Technical FAQs

The aim of AASB S2 is to meet the information needs of users of general purpose financial reports. To comply with the requirements of AASB S2, an entity will disclose material information about the climate‑related risks and opportunities that could reasonably be expected to affect its prospects. Material information is defined as information that could influence the decisions of users of general purpose financial reports. This definition is aligned with that used in Australian Accounting Standards.

AASB S2 requires that a complete set of climate‑related financial disclosures presents fairly all climate-related risks and opportunities that could reasonably be expected to affect an entity’s prospects. The fair presentation requirements in AASB S2 include a requirement for an entity to disclose relevant information about its climate-related risks and opportunities and to faithfully represent—provide a complete, neutral and accurate depiction of—those risks and opportunities. 

AASB S2 requires the reporting entity for climate‑related financial disclosures to be the same as the reporting entity for the financial statements, unless otherwise permitted by law. 

Entities should be aware of any potential obligations under the Corporations Act 2001 relating to which reporting entities may be required to apply AASB S2. 

For more information see ASIC Regulatory Guide 280 Sustainability Reporting. 

AASB S2 requires disclosure of material information about climate-related risks and opportunities throughout an entity’s ‘value chain’. The value chain is the full range of interactions, resources and relationships related to an entity’s business model and the external environment in which it operates. 

AASB S2 requires an entity to provide information that enables users of general purpose financial reports to understand connections, including:

• connections between various climate-related risks and opportunities;
• connections within climate-related financial disclosures, such as connections between disclosures on governance, strategy, risk management and metrics & targets; and
• connections across the climate-related financial disclosures and the financial statements.

An entity is required to use data and assumptions in preparing its climate-related financial disclosures that are consistent—to the extent possible—with the corresponding data and assumptions used in preparing its related financial statements.

AASB S2 also specifically requires that an entity provide information about the current and anticipated financial effects of climate-related risks and opportunities.

AASB S2 focuses on meeting the information needs of existing and potential investors, lenders and other creditors, referred to as primary users of general purpose financial reports (primary users). 

The primary users of a not-for-profit entity may have different information needs to those of a for-profit entity. See AASB S2.D.B14-AusB15.1 for more information. 

AASB S2 therefore requires an entity to disclose material information about the climate-related risks and opportunities that could reasonably be expected to affect its prospects. The definition of material information is aligned with that used in Australian Accounting Standards—that is, information is material if omitting, misstating or obscuring that information could reasonably be expected to influence decisions that primary users of general purpose financial reports make on the basis of those reports (AASB S2.D.17–18). 

Information about a climate-related risk or opportunity might be material because of the nature or magnitude of that risk or opportunity, or a combination of both, judged in relation to the entity’s circumstances. 

Although AASB S2 requires that information is presented in general purpose financial reports, the Standard does not further specify a location. 

If an entity falls under Australia’s mandatory climate-related financial disclosure regime, it may be required to meet certain obligations under the Corporations Act 2001. 

For more information see ASIC Regulatory Guide 280 Sustainability Reporting. 

The requirement to use ‘all reasonable and supportable information that is available … without undue cost or effort’ is designed to ease concerns around the need for flawless data. More specifically, it is intended to support preparers in dealing with measurement uncertainty and to scale the requirements in AASB S2 specifically for entities with fewer resources and entities new to climate reporting. 

The requirement considers the following:  

• information has to be reasonable and supportable (the entity can neither ignore nor fabricate information that would inform its disclosure); and 
• information must be available without undue cost or effort (an exhaustive effort to obtain, develop or analyse information is unnecessary). 

Reasonable and supportable information: 

• is specific to the entity; 
• takes account of general conditions in the external environment; 
• includes information about past events, current conditions and forecasts of future conditions; and 
• is specified by AASB S2 in some cases. 

Undue cost or effort applies, for example, to: 

• information used by an entity when preparing its financial statements, operating its business model, setting its strategy and managing its risks and opportunities; and 
• information available without undertaking an exhaustive search—primary users’ information needs and the costs and efforts for the entity should be balanced. 

The assessment of what constitutes undue cost or effort can change over time as circumstances change. As much as possible, an entity should use consistent data and make consistent assumptions when preparing climate-related financial information. 

See AASB S2.D.B8–10 for more information. 

The requirements in AASB S2 are designed to be proportionate—that is, an entity is required to use an approach that is commensurate with its available skills, capabilities and resources. For example, an entity with limited resources and limited experience of climate reporting may not be able to disclose to the same level as an entity with substantial resources and extensive experience in climate reporting. However, over time, the AASB expects that entities with limited skills and capabilities will be able to further advance and improve their climate reporting. 

AASB S2 generally requires more disclosure of forward-looking and uncertain information than Australian Accounting Standards, meaning more disclosures are inherently based on estimations, approximations and forecasts. This does not diminish the usefulness of the information to primary users. Instead, by ensuring transparency around this type of information, entities can be comfortable in providing disclosures where there may be uncertainty. AASB S2 requires an entity to identify any estimates, approximations and forecasts it uses and to provide information about the inputs and calculation methods it has used. Additionally, the entity is required to ensure that its process for selecting and applying estimates is free from material error. 

In the case of measurement uncertainty, an entity is required (AASB S2.D.81) to disclose: 

• the nature of the assumption or other source of measurement uncertainty; 
• the sensitivity of the disclosed amount to the methods, assumptions and estimates underlying its calculation, including the reasons for the sensitivity; 
• the expected resolution of an uncertainty and the range of reasonably possible outcomes for the disclosed amount; and 
• an explanation of changes made to past assumptions concerning the disclosed amount if the uncertainty remains unresolved. 

Ultimately each entity decides how best to apply the requirements in AASB S2, taking account any relevant requirements of the Corporations Act. 

The AASB offers a broad range of educational material to support the widespread adoption and implementation of AASB S2. The AASB does not provide templates because each entity’s facts and circumstances differ. 

In finalising AASB S2, the AASB decided to omit requirements to disclose industry-based metrics and to refer to and consider the applicability of the industry-based disclosures topics derived from the SASB Standards. As such, an entity is not required to refer to or consider any element of the SASB Standards to meet the requirements within AASB S2. 

An entity may find the SASB Standards to be a useful resource to help in identifying climate-related risks and opportunities that could reasonably be expected to impact the entity’s prospects. 

An entity is also able to voluntarily report on metrics and targets using the SASB Standards.  

AASB S2 requires an entity to use climate-related scenario analysis to assess its climate resilience. The Standard does not specify a particular number of scenarios to be used or particular temperature outcomes that should be used as the basis for scenarios. 

Entities that are required to prepare a sustainability report under the Corporations Act should consider the requirements within the Act, including those related to scenario analysis. 

For more information see RG 280.99 of the ASIC Regulatory Guide 280 Sustainability Reporting.