Impact of consolidated climate-related targets on a subsidiary's standalone sustainability report

Article

Published: September 15, 2026 |

Australian Sustainability Reporting Standard, AASB S2 Climate-related Disclosures, requires an entity to disclose information about how it oversees target setting regarding climate-related risks and opportunities, and how it monitors progress towards those targets, including when and how related performance metrics are included in remuneration policies.

A question arises as to how consolidated targets set by a parent entity affect a subsidiary’s standalone sustainability report when the subsidiary has not yet set its own targets.

Who is responsible for setting targets related to climate-related risks and opportunities?

An entity will typically have a governance body (which can include a board, committee or equivalent body charged with governance), or individual(s), that is responsible for overseeing:

Climate-related risks and opportunities, and
Target setting.

What information must be disclosed about targets?

The entity must first identify the body or individual responsible for overseeing climate-related risks and opportunities (AASB S2, paragraph 6(a)).

It must then disclose how the governance body(s) or individual(s):

Oversee the setting of targets related to climate-related risks and opportunities, and
Monitors progress towards those targets.

Regarding progress monitoring, the entity must also disclose:

Whether related performance metrics are included in remuneration policies (if they are not, this fact must be disclosed), and
How related performance metrics are included in remuneration policies (this disclosure doesn’t apply if related performance metrics are not included in remuneration policies).

Refer AASB S2, paragraph 6(a)(v))

When has a target been set?

A target has been ‘set’ when the target is approved by the governance body(s) or individual(s) responsible for oversight of the entity’s climate-related risks and opportunities.

Refer AASB S2, paragraph 6(a)(v)

What target-setting information does a subsidiary disclose in its standalone sustainability report?

Targets may be set for the group as a whole or for individual subsidiaries. If it sets its own targets, a subsidiary discloses information about its own targets. However, if its parent entity has set targets for the group as a whole, the extent of disclosure about targets in the subsidiary’s standalone sustainability report depends on a number of factors, including whether:

The parent entity allocates the consolidated target to the subsidiary, and
The subsidiary’s activity represents a significant portion of the group’s activity related to the consolidated target.

The flowchart below can serve as a starting point for determining the effect of consolidated targets on standalone subsidiary sustainability reporting.

In addition to the flowchart above, it is also necessary to consider all of the relevant facts and circumstances, including the materiality of the information and the following questions:

- Is the information that the subsidiary might disclose relevant to the users of the subsidiary’s standalone sustainability report?
- If the information is relevant to the users of the subsidiary’s standalone sustainability report, would it be misleading (or potentially be misleading) if that information is disclosed (for example, where a subsidiary does not make any significant contribution to a target that is material at consolidated group level)?
- If the subsidiary does disclose information related to targets that have been set for the consolidated group, does that disclosure in the subsidiary’s standalone sustainability report have the effect of obscuring other material information?

The examples below illustrate the process set out in the flowchart. However, these are illustrative examples only. In practice, the subsidiary should use professional judgement, consider all facts and circumstances, and address the questions noted above.

Examples

The following background information applies to all examples:

A greenhouse gas (GHG) emissions target has been ‘set’ by Parent A.
The subsidiary is required to provide a standalone sustainability report.

Applying the flowchart:

	Example 1	Example 2	Example 3	Example 4
Fact pattern	Parent A set a climate-related target for its consolidated group to reduce its GHG emissions by 30% by 20X3 from a 20X0 baseline. As part of Parent A’s plan to reach its GHG emissions reduction target, Parent A allocated a GHG emissions reduction target to Subsidiary B to reduce its GHG emissions by 40% by 20X3 from a 20X0 baseline. Subsidiary B’s main business activity is manufacturing, which contributes significantly to the GHG emissions of the consolidated group. Subsidiary B’s allocated target ‘set’ by Parent A is material to Subsidiary B.	Parent A set a climate-related target for its consolidated group to reduce its GHG emissions by 30% by 20X3 from a 20X0 baseline. As part of Parent A’s plan to reach its GHG emissions reduction target, Parent A allocated a GHG emissions reduction target to Subsidiary B to reduce its GHG emissions by 5% by 20X3 from a 20X0 baseline. Subsidiary B’s main business activity is the provision of services; it does not contribute significantly to the GHG emissions of the consolidated group. Subsidiary B’s allocated target ‘set’ by Parent A is not material to Subsidiary B.	Parent A set a climate-related reduction target for the consolidated group to reduce its GHG emissions by 30% by 20X3 from a 20X0 baseline. Parent A does not allocate a portion of the GHG emissions reduction target to Subsidiary B. Subsidiary B’s main business activity is manufacturing, which contributes significantly to the group’s GHG emissions.	Parent A set a climate-related reduction target for the consolidated group to reduce its GHG emissions by 30% by 20X3 from a 20X0 baseline. Parent A does not allocate a portion of the GHG emissions reduction target to Subsidiary B. Subsidiary B does not represent a significant portion of the group’s GHG emissions.
Is there an allocation by Parent A of the consolidated GHG emissions reduction target to Subsidiary B?	Yes. Parent A has allocated a GHG emissions reduction target to Subsidiary B Subsidiary B is required to reduce its GHG emissions by 40% by 20X3 from a 20X0 baseline.	Yes. Parent A has allocated a GHG emissions reduction target to Subsidiary B Subsidiary B is required to reduce its GHG emissions by 5% by 20X3 from a 20X0 baseline.	No. Parent A has not allocated a GHG emissions reduction target to Subsidiary B.	No. Parent A has not allocated a GHG emissions reduction target to Subsidiary B.
Does Subsidiary B’s GHG emissions activity represent a significant portion of the consolidated GHG emissions activity related to the target?	Yes. Subsidiary B significantly contributes to the group’s GHG gas emissions (its manufacturing processes generate a significant portion of the group’s consolidated GHG emissions) In addition, Subsidiary B’s allocated target ‘set’ by Parent A is material to Subsidiary B.	No. Subsidiary B does not significantly contribute to the group’s GHG emissions, since its service provision activities do not generate a significant portion of the group’s consolidated GHG emissions. Subsidiary B’s allocated target ‘set’ by Parent A is also not material to Subsidiary B.	N/A	N/A
Does Subsidiary B's activity represent a significant portion of the group's GHG emissions activity related to the target?	N/A	N/A	Yes. Subsidiary B significantly contributes to the group’s GHG emissions (its manufacturing processes generate a significant portion of the group’s GHG emissions).	No. Subsidiary B does not significantly contribute to the group’s GHG emissions (its activities do not generate a significant portion of the group’s GHG emissions).
Extent of disclosure by Subsidiary B	Subsidiary B is considered to have 'set' its allocated target and should disclose both: Allocated GHG emissions reduction target of 40%, and Consolidated group’s GHG emissions reduction target of 30%. Because of the parent- subsidiary relationship, Subsidiary B would be required to accept and report the target(s) set by Parent A.	Subsidiary B’s 5% allocated target is not material to Subsidiary B. Subsidiary B may disclose the consolidated and allocated GHG emissions reduction targets set by Parent A.	Considering Subsidiary B represents a significant portion of the group’s GHG emissions activity, Subsidiary B is strongly encouraged to disclose the consolidated GHG emissions reduction target. If Parent A discloses the target and Subsidiary B does not disclose the consolidated target in its climate statement, in our view, it may bring into question how the GHG emissions reduction target will be achieved. In addition, since Parent A did not allocate a target to Subsidiary B, in our view, Subsidiary B should not assert that it has ‘set’ its own GHG emissions reduction target based on its relative contribution to the group’s GHG emissions, or based on any other measures such as financial metrics or percentage of revenues.	Subsidiary B may disclose the consolidated GHG emissions reduction target set by Parent A. In addition, since Parent A did not allocate a target to Subsidiary B, in our view, Subsidiary B should not assert that it has ‘set’ its own GHG emissions reduction target based on its relative contribution to the group’s GHG emissions, or based on any other measures such as financial metrics or percentage of revenues.

How BDO can help

Preparing climate-related disclosures about target setting under AASB S2 requires careful judgement, particularly when targets are not allocated to individual subsidiaries. Contact our sustainability reporting team to discuss how we can support your AASB S2 reporting journey.