What’s In Your First Mandatory Sustainability Report?
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A Practical Guide to Navigating Australia’s New ESG Disclosure Regime
Australia’s corporate landscape is on the cusp of a significant transformation with the introduction of mandatory sustainability reporting. As of 1 January 2025, many entities will be required to prepare and publicly disclose their first sustainability reports under the new AASB S2 standard. The industry buzz is undeniable, with a healthy dose of curiosity, urgency, and apprehension about what this seismic regulatory shift will mean in practice.
In our latest CREW webinar, sustainability consultant Geri McMahon (Baringa), legal experts John Moutsopoulos and Zein El Hassan/ (Mills Oakley), and I came together to dissect what “baseline compliance” actually looks like, technical aspects to navigate, and practical strategies to ensure your climate reporting is compliant, credible and done efficiently. Baringa and Mills Oakley have been working together for some time on developing an integrated legal and consulting approach to achieve these desired outcomes for the benefit of their clients.
We’ve distilled and expanded upon some of their key insights below. All commentary, advice, and recommendations in this piece are entirely ours, but heavily informed by the panel’s practical experience and observations.
Setting the Scene: Why ESG Reporting, Why Now?
The move to mandatory sustainability reporting is Australia’s response to the growing demand—both global and domestic—for robust, comparable, and reliable disclosures on how climate and broader ESG issues affect businesses. AASB S2, which came into effect from 2025, is modelled closely on international standards (notably IFRS S2), but adapted for the local context.
The rationale is simple: “We’ve moved from voluntary to mandatory,” as John Moutsopoulos put it. Many voluntary climate disclosures reports have been found by ASIC to be too general and not useful for investors. Now, we have legislation that applies economy wide and is mandatory with the objective of fostering high -quality comparable, detailed disclosures of governance, risk management, corporate strategy and transition planning.
Understanding Baseline Compliance: Where To Start
What does “minimum legal baseline” actually mean?
All three speakers emphasised that compliance is nuanced but non-negotiable. The AASB S2 standard comprises over 100 specific disclosure requirements, and more than 200 pieces of mandatory guidance.
However, in recognition of the huge leap for many organisations—especially those without mature sustainability practices—the Standard has built in “proportionality mechanisms” and some transitional relief. This means that while the expectations are high, the requirements aren’t unreasonable.
Proportionality in Practice
You’ll need to take stock of your organisation’s:
Size
Complexity
Climate exposure
Internal skills, capabilities and resources
If you’re a smaller or less mature entity, the regime expects you to start where you are—using reasonable and supportable information “without undue cost or effort.” That does not mean a free pass; you must still comply, but at a level that is appropriate to your situation.
Transitional Relief
In year one, there are specific relaxations, notably:
No requirement to disclose Scope 3 emissions (the often tricky “financed emissions”)
No need for comparative data (since it’s your first report)
For the first three years, the Director’s Declaration only needs to confirm that “reasonable steps” were taken (rather than absolute assurance)
But, as Zein El Hassan clarified, relief is limited and is gradually wound back. There is more opportunity to leverage the proportionality mechanisms to right-size your reporting efforts to your circumstances.
Voluntary vs. Mandatory: Managing the Crossover
Many companies already have some climate or sustainability commitments “floating” on their websites—pledges to Net Zero by 2050, bold but vaguely supported targets, or previous voluntary disclosures. One concern is how these fit (or clash) with the new, more prescriptive mandatory regime.
The panel’s guidance:
If you’ve previously disclosed something voluntarily (especially if you’ve made a Net Zero commitment), there’s an expectation you’ll continue to reference it.
However, from year one, voluntary content (like Scope 3 data) that you include alongside mandatory S2 disclosures must be signposted very clearly. ASIC will not tolerate confusion.
Be transparent about what is “mandatory” and what is voluntarily added, to avoid “obscuring” core content.
It’s a delicate balancing act—preserve credibility without overpromising or confusing your audience. “Greenwashing”—where claims are overstated or unsupported—remains an enforcement priority for ASIC. If your historic Net Zero pledge lacks a reasonable pathway to meet it, it’s time for a rethink and preparing your first mandatory climate report is the perfect opportunity for you to do so.
Legal Liability and Reasonable Steps: What Keeps Directors Awake at Night?
Possibly the single largest concern for Boards is the legal exposure tied to these new disclosures. The AASB S2 regime is not an island—reports sit within the broader Corporations Act. That brings the possibility of regulatory action, investor claims, and statutory penalties for non-compliance.
Directors are on the hook. At the end of the process, the Board must make a declaration that “reasonable steps” have been taken in preparing the report.
Zein El Hassan’s tips for a robust defence:
Wrap a reasonable steps framework around your climate reporting project from the start. It needs to include legal guardrails for your climate analysis and a legal due diligence process for preparing and verifying the content of your climate report.
Appoint a committee (could be an existing subcommittee) including directors, management, and – where prudent – external advisers.
Document every phase – from project scoping to drafting, verification, internal and legal signoffs.
Leverage and, if needed, uplift existing due diligence processes to align them to the disclosure requirements of the Standard.
Don’t duplicate structures if you already have robust governance; augment as needed.
Having a repeatable, robust and documented process both enables the Board to make the required declaration confidently and supports record-keeping if ASIC comes knocking.
Multi-Entity Groups: Streamlining Reporting and Avoiding Traps
For groups with multiple funds, responsible entities (REs), or operating entities, establishing reporting boundaries is both a challenge and an opportunity for efficiency.
Key takeaways:
The law expects reporting at the entity (not just group) level. Brush up now on which companies or schemes are individually in scope based on size thresholds.
Find efficiencies, especially in governance or risk management disclosures, but always pass content through the S2 “Australian lens.”
Cross-referencing existing reports (for example, a global parent’s sustainability report) is possible in theory—but exercise caution. Australian standards and regulatory expectations must be met, and the relevant entity must be satisfied that the content is specific to the Australian reporting entity, compliant with the Standard, and is accurate, complete and useful.
Practical Steps for Getting Started
What should your first move be if you’re staring down the barrel of your first report?
Gap Analysis: Map the requirements of AASB S2 against your current disclosures and operations.
Governance Setup: Establish—or review—your committee and processes for preparing, verifying, and signing off disclosures.
Leverage and Adapt: Make use of group or global resources, but be ready to adapt for local requirements.
Plan For the Future: Don’t treat this as a “tick box” exercise. The regime will only get more demanding.
Engage Early: Don’t wait for the deadline to start. Early input from your consultants, lawyers, and internal teams is critical.
Final Thoughts
Australia’s journey from voluntary climate disclosures to mandatory, regulator-enforced sustainability climate reporting is now a reality. It’s an adjustment for everyone—from reporting teams to directors—but it’s also a path toward more robust, credible, and actionable information about the material climate risks and opportunities faced by our companies.
As always, get in early, seek the appropriate advice, and set your structures up for success. For many, it will be a steep learning curve, but the right mix of pragmatism, rigour, and transparency will serve you well.
Questions, concerns or curious about how to get started? Now’s the time to reach out—before reporting becomes not just a strategic decision, but a time-pressured legal obligation.