6)

In scope entities won’t have to all report in the first year. The largest entities and heavy NGER emitters (Group 1) are first, followed by medium-sized entities, other NGER emitters and investment vehicles with assets of $5 billion second (Group 2), and lastly, the remaining in scope entities (Group 3).

Tip: Use our decision tree to determine your group and obligations.

What if we’re a franchisor, NFP, part of a managed investment scheme or retail CCIV?

Answer: These entity types are not exempt. The key is whether your organisation is subject to the reporting requirements in Chapter 2M of the Corporations Act 2001 and meets one of the three criteria.

Franchisors: If the franchisor entity meets any of the criteria, it must report, even if franchisees are separate legal entities.
Not-for-profits (NFPs): NFPs that are companies limited by guarantee, not registered with the Australian Charities and Not-for-profits Commission (ACNC) and meet the criteria shown above are in scope.
Managed Investment Schemes (MIS): The $5 billion asset threshold applies to the MIS itself and any entities it controls, even if it doesn’t consolidate them.
Retail corporate collective investment vehicles (CCIVs): The $5 billion threshold applies to the whole CCIV (i.e. the sum of the value of assets at the end of the financial year of all sub-funds).

Tip: If you’re unsure, consult your legal or accounting adviser or contact BDO for a tailored assessment.

What exactly needs to be disclosed in a sustainability report?

Answer: Entities must prepare a mandatory sustainability report as part of their annual report that includes:

Governance of climate-related risks and opportunities
Climate strategy and risk management
Scenario analysis and resilience
Metrics and targets (including Scope 1, 2, and 3 emissions)
Financial impacts of climate risks and opportunities.

These disclosures must align with AASB S2, which is based on the International Sustainability Standards Board’s (ISSB) IFRS S2 standard.

AASB S2 Climate-related Disclosures checklist

Need help getting started?

Download our AASB S2 Climate-related Disclosures Checklist. A practical tool to help you meet and assess your readiness across Governance, Strategy, Risk Management, and Metrics and Targets.

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Regulatory landscape and global trends

By this point, you might be wondering: What exactly is required now, and what’s coming next? With so much happening in the sustainability space, it’s no surprise that many organisations are looking for clarity, especially when global trends seem to be softening.

What’s the latest guidance from the Australian Securities and Investments Commission (ASIC) and the Australian Accounting Standards Board (AASB) on climate reporting?

Answer: On 31 March 2025, ASIC released Regulatory Guide 280 (RG 280), which provides detailed instructions for entities preparing mandatory sustainability reports under Chapter 2M of the Corporations Act 2001.

Key highlights include:

Clarification of who must report and when, including updates to terminology (e.g. replacing ’assets under management’ with ‘value of assets’).
Content expectations for sustainability reports, including alignment with AASB S2 for climate-related disclosures.
Relief provisions for certain entities, such as stapled groups and small proprietary companies without Chapter 2M obligations.
No exemption for Australian subsidiaries of foreign parents; each must report individually if they meet the thresholds.

How might international developments (e.g., US, EU) affect Australia’s approach?

Answer: While some jurisdictions (like parts of the EU) are reconsidering the scope or pace of sustainability regulations, Australia is moving forward decisively. The government has passed legislation mandating climate disclosures from 1 January 2025, and ASIC has confirmed its intent to enforce compliance.

However, global developments still matter:

IFRS® Sustainability Disclosure Standards (ISSB) are the foundation for Australia’s AASB S1 and S2.
US and EU policy shifts may influence investor expectations and supply chain pressures, especially for multinationals.
New topics like biodiversity and nature are expected to be added to mandatory reporting in future phases.

Tip: Stay informed about global trends but focus on local compliance first. Australia’s framework is already legislated and active.

What’s the timeline for assurance over sustainability reports?

Answer: Assurance requirements will be phased in over several years (depending on your reporting Group 1, 2 or 3). The Auditing and Assurance Standards Board (AUASB) has issued ASSA 5010 Timelines for Audits and Reviews of Information in Sustainability Reports under the Corporations Act 2001, which outlines a staged approach:

Limited assurance (similar to a review) will apply in the early years
Reasonable assurance (similar to a full audit) will be required in later years
Scope 3 emissions benefit from transitional relief and are not required to be assured in the first year.

Tip: Start preparing now by:

Strengthening your internal controls and documentation.
Engaging early with your auditor or assurance provider to understand expectations and readiness.
Planning for a gradual uplift in data quality and governance over time.

Climate risk assessment and scenario analysis

Should we start with climate risk assessment or carbon accounting?

Answer: Both are essential, but a climate risk assessment is often the more strategic starting point. It helps you:

Identify material risks and opportunities
Prioritise where to focus your carbon data collection
Inform your scenario analysis and financial disclosures.

That said, carbon accounting (especially Scope 1 and 2 emissions) is often more straightforward to quantify early on. Many organisations run both processes in parallel.

Tip: It’s important to recognise that climate risk reporting and carbon accounting are not the same, although they are closely linked. Start with a high-level climate risk assessment to explore potential future exposures and strategic implications. This will help you prioritise where to focus your carbon data collection and scenario analysis. As your data and internal capabilities mature, you can deepen both your risk and emissions analysis.

What climate scenarios should we use for analysis?

Answer: Under Australia’s mandatory climate reporting legislation, entities are required to conduct scenario analysis using at least two specific global temperature pathways:

A scenario where the global average temperature increase is limited to 1.5°C above pre-industrial levels (aligned with Paris Agreement goals).
A scenario in which the temperature well exceeds 2°C (in practice, well exceeding 2.5°C) represents a higher risk, a business-as-usual future.

This requirement is more prescriptive than IFRS S2, which allows more flexibility in scenario selection. In Australia, these two temperature benchmarks are legally mandated under Section 296D(2B) of the Corporations Act 2001, as mentioned by the Climate Change Act 2022.

To model these scenarios, organisations often draw from internationally recognised sources such as:

Intergovernmental Panel on Climate Change (IPCC) scenarios (e.g. SSP1-2.6 for 1.5°C, SSP5-8.5 for >2°C)
International Energy Agency (IEA) Net Zero by 2050
Network for Greening the Financial System (NGFS) climate scenarios (widely used by financial institutions and regulators).

Tip: You don’t need to be a climate scientist to get started. Choose scenarios that help you explore both:

Physical risks (e.g. extreme weather, sea level rise)
Transition risks (e.g. policy shifts, carbon pricing, market shifts).

These scenarios help test how resilient your business model is under different climate futures and are a core part of your climate strategy and disclosures.

Can we use qualitative analysis in Year 1, or is quantitative disclosure required?

Answer: AASB S2, paragraph 16 requires disclosure of both qualitative and quantitative information about how, given the organisation’s climate strategies, climate-related risks and opportunities have affected, or are expected to affect, its financial position, financial performance and cash flows over the short, medium and long term.

If an organisation would like to provide only qualitative information initially, it should assess whether it is eligible to do so, that is, whether it meets the requirements for omitting quantitative information in paragraphs 19 and 20 of AASB S2. In our view, Group 1 entities would not meet these requirements and must therefore provide both qualitative and quantitative information in the first year.

Do we need to model different scenarios for each business unit?

Answer: Not necessarily. If your business units operate in similar sectors, geographies, and regulatory environments, a consolidated scenario may be sufficient, especially in the early stages of reporting.

However, if your business units face materially different climate risks, it may be appropriate to model them separately. For example:

A manufacturing division with high emissions exposure may face different transition risks than a service-based business unit.
A coastal facility may be more vulnerable to physical risks like sea level rise or cyclones than an inland operation.

The goal is to ensure your scenario analysis reflects the real diversity of risk exposure across your organisation.

Tip: Start by using your climate risk assessment to identify any business units that face unique or higher risks. If there are clear differences, it may be worth analysing them separately. You don’t need a model for every unit; just focus on where it adds real value.

Governance and internal accountability

As organisations prepare for mandatory climate-related financial disclosures, many are asking what this means for governance structures. Who should be responsible? What needs to change? In this section, we explore how boards, committees, and internal teams can step up to support this important shift.

Do we need to update our board or committee charters to explicitly include climate risk?

Answer: Yes, it’s strongly recommended. While some organisations may already consider climate risk under existing risk management frameworks, regulators and investors increasingly expect explicit references to climate-related risks and opportunities in governance documents.

For example, the AASB S1 and S2 standards align with the Task Force on Climate-Related Financial Disclosures (TCFD) framework, which requires disclosure of how boards oversee climate-related risks. This means:

Board charters should reflect climate oversight responsibilities.
Risk committee charters should include climate risk as a specific category.
Remuneration committees may also need to consider linking executive incentives to climate-related performance.

Tip: Review your governance documents to ensure alignment with the four TCFD pillars: Governance, Strategy, Risk Management, and Metrics and Targets.

Should the ESG Committee or the Finance team lead climate scenario analysis and risk assessments?

Answer: Ideally, it’s a collaborative effort, but the Finance Team should play a central role, especially when it comes to quantifying financial impacts and integrating disclosures into financial statements.

The ESG or Sustainability team often leads on data collection, stakeholder engagement, and strategy.
The Finance team ensures rigour in scenario modelling, materiality assessments, and alignment with financial reporting standards.
The Board and Audit/Risk Committees provide oversight and challenge assumptions.

Tip: Establish a cross-functional working group that includes finance, sustainability, risk, and legal to ensure a cohesive and compliant approach.

Is there an expectation that climate risk be included in your remuneration policies?

Answer: While it's not currently a legal requirement, there is growing momentum—especially among listed entities—for linking executive remuneration to climate-related performance. This trend is being driven by:

Investor expectations: Major institutional investors and proxy advisors are increasingly calling for climate-related KPIs in executive pay structures as a sign of accountability and alignment with long-term value creation.
Global best practice: Many international frameworks (like the TCFD and ISSB standards) emphasise the importance of governance and incentives in driving climate action.
Regulatory signals: While not mandated, regulators have flagged that remuneration policies should reflect material risks, including climate, where relevant.

Tip: If your organisation isn’t ready to implement climate-linked remuneration, consider disclosing your rationale and any future intentions. Transparency about your approach, whether you’re acting now or planning a phased introduction, can help build trust with investors and regulators.