As Australian businesses navigate increasingly complex climate disclosure requirements, the Australian Accounting Standards Board’s Sustainability Standard 2 (AASB S2) emerges as a pivotal framework that will reshape corporate reporting. With mandatory climate disclosures looming for Australia’s largest organisations, executives are confronting a critical question: How does AASB S2 integrate with established global frameworks, and what advantages does this alignment offer?

The reality facing Group 1 and Group 2 entities is stark. From 1 January 2025, climate-related financial disclosures became mandatory, affecting organisations with significant market influence and environmental impact. For business leaders tasked with implementing these changes, understanding the international context is helpful for businesses needing to report climate-related risks and opportunities in a way that is both globally consistent and locally relevant.

The Foundations of AASB S2

AASB S2 represents Australia’s tailored approach to climate-related financial disclosures as part of the broader Australian Sustainability Reporting Standards (ASRS). At its core, AASB S2 requires organisations to disclose material information about climate-related risks and opportunities that could reasonably influence decisions made by primary users of general purpose financial reports.

The standard builds on four fundamental pillars:

1. Governance: How the organisation’s board and management oversee and manage climate-related risks and opportunities
2. Strategy: The actual and potential impacts of climate-related risks and opportunities on the organisation’s business model and strategy
3. Risk Management: The processes used to identify, assess, and manage climate-related risks
4. Metrics and Targets: The measurements and objectives used to assess and manage relevant climate-related risks and opportunities

For large Australian entities captured under the proposed mandatory reporting regime commencing from 1 January 2025, these disclosures will become a regulatory obligation rather than a voluntary exercise.

Alignment with IFRS S2 (ISSB)

AASB S2 isn’t an Australian invention created in isolation—it’s fundamentally based on the International Financial Reporting Standards (IFRS) S2 issued by the International Sustainability Standards Board (ISSB). This deliberate alignment positions Australian businesses within a coherent global reporting ecosystem.

While AASB S2 maintains fidelity to IFRS S2’s investor-focused approach and climate disclosure requirements, it incorporates several modifications tailored to the Australian context:

• Substitution of Australian legal terminology and references to localise the standard
• Addition of notations in paragraphs that provide Australian-specific context or requirements
• Integration with existing Australian frameworks such as the National Greenhouse and Energy Reporting (NGER) Scheme

Despite these customisations, the shared objectives remain constant: providing investors and capital markets with clear, comparable, and decision-useful information regarding climate-related financial impacts. This alignment offers Australian businesses the benefit of international recognition while maintaining local relevance.

Relationship to TCFD Recommendations

While the TCFD was disbanded in 2023 and its responsibilities taken over by IFRS, its themes and foundations have been continued on. IFRS S2—and consequently AASB S2—is built upon the foundation established by TCFD, maintaining structural and conceptual continuity.

The alignment across TCFD’s four thematic areas is particularly evident:

This continuity offers transitional value for companies previously aligned with TCFD recommendations. Rather than starting from scratch, organisations can leverage existing TCFD reporting structures and data collection processes as the foundation for AASB S2 compliance.

Interaction with the GHG Protocol

AASB S2 directly references and incorporates principles from the Greenhouse Gas Protocol, particularly regarding the measurement and disclosure of carbon emissions. Under AASB S2, organisations must report:

• Scope 1 emissions (direct emissions from owned or controlled sources)
• Scope 2 emissions (indirect emissions from purchased energy)
• Scope 3 emissions (all other indirect emissions occurring in the value chain)

The standard expects consistent application of GHG Protocol methodologies to ensure emissions data maintains comparability between organisations and across reporting periods. For Australian entities, this aligns with existing NGER Scheme reporting requirements, though with potentially broader scope and more detailed contextual disclosures.

This alignment serves a dual purpose: it maintains international comparability while building upon existing domestic compliance frameworks, reducing the implementation burden for organisations already engaged in emissions reporting.

Broader International Context

AASB S2’s positioning within the global sustainability reporting landscape reveals both similarities and differences with other major frameworks:

Compared to the European Union’s Corporate Sustainability Reporting Directive (CSRD) and European Sustainability Reporting Standards (ESRS), AASB S2 maintains a narrower focus on climate-specific disclosures. The CSRD, by contrast, adopts a broader approach encompassing environmental, social, and governance factors. However, the climate-related aspects of both frameworks share similar disclosure expectations.

The Global Reporting Initiative (GRI) remains relevant but operates from a different philosophical foundation—focusing on stakeholder impacts rather than financial materiality. While AASB S2 doesn’t preclude organisations from continuing GRI reporting, it represents a shift toward investor-focused sustainability reporting.

This convergence trend highlights how AASB S2 supports global capital market expectations while maintaining proportionality for Australian businesses. By aligning with internationally recognised frameworks, AASB S2 ensures Australian corporate disclosures will be readily understood and comparable within global markets.

Practical Implications for Australian Businesses

For CFOs, sustainability leaders, and compliance teams at Group 1 and Group 2 entities, the international alignment of AASB S2 offers several tangible benefits:

• Enhanced comparability: Alignment with global standards means Australian disclosures can be readily compared with international peers
• Improved investor confidence: Using internationally recognised frameworks meets the expectations of global investors
• Reduced reporting burden: Organisations operating across multiple jurisdictions can minimise duplicative reporting efforts

However, implementation challenges remain significant:

• Data readiness: Collecting robust, verifiable climate data across organisation boundaries requires systematic approaches
• Emissions quantification: Particularly for Scope 3 emissions, measurement methodologies may require refinement
• Supply chain engagement: Gathering climate data from suppliers and customers necessitates new collaborative approaches

AASB S2 represents Australia’s strategic alignment with the global momentum toward standardised climate reporting. By building upon established international frameworks—IFRS S2, TCFD recommendations, and the GHG Protocol—AASB S2 positions Australian businesses within a coherent global ecosystem while addressing local regulatory requirements.

For executives at Group 1 and Group 2 entities, preparation should begin now. The international alignment of AASB S2 offers a clear implementation pathway through leveraging existing frameworks and methodologies that have gained global acceptance.