A Sustainability Journey, Business Services, Social & Environmental Services
This article was contributed by Linden Sustainability.
As Australian companies prepare for mandatory climate reporting, many are still grappling with the most fundamental question: What exactly do I need to do? The AASB S2 standards are reasonably explicit on this topic, but they’re dense, repetitive, and leave some of the most important aspects open for interpretation.
Climate reports require four main sections, and this article outlines the minimum requirements of each. While not advocating for doing the bare minimum, I realise even the basics will be a challenge for many in their first year. And those that wish to go above and beyond still need to know how high the bar is set.
Governance is the first of the four key sections of the reporting standards and the most self-contained. It’s split into two parts pertaining to how the board and executive each provide oversight of climate-related risks and opportunities, and the systems and processes that support this oversight.
Companies will likely need to update their governance frameworks and risk management processes to comply. In theory, a company could state that climate-related risks are managed through general risk controls and then describe those processes. In practice, however, companies should at least explicitly incorporate climate governance into existing policies and procedures, as this will be expected by most stakeholders, including ASIC (as made clear by their regulatory guide).
The following governance changes are recommended as an absolute minimum (although more is likely required depending on organisational size and climate exposure):
Transparency is key. The standard isn’t prescriptive about how climate risks should be governed but does require detailed disclosure of whatever mechanisms are in place.
The Strategy section is the largest and most complex, covering the results and impacts of climate adaptation and mitigation efforts.
It boils down to four questions, the answer to each requiring detailed, specific information:
The biggest uncertainty here is the degree of financial quantification needed. There are three levels:
Understanding expectations regarding financial quantification early is critical, as it requires extensive analysis and internal engagement.
Scenario analysis must be conducted before your first report but doesn’t need to be updated annually. AASB S2 suggests alignment with your strategic planning cycle (e.g., every 3–5 years) but more frequent updates may be necessary in the early years to keep up with evolving expectations.
How sophisticated your scenario analysis needs to be depends on your company’s size and exposure. Appropriate responses range from high-level qualitative analysis to detailed, quantitative modelling. Smaller organisations with minimal exposure could potentially start with qualitative analysis but may still need some quantification to estimate financial impacts.
The transition planning requirements aren’t as strict as you might expect. You don’t need a transition plan if you don’t have climate-related goals such as emissions reduction targets. If you do have emissions reduction targets, then you should have a transition plan—the standards don’t require it but a target without a plan exposes you to greenwashing risk. You don’t need to publicly release your transition plan, just specific details about it.
The Risk Management section is the shortest, focusing on the processes supporting ongoing climate-risk and opportunity management. It requires disclosure of:
This section covers ongoing processes. The approach used for your last scenario analysis belongs in the Strategy section.
Organisations will need to implement or formalise these processes. Much of this should flow naturally from the Strategy and Governance work.
The final section, Metrics & Targets, is almost as long as Strategy but clearer in its requirements. It focuses on quantitative disclosures not included elsewhere.
The main requirements cover four categories:
Each category requires detailed disclosures. Emissions accounting must follow specific methodologies.
A couple of notes on Scope 3:
In addition to mandatory disclosures, companies must report certain items if they’ve been voluntarily adopted:
If ‘yes’, detailed disclosure is required; if ‘no’, just state that. While emissions reductions targets aren’t mandatory, many organisations are implementing them before reporting to meet stakeholder expectations.
As you can see, the absolute minimum reporting requirements aren’t as clear as you might hope—it depends on your organisation’s circumstances and risk tolerance. However, if you work through each section methodically and seek advice where needed, clarity shouldn’t be far away.
This is an article from a SustainabilityTracker.com Member. The views and opinions we express here don’t necessarily reflect our organisation.