The Australian Accounting Standards Board (AASB) has introduced new sustainability-related disclosure standards, aligning with global reporting frameworks. These standards will significantly impact businesses across various industries, requiring them to enhance transparency, assess climate-related financial risks, and ensure compliance with international best practices.
For Australian businesses, this shift is not just a compliance requirement—it represents an opportunity to improve sustainability governance, attract investment, and build long-term resilience. Companies that proactively adapt to the new AASB standards will be better positioned to navigate regulatory, financial, and reputational risks in an increasingly sustainability-focused market.
Key Takeaways
- The new AASB sustainability disclosure standards require large and medium-sized businesses to report on climate-related risks and sustainability performance.
- Alignment with international standards (such as ISSB and TCFD) means Australian businesses will need to enhance governance, risk management, and financial disclosure practices.
- Businesses should prepare for enhanced investor and regulatory scrutiny, with penalties for incomplete or misleading sustainability disclosures.
- Adopting AASB S1 could also provide a competitive edge, demonstrating proactive sustainability leadership and strengthening stakeholder trust.
Understanding the AASB Sustainability Standards
Australia’s new sustainability reporting requirements are set to reshape how businesses identify, assess, and disclose climate-related financial risks and sustainability impacts. The Australian Accounting Standards Board (AASB) has introduced the Australian Sustainability Reporting Standards (ASRS) to provide a structured, internationally aligned framework for corporate sustainability disclosures.
From 1 January 2025, mandatory reporting under AASB S2 will require large listed and private companies, as well as financial institutions, to publish climate-related financial disclosures as part of their annual reporting obligations. These standards are designed to enhance transparency, comparability, and decision-usefulness for investors, regulators, and key stakeholders.
AASB S1 and AASB S2: What Businesses Need to Know
The ASRS framework currently includes two primary standards, with AASB S2 forming the foundation of mandatory reporting:
AASB S2 – Climate-Related Disclosures (Mandatory) AASB S2 aligns with global IFRS sustainability standards and focuses on climate-related financial risks and opportunities. Businesses must disclose:
- Material climate risks that could impact financial performance.
- Transition plans for mitigating risks and aligning with net-zero objectives.
- Scope 1, 2, and, over time, Scope 3 emissions data.
- Financial impact assessments linked to climate-related risks.
This standard ensures investors and stakeholders receive consistent and comparable data on how businesses are exposed to and responding to climate-related risks.
AASB S1 – General Sustainability Disclosures (Voluntary for Now) AASB S1 outlines broader sustainability-related risk and opportunity disclosures, including social and environmental impacts beyond climate. While not yet mandatory, early adoption can help businesses:
- Stay ahead of future regulatory changes.
- Align with investor and stakeholder expectations.
- Strengthen sustainability strategies and risk management.
Who Will Be Affected?
The new AASB sustainability standards will initially apply to:
- ASX-listed companies and other large entities meeting revenue and asset thresholds.
- Financial institutions and businesses seeking to secure funding from sustainability-focused investors.
- Supply chain partners of major corporations who will be indirectly required to comply due to increased reporting expectations from larger clients.
While smaller businesses may not be immediately subject to mandatory reporting, many will face indirect compliance pressures as investors, partners, and clients demand sustainability data for procurement and investment decisions.
Implications for Australian Businesses
1. Increased Reporting Complexity & Compliance Costs
- Businesses will need to upgrade sustainability reporting systems, integrate climate risk analysis, and improve data accuracy.
- Companies with limited sustainability expertise will require additional training and external advisory support.
2. Competitive Advantage Through ESG Leadership
- Organisations that go beyond compliance and embed sustainability into strategy will gain a market advantage.
- Access to capital will improve for companies demonstrating robust climate risk management.
3. Legal & Reputational Risks for Non-Compliance
- ASIC and ACCC will monitor sustainability claims to prevent greenwashing and misleading disclosures.
- Companies making unsubstantiated net-zero claims or failing to disclose material climate risks may face penalties and shareholder lawsuits.
Case Study: Fortescue Metals’ Compliance-Driven ESG Transformation
Fortescue Metals has taken a proactive approach to sustainability reporting by adopting ISSB-aligned frameworks early. This has allowed them to secure green financing, improve investor trust, and position themselves as a leader in low-carbon mining (Fortescue Metals, 2024).
What Businesses Should Do to Prepare
1. Strengthen Governance & Internal Accountability
- Appoint sustainability-focused board members and establish clear ESG governance structures.
- Develop internal policies and reporting procedures to align with AASB disclosure requirements.
2. Conduct Climate Risk Assessments
- Perform scenario analyses to understand how climate change could impact operations and financial performance.
- Quantify transition risks, such as the impact of carbon pricing, regulatory changes, and shifting consumer demand.
3. Improve Data Collection & Reporting Processes
- Invest in data management systems that can track carbon emissions, energy use, and other sustainability metrics.
- Align sustainability reporting with international best practices to attract investors and strategic partners.
4. Train Key Stakeholders on ESG Disclosure Requirements
- Provide sustainability training for executives and finance teams to ensure accurate and compliant reporting.
- Collaborate with industry bodies and regulatory agencies to stay updated on reporting expectations.
Strategic Imperatives for Executives
- Adopt a proactive sustainability reporting strategy to comply with AASB and attract ESG-focused investors.
- Develop internal governance frameworks to oversee climate risk management and disclosure processes.
- Strengthen data collection and verification to ensure reporting accuracy and avoid greenwashing penalties.
The AASB’s sustainability disclosure standards mark a significant shift in Australia’s corporate reporting landscape, bringing enhanced accountability, risk management, and transparency requirements. While compliance presents initial challenges, forward-thinking businesses can turn this regulatory shift into a competitive advantage by embracing strong ESG governance, improving sustainability performance, and demonstrating financial resilience in a climate-conscious economy.
Naturaliste Solutions can assist businesses in navigating AASB sustainability requirements, developing effective climate risk assessments, and ensuring compliance with emerging regulatory frameworks. Get in touch to discuss how your business can stay ahead of the sustainability curve.