Making the transition to mandatory climate reporting: The pivotal role of In-house counsel

Mandatory climate reporting has commenced in Australia following the enactment of the Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Act 2024 (Cth) on 17 September 2024.

The introduction of the mandatory climate reporting regime in Australia marks a significant shift in climate accountability and reporting for entities in Australia and it also positions Australia as a global leader in climate reporting. 

The climate reporting regime is set out under Chapter 2M of the Corporations Act 2001 (Cth) (Corporations Act) along with the accompanying reporting standards issued by the Australian Accounting Standards Board (AASB) and the Australian Auditing and Assurance Standards Board (AUASB) (Climate Reporting Regime).

The guidance released by IFRS on climate-related disclosures and making transition plans in accordance with IFRS S2 is also useful guidance for entities preparing to report under AASB S2. Regulatory guidance on sustainability reporting was released by ASIC on 31 March 2025 outlining how it will administer the Climate Reporting Regime.

This article outlines the key elements of the mandatory climate reporting regime and proposes 10 action items for in-house lawyers to facilitate the transition to mandatory climate reporting within their business.

How in-house counsel can play a critical role in making the transition to mandatory climate reporting

In-house lawyers can play a pivotal role in helping their company to navigate the complexities of sustainability reporting under the Climate Reporting Regime. In practice, in-house counsel can ensure a smooth transition to climate reporting by implementing the following steps:

• communicate climate-related legal and regulatory requirements to senior management and the board;
• ensure that the board is properly informed of legal and regulatory risks related to climate disclosure obligations;
• conduct a “gap analysis” to determine any governance and/or data gaps between current climate-related disclosures and the requirements under the Climate Reporting Regime;
• examine reporting practices and redraw reporting boundaries if necessary;
• prepare compliance roadmaps;
• review any potential implications for contractual arrangements; and
• implement any required uplift in governance and reporting capability practices.

FREE CHECKLIST

What do I need to know about mandatory climate reporting?

The climate reporting regime applies to in-scope entities who are required to prepare annual financial reports under Chapter 2M of the Corporations Act.

The climate reporting regime is set out in the Corporations Act 2001 (Cth) together with the reporting requirements set out in AASB S2 Climate-related Financial Disclosures (AASB S2) issued by the Australian Accounting Standards Board. AASB S2 requires in-scope entities to disclose information about climate-related risks and opportunities that could reasonably be expected to affect the entity’s cash flows and its access to finance or cost of capital over the short, medium or long term. AASB S2 is based on IFRS Sustainability Disclosure Standard IFRS S2 Climate-related Disclosures issued by the International Sustainability Standards Board, with minimal variations.

Under Climate Reporting Regime, Chapter 2M of the Corporations Act now requires in-scope reporting entities to prepare an annual sustainability report at the same time as their financial reports  (financial report, directors’ report and auditor’s report) which form part of their annual report. The sustainability report must include a climate statement, any notes to the climate statement and a directors’ declaration about the statements and notes.

How do I know whether my business is required to report under the Climate Reporting Regime?

An entity is required to report under the Climate Reporting Regime if it meets the following criteria:

• it is required to report under Chapter 2M of the Corporations Act (for example, listed and unlisted companies and financial institutions, registrable superannuation entities and registered managed investment schemes); and
• it meets one of the following criteria:
  • the entity meets two of the three size thresholds with respect to revenue, gross assets and number of employees (meaning that it is deemed to be  a Group 1, Group 2 or Group 3 entity);
  • the entity is a registered corporation under the National Greenhouse and Energy Reporting Act 2007 (NGER Reporter), or is required to apply to register, or

it is an asset owner (defined as registerable superannuation entities, registered schemes and retail Corporate Collective Investment Vehicles (CCIVs)) where the value of assets at the end of the financial year (including those of the entities it controls) is equal to or greater than $5bn.

Does my business still need to know about climate reporting if it is not deemed to be an in-scope reporting entity in Group 1, Group 2 or Group 3?

• Some small and medium entities may not be classified as Group 3 entities under the Climate Reporting Regime however those entities may be requested to provide data to upstream reporting entities (who are considered to be in-scope reporting entities under Group 1, Group 2 or Group 3). This could mean that even if the entity is not legally required to report under the Climate Reporting Regime, it may still need to develop new governance frameworks and capabilities for climate reporting if it is part of a supply chain which provides products or services for upstream reporting entities.

Which entities need to report first under the mandatory Climate Reporting Regime?

The first wave of climate reporting is already underway in relation to the largest group of in-scope reporting entities (Group 11) as climate reporting applies to their first reporting period on or after 1 January 2025.

Group 1 entities with December 2025 year ends are preparing sustainability reports for March 2026 and Group 1 entities with a financial year commencing on 1 July 2025 will prepare their first sustainability report for 1 July 2026. Reporting for Group 2 and Group 3 entities is phased in progressively with the effect that Group 2 Entities2 and Group 3 Entities3 must report for financial years commencing on or after 1 July 2026 and 1 July 2027, respectively. While the mandatory climate reporting requirements only apply to Group 1 entities for the periods beginning 1 January 2025, a number of Group 2 and Group 3 entities are electing to report voluntarily ahead of their mandated reporting timeline.

What does my organisation need to report on?

The Climate Reporting Regime requires in-scope entities to disclose material information about climate-related risks or opportunities that could reasonably be expected to affect the entity’s prospects. The disclosure of these climate-related risks and opportunities must be set out in a sustainability report.

Group 3 entities have an exemption if they have no material financial risks or opportunities regarding climate (section 296B of the Corporations Act). However any Group 3 entity who concludes that there are no material climate-related financial risks or opportunities for a financial year must include an explanation of how the entity made that determination in their climate statement.

Sustainability report

In-scope entities are required to prepare a sustainability report as part of their annual report. The two key elements of the sustainability report are:

• the climate statement comprising the disclosures required by AASB S2 and section 296D of the Corporations Act including:
  
  • material climate-related financial risks and opportunities;
  • any metrics and targets relating to climate, including those relating to Scope 1, Scope 2 and Scope 3 GHG emissions; and
  • information about the governance of, the strategy of, or risk management by the entity in relation to the risks, opportunities relating to climate.
• directors’ declaration about the compliance of the climate statements.

Climate scenario analysis

Entities must also use climate-related scenario analysis to assess their climate resilience and the material financial risks and opportunities relating to climate as required by section 296D(DB) of the Corporations Act.

There are two mandatory scenarios intended to ensure that entities consider both transition risks (low global warming scenario where the increase in global average temperature is limited to 1.5 degrees above pre-industrial levels) and physical climate-related risks (high global warming scenario where the increase in global average temperature well exceeds 2 degrees above pre-industrial levels and should be based on at least 2.5 degrees above pre-industrial levels).

Sustainability report to be sent to members and considered at the AGM

The sustainability report must be sent to members with the financial report and presented before the annual general meeting along with the financial report, directors’ report and the auditor’s report.

What is ASIC’s guidance on the Climate Reporting Regime?

ASIC is responsible for administering the Climate Reporting Regime. ASIC released Regulatory Guide 280 – Sustainability Reporting on 31 March 2025 (RG 280) which provides reporting entities with guidance on how to comply with sustainability reporting and it includes guidance on ASIC’s administration of the reporting requirements, its review of sustainability reports and exercise of relief powers.

ASIC also has a dedicated sustainability reporting page on its website to provide information about the Climate Reporting Regime and how ASIC will administer and enforce the regime.

Transition relief for directors under the modified liability regime

Directors can take advantage of temporary relief while they transition to climate reporting. For the first three years from 2025, directors are only required to declare whether the entity has taken reasonable steps to help ensure that the sustainability report complies with the reporting requirements.

Directors are also given temporary relief from liability for misleading and deceptive and other conduct relating to most of the uncertain aspects of a climate statement set out in the sustainability report, known as protected statements, for a period of three years. ASIC has provided guidance on the scope of these protected statements under the modified liability regime in RG 280.

The modified liability regime may be further extended in the future as there is a bill currently before Parliament (introduced on 4 September 2025), the Treasury Laws Amendment (Strengthening Financial Systems and Other Measures) Bill 2025, which proposes to extend the benefit of the modified liability regime in certain circumstances (voluntary sustainability reports would be exempt from liability provided they meet certain requirements).

Is external assurance required for climate-related financial disclosures?

The AUASB released an exposure draft on the assurance of climate-related disclosures in sustainability reports in October 2025: ED 02/05 Amendments to ASSA 5010 Timeline for Audits and Reviews of Information in Sustainability Reports under the Corporations Act 2001 (AUASB Exposure Draft). The AUASB Exposure Draft proposes two separate and distinct possible changes to the phasing in of assurance on sustainability reports under the Corporations Act:

• to clarify that the directors’ declaration in the sustainability report is required to be subject to audit or review for phasing Years 2 and 3; and
• to specify how phasing in of assurance would apply if provisions of the Treasury Laws Amendments (Strengthening Financial Systems and Other Measures) Bill 2025 on voluntary sustainability reporting under the Act are enacted.

Comments on the Exposure Draft closed on 24 November 2025 and in-house counsel are advised to check with their financial advisors once the final assurance standards are issued by the AUASB.

Which entities are exempt from climate reporting?

An entity is not required to report under the Climate Reporting Regime if:

• the entity is exempt from lodging financial reports under Chapter 2M of the Corporations Act (for example ACNC registered Australian Charities and Not-for-profits); or
• the entity is a small business who is below the relevant size thresholds.

10 practical steps for in-house counsel to smoothly transition their business to mandatory climate reporting

1. Does your business need to report on climate-related disclosures?
Work out if the Climate Reporting Regime applies to your business. Is it a Group 1, Group 2 or Group 3 entity for reporting purposes? Is it exempt under Group 3? If so, does it report upstream to Group 2 or Group 3 entities in which case it may need to collate climate-related disclosures due to its supply chain arrangements. Identify when your business is required to commence reporting and start making preparations now.

2. Gap Analysis:
Conduct a gap analysis now by examining your organisation’s current climate-related reporting compared to the climate reporting requirements under the Corporations Act and AASB S2.

3. Climate strategy and transition plan
Develop a transition plan to mandatory climate reporting and determine the impact of climate reporting on the business model, value chains, contractual relationships.

4. Sustainability report
Leverage relationships across the business to bring together a core team who will be responsible for coordinating the preparation of the sustainability report.

5. Governance structure
Identify any changes required to the existing governance structure to comply with the climate disclosure requirements including processes to address risk management and verification to support accurate climate reporting.

6. Conduct risk and opportunity assessment
Implement a process for identification and prioritisation of risks and opportunities. Regularly review and enhance your organisation’s climate reporting processes and compliance with the Climate Reporting Regime.

7. Net zero plan
Following the introduction of the Climate Change Act 2022 and Australia becoming a signatory to the Paris Agreement, discuss the risks and opportunities with respect to the development of a net zero transition plan (even though this is not mandatory).

8. Create a climate reporting implementation plan
Create an implementation plan which outlines the key actions to “close any gaps” and ensure compliance with the Climate Reporting Regime.

9. Engage with stakeholders
Develop a detailed strategy for communicating climate information to investors and stakeholders prior to finalising the Sustainability Report.

10. Look out for climate-reporting developments
It is important to continue to monitor regulatory guidance and legislation especially regulatory guidance issued by ASIC with respect to sustainability reporting under the Climate Reporting Regime. ASIC Commissioner Kate O’Rourke at her keynote address at the Responsible Investment Association Australia, noted that ASIC is putting resources into capacity building and intends to develop a set of educational materials to help those preparing the sustainability reports to understand the concepts underlying the reporting obligations.

Key takeaway for in-house counsel

In-house counsel are extremely well placed to lead their business on its transition to mandatory climate reporting and empower the business to position itself positively with respect to their climate credentials in the market.

¹Group 1 entities are those entities which meets two out of three of size criteria: consolidated revenue >$500 million or more, $1 billion or more of consolidated assets and >500 employees or it is an NGER Reporter).
²Group 2 entities are those entities which meet two out of three size criteria: consolidated revenue >$200 million or more, $500 million or more of consolidated assets and >250 employees or it is an NGER Reporter).
³Group 3 entities are those entities which meet two out of three size criteria: consolidated revenue >$50 million or more, $25 million or more of consolidated assets and >100 employees or it is an NGER Reporter).