Climate science meets policy: The foundation for AASB S2

Article

Published: April 20, 2026 |

Authors: Aletta Boshoff, Ramona Amos

Australia’s new climate-related disclosure regime is built on more than reporting frameworks and compliance requirements. At its core, AASB S2 Climate-related Disclosures is grounded in climate science and climate policy that shape how organisations identify, assess, and disclose climate‑related risks and opportunities.

In our March Sustainability webinar, we stepped back from the mechanics of reporting to explore these foundations in more detail. This article covers why understanding both the science and policy landscape is essential for credible, meaningful disclosures under AASB S2.

Why climate knowledge matters now

AASB S2 requires organisations to disclose climate‑related risks and opportunities that could reasonably be expected to affect their cash flows, access to finance or cost of capital over the short, medium and long term.

In practice, "reasonably expected” is about informed judgement. It involves using the information an organisation already has, current scientific understanding, and known climate-related policy settings — not predicting the distant future with certainty, but making evidence-based assessments about what is likely to occur. Where a risk or opportunity is plausible, supported by available data, and could materially affect the organisation, AASB S2 expects it to be considered and disclosed.

While AASB S2 contains a large number of specific disclosure requirements, they all depend on one essential first step: identifying which climate-related risks and opportunities are relevant to the organisation. Without that foundation, it becomes difficult to produce disclosures that are accurate and capable of standing up to scrutiny.

Climate science: the catalyst of physical risks

Climate change refers to long‑term shifts in temperatures and weather patterns that are now occurring at an accelerated pace due primarily to human‑driven greenhouse gas emissions.

Activities like burning fossil fuels, land clearing and industrial processes have increased the concentration of greenhouse gases in the atmosphere, trapping heat and warming the planet faster than at any point in at least the past 2,000 years.

This acceleration has produced a well‑documented set of physical impacts. Extreme weather events, including storms, floods and bushfires, are becoming more frequent and more intense, with every fraction of a degree of warming increasing their likelihood and severity. Climate models, widely used and trusted by scientists globally, help organisations understand how these conditions are likely to evolve over time.

Australia is already experiencing many of these effects. Observed changes include shifts in rainfall patterns, rising sea levels, heat and cold extremes, and ongoing impacts to agriculture, infrastructure, health and biodiversity. National and regional climate assessments show that further increases in heatwaves, droughts, coastal hazards, severe storms and ocean warming are expected, alongside long‑term changes to rainfall distribution.

This scientific understanding underpins the physical risks organisations must assess under AASB S2. In an Australian context, these risks may include high temperatures affecting outdoor workers, floods damaging critical assets, or bushfires disrupting supply chains. Understanding this science also helps organisations identify potential opportunities, such as products, services or technologies that support climate resilience and adaptation.

Clarifying key climate science principles

Climate science provides a clear and consistent picture of how climate change is unfolding and why it matters for organisations assessing physical risk. Key principles include:

Climate change is already affecting every region, including Australia, through changes in rainfall, sea‑level rise, warming oceans and increasingly intense extreme weather events.
The observed warming over the past 200 years is driven overwhelmingly by human activities, especially fossil fuel use and land-use change.
There is strong scientific consensus on the causes of climate change, with the vast majority of climate scientists agreeing on human influence.

Small increases in global temperature have outsized impacts, increasing the frequency and intensity of heatwaves, floods, storms and bushfires.

Understanding these facts helps organisations cut through the confusion and focus on the climate risks and opportunities that could meaningfully affect their operations, assets and broader value chain. It also opens the door to identifying emerging opportunities in clean technologies, adaptation solutions and low‑carbon markets.

Climate policy: the driver of transition risks

Just as climate science explains how the natural environment is changing, climate policy explains how governments, regulators and markets respond to that scientific evidence. These responses create transition risks, which are the regulatory, market, legal and technological changes associated with shifting to a low-emissions economy.

Internationally, major climate agreements have shaped much of this policy action. These commitments influence national policy settings, shape investment decisions and affect the expectations of global customers and supply chains.

In Australia, these commitments have been reflected in a growing set of domestic policies. This includes mandatory sustainability reporting via changes to the Corporations Act, emissions reduction targets for 2030 and 2035, and a legislated goal of reaching net zero by 2050. Measures such as the safeguard mechanism, updates to the National Greenhouse and Energy Reporting framework, and the establishment of sector‑level decarbonisation plans all contribute to an expanding range of requirements for organisations to navigate.

Australia’s sector plans, including electricity and energy, industry, agriculture and land, the built environment and transport, offer clear direction for how different parts of the economy are expected to reduce emissions. These plans highlight how policy settings will continue to tighten, influencing everything from energy use and technology choices to supply chains and investment decisions.

Other countries are progressing quickly as well. Because many Australian organisations operate internationally or report to overseas parent companies, policy changes in countries such as Japan, Singapore, and the EU can have direct impacts on them. These shifts can affect access to capital, export markets, supplier expectations and competitive positioning.

Together, these developments place transition at the centre of how climate policy affects business strategy, cost structures and long-term viability, making them essential for AASB S2 disclosures.

Climate policy also creates transition opportunities

While much of the focus is on the risks associated with policy and regulatory change, climate policy also creates significant opportunities for organisations. These can include access to new low‑carbon markets, investment in clean technologies, greater energy efficiency, improved resilience across supply chains, and responding to the growing demand for environmentally friendly products and services. As governments strengthen decarbonisation pathways and policy signals become clearer, organisations that respond early by investing in cleaner technologies, redesigning products, or reshaping supply chains may gain a competitive advantage. Under AASB S2, these potential opportunities are just as important to identify and disclose as the risks.

Bringing science and policy together: Building the climate risk picture

Climate science and climate policy are interconnected: science drives policy responses, and policy responses shape economic and market conditions. Under AASB S2, these two forces together form the “risk map” organisations use to identify, prioritise and assess climate‑related risks and opportunities.

To do this effectively, organisations need to understand both climate science and climate policy in their own context. In practice, this means looking closely at where you operate, the types of assets you own, the makeup of your workforce, your sector’s transition pathway, your value chain emissions, and the policy settings that could accelerate or slow decarbonisation.

Using scenarios to translate science and policy into risk insights

Scenario analysis tools help translate scientific evidence and policy settings into plausible climate futures, giving organisations a clearer view of how these drivers could shape their operating environment over time. The webinar highlighted several trusted sources commonly used to support early climate‑risk identification and scenario development, including:

Looking ahead: Australia’s energy transition

Australia’s Electricity and Energy Sector Plan outlines three major shifts that will shape the operating environment to 2050, not just for energy producers, but for organisations across all sectors that rely on energy, transport and emissions-intensive supply chains:

Using energy more efficiently
Electrifying and switching from gas and liquid fuels to cleaner alternatives
Rapidly scaling up renewable energy supported by technologies like batteries.

These changes signal how policy settings will continue to reshape energy use, costs and technology choices. Creating both transition risks and new opportunities for organisations as Australia moves toward a net‑zero economy.

Key takeaways

Climate change is already affecting Australia, increasing the frequency and severity of physical risks, like heat, storms, floods and bushfires.
Climate science provides the evidence base for understanding how these physical risks may impact assets, operations, supply chains and workforce safety.
Climate policy is accelerating transition risks as governments tighten emissions targets, introduce mandatory reporting requirements and reshape sector pathways.
AASB S2 brings these forces together: climate science and climate policy form the starting point for identifying relevant climate‑related risks and opportunities.
Alongside risks, climate policy can create opportunities, including access to low‑carbon markets, new technologies and efficiency-driven cost savings.
Early identification of climate-related risks and opportunities is essential, as all other AASB S2 disclosures build on this foundation.

How BDO can help

Navigating AASB S2 requires informed judgement, credible assumptions and a clear understanding of how climate science and policy intersect. Organisations that invest early in building this foundation will be better placed to meet disclosure requirements and respond to the risks and opportunities ahead.

Our Sustainability Reporting team works with organisations to apply climate science and policy insights in a way that supports robust, credible AASB S2 disclosures reporting.