With Australia’s largest reporting entities (Group 1 entities) now publishing their first sustainability reports, businesses preparing for upcoming mandatory reporting obligations have an opportunity to learn from the market’s early approach.
Under Australia’s phased sustainability reporting regime, Group 1 entities - generally Australia’s largest listed companies and financial institutions - were the first required to report. Group 2 entities (medium-to-large organisations) meeting lower reporting thresholds will follow next, with Group 3 entities (smaller organisations captured under the regime) phased in over subsequent financial years.
ASIC’s Early Observations
ASIC has released its initial observations on how reporting entities are interpreting and applying the new sustainability reporting requirements under the Corporations Act 2001 (Cth) and Australian Sustainability Reporting Standard S2 (AASB S2).
For Group 2 and Group 3 entities preparing for future reporting obligations, ASIC’s observations provide valuable insight into the regulator’s expectations and the practical issues businesses should be addressing now.
We outline the key takeaways below from ASIC’s early observations and what they mean for businesses from both a legal and commercial perspective.
ASIC's Focus Area | Why It Matters | Practical Considerations |
Use of disclaimers in sustainability reports | ASIC has warned against disclaimers that undermine the purpose or reliability of sustainability disclosures. Overly broad statements limiting reliance on the report or denying responsibility for certain information may create regulatory and reputational risk. | Businesses should carefully review disclaimer wording to ensure it aligns with the objectives of the sustainability reporting regime and does not unintentionally mislead investors or stakeholders. Legal review of sustainability disclosures should become part of the reporting process. |
Alignment between climate risks and operational impacts | ASIC identified examples where entities disclosed historical weather-related impacts but failed to reflect those risks in their forward-looking climate assessments. This may raise concerns about the robustness and credibility of an organisation’s risk management framework. | Businesses should ensure climate risk assessments incorporate historical events, current operational conditions and reasonably foreseeable future impacts. Sustainability reporting should align with broader enterprise risk management, operational reporting and strategic planning processes. |
Disclosure of assumptions and judgement calls | Unclear disclosure of assumptions, methodologies and areas of uncertainty can reduce confidence in sustainability reporting and increase scrutiny from regulators, investors and other stakeholders. This is particularly relevant for forward-looking statements and scenario analysis. | Entities should ensure key assumptions, methodologies and judgement calls are clearly explained within sustainability reports. Directors and leadership teams should understand and challenge these assumptions before approving disclosures and accompanying declarations. |
Cross-referencing external ESG or sustainability reports | ASIC has reinforced that cross-referenced reports must meet strict accessibility and timing requirements under AASB S2 and ASIC guidance. Poor document management or inconsistent reporting may create compliance risks. | Businesses relying on supplementary ESG or sustainability reports should ensure those documents are available on the same terms and at the same time as the sustainability report. Organisations should also consider governance processes for maintaining consistency across all public sustainability disclosures. |
Climate-related targets and regulatory obligations | ASIC observed differing approaches to the disclosure of climate-related targets, including legally mandated emissions obligations. Failing to identify or disclose relevant targets may create compliance and transparency concerns. | Businesses should assess whether existing emissions reduction obligations, regulatory requirements or strategic sustainability commitments constitute “climate-related targets” under AASB S2. Reporting entities should ensure these targets are appropriately disclosed and supported by measurable reporting frameworks. |
Key Takeaways for Reporting Entities
As organisations prepare for mandatory reporting, legal oversight will play an important role in ensuring sustainability disclosures are accurate, consistent and aligned with the requirements of the Corporations Act 2001 (Cth) and AASB S2.
Reporting entities should ensure that:
disclaimers and qualifying statements do not unintentionally undermine the reliability of sustainability disclosures or mislead users;
key assumptions, judgement calls and areas of uncertainty, particularly in relation to forward-looking disclosures, are clearly explained and appropriately supported;
climate risks, targets and operational impacts are consistently reflected across sustainability reporting and broader business disclosures; and
cross-referenced ESG or ancillary reports comply with accessibility, timing and governance requirements.
ASIC’s observations also highlight the importance of strong internal governance processes, cross-functional collaboration and early legal involvement in the preparation and review of sustainability reports.
The ESG team at Cowell Clarke assists organisations with the legal review and governance of sustainability reporting, including compliance with Australia’s evolving climate disclosure regime.
If you would like to discuss your organisation’s reporting obligations or preparedness for upcoming reporting periods, please contact our team here.
This publication has been prepared for general guidance on matters of interest only and does not constitute professional legal advice. You should not act upon the information contained in this publication without obtaining specific professional legal advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication and to the extent permitted by law, Cowell Clarke does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting or refraining to act in relation on the information contained in this publication or for any decision based on it.
