Planning climate targets: Turning voluntary ambition into strategic action

On 18 September, the Australian Government unveiled a landmark climate policy package, setting a 2035 emissions reduction target of 62 to 70 per cent below 2005 levels. This move, backed by the Climate Change Authority and detailed in the Net Zero Plan, signals a decisive shift toward a net-zero economy.

With global peers like China and Nigeria announcing similar economy-wide targets, the message is clear: climate commitments are now central to economic strategy, not just environmental policy.

Does AASB S2 require an entity to set a target?

AASB S2 Climate-related Disclosures does not mandate that organisations set their own climate targets. However, it does require entities to disclose how they plan to meet both:

• Self-imposed targets, and

• Externally mandated targets, such as those required by law.

Even if an organisation hasn’t set its own targets, it may still be subject to obligations under mechanisms like the Safeguard Mechanism or any future obligations arising from broader national goals such as Australia’s net-zero by 2050 commitment. Customers or suppliers may also request that your entity set targets to support their decarbonisation efforts.

Transparency around how these obligations will be met is essential for building trust and demonstrating the credibility of a climate strategy.

Why do companies need to set a target?

Setting climate targets is more than a compliance exercise; it’s a strategic imperative. Here’s why:

Strategic direction and accountability

Targets provide a clear direction for climate action. They help align internal efforts, motivate teams, and create accountability across departments.

Operational integration

Targets ensure the greenhouse gas (GHG) emissions are considered in decisions about products, services, materials, and technologies. This supports more sustainable operations and procurement.

Risk management and innovation

Climate targets are a cornerstone of climate risk management. They help organisations anticipate regulatory exposure, reduce costs, and unlock innovation opportunities.

Access to capital and insurance

Credible targets may facilitate access to sustainable finance and potentially lower insurance premiums. Investors and insurers increasingly expect targets as part of a robust climate strategy.

Stakeholder expectations

Targets are powerful communication tools. They signal intent and progress to investors, employees, customers, and the public. AASB S2 defines material information as that which could influence these stakeholders' decisions.

Where to start

Setting a climate target can feel daunting, especially for organisations just beginning their sustainability journey. But with a structured approach, it becomes a powerful tool for strategy, innovation, and stakeholder engagement. Here are some questions to help you get started:

1. What are your major sources of emissions across Scope 1, 2, and 3? This helps you understand where your biggest impacts and opportunities lie.

2. How will your emissions change over time? Do you have any growth plans or revenue targets to consider?

3. Determine whether you need to comply with mandatory targets or are setting voluntary goals. Ask yourself:

• Are you subject to the Safeguard Mechanism?
• Do carbon border adjustment mechanisms (CBAM) apply to your exports?
• Has your parent entity set a target?
• Have customers or suppliers requested emissions data or targets?
• Do you need to set (or align with) Science Based Targets initiative (SBTi)?

4 . What emissions reduction initiatives are available to your entity? The Australian Government’s sectoral plans, outlined in Setting our 2035 target and path to net zero, are a great starting point for identifying these.

5. With reduction opportunities known, consider:

• How will your emissions change with these initiatives?
• What level of ambition is achievable?
• What timeframe makes sense?
• How will you track progress?

Your target should reflect both your strategic intent and operational reality.

Key takeaways

• Climate policy is reshaping business strategy, influencing how organisations operate, invest, and innovate.
• AASB S2 doesn’t require companies to set their own targets, but it does require transparency about how they plan to meet climate obligations, whether self-imposed or externally mandated.
• Understanding your GHG emissions and setting targets supports:
  • Understanding exposure to potential changes in climate policies and market shifts
  • Preparing for stakeholder and regulatory scrutiny
  • Enhancing strategic planning and market positioning
  • Unlocking innovation, cost savings, and access to sustainable finance and potentially lower insurance premiums.

Ready to take the next step?

We help organisations turn ambition into action. From measuring your carbon footprint and modelling emissions, to identifying reduction opportunities and recommending targets aligned with science-based methodologies, we provide the tools and expertise to support your journey. Let’s work together to build a decarbonisation strategy. Contact us to start the conversation.