ASIC has recently published Report 839, setting out its observations from a review of sustainability reports lodged by Group 1 reporting entities for the financial year ending 31 December 2025. The report represents ASIC's first detailed assessment of compliance with Australia's compulsory sustainability reporting regime and carries significant practical implications for all entities subject to, or preparing for, these requirements.
Background
Australia's mandatory sustainability reporting framework, enacted through amendments to the Corporations Act 2001, commenced in 2025. The requirements are being phased in over three years across three groups, beginning with the largest reporting entities. A total of 312 sustainability reports were lodged by Group 1 entities with a 31 December 2025 year end. ASIC reviewed a sample of 40 of those reports (13%), covering a mix of listed and unlisted entities and prioritising sectors with higher greenhouse gas emissions or higher exposure to climate-related risks.
Headline Findings
ASIC observed that, overall, the introduction of statutory sustainability reporting has increased both the quantity and quality of climate-related financial information in the market. Entities were found to have generally complied with the basic requirements to prepare, lodge and have audited a sustainability report containing climate statements. Notably, 67.5% of entities identified the board as the governance body responsible for overseeing climate-related risks and opportunities, and 42.5% had incorporated climate-related factors into executive remuneration.
However, ASIC identified mixed practices in several areas, particularly in relation to forward-looking disclosures and those underpinned by significant judgement or assumption (including aspects of strategy, metrics, targets and climate resilience).
ASIC's Eight Key Action Items
The report sets out eight key action items for reporting entities. These should be treated as a clear signal of ASIC's supervisory expectations:
Connect the sustainability report with the financial report. Entities must explain how information in the sustainability report connects with relevant disclosures in the financial report, particularly in respect of cross-industry metrics and the current and anticipated financial effects of climate-related risks and opportunities.
Carefully consider whether quantitative information can be disclosed. Where material information about current and anticipated financial effects is disclosed only qualitatively, entities must ensure that users can understand the reasons for not providing quantitative information. ASIC observed that 37.5% of entities provided only qualitative information in this area.
Consider past events, current conditions and forecast future conditions when identifying risks and opportunities. Entities must use all reasonable and supportable information (including historical data) to identify climate-related risks and opportunities across their value chain.
Disclose relevant judgements, assumptions and measurement uncertainty. Clear, effective and proximate disclosure is required, particularly when identifying risks and opportunities and calculating cross-industry metrics.
Remember that "climate-related targets" includes targets required by law. The definition in AASB S2 encompasses targets an entity must meet by law or regulation, including Safeguard Mechanism obligations. ASIC observed inconsistent treatment of mandatory targets.
Do not obscure material information with voluntary disclosures. Some climate statements contained information beyond what AASB S2 requires, raising concerns that material information was being obscured.
Meet cross-referencing requirements. Cross-referenced information must be available on the same terms and at the same time as the sustainability report. ASIC identified problematic practices such as cross-referencing to paywalled or non-static third-party content.
Do not use disclaimers that conflict with the statutory framework. ASIC considers disclaimers that discourage reliance on sustainability report information to be contrary to the legislative policy of Chapter 2M and potentially misleading.
Key Areas of Focus for Boards and In-House Counsel
Governance and Risk Management
While governance disclosures were generally of a higher standard, ASIC flagged that some entities did not adequately explain how they assessed the nature, likelihood and magnitude of climate-related risks, as required under paragraph 25(a)(iii) of AASB S2. Entities within larger corporate groups should ensure disclosures make clear how parent-level governance and risk management apply to the Australian reporting entity.
Scope 3 Emissions — Transitional Relief Expiring
82.5% of entities relied on the one-year transitional relief not to disclose scope 3 greenhouse gas emissions. This relief will not be available in the second year of reporting. Entities that disclosed voluntary scope 3 information elsewhere without clear labelling risk confusing users. Preparers should begin planning now for scope 3 disclosure, bearing in mind the proportionality mechanisms in AASB S2.
Climate Resilience and Scenario Analysis
Entities must use a minimum of two climate scenarios aligned with the global average temperature increases set out in the Climate Change Act 2022 - one in which warming well exceeds 2°C and one in which warming is limited to 1.5°C above pre-industrial levels. ASIC observed that anticipated financial effects and climate resilience disclosures were sometimes conflated, despite being separate requirements under AASB S2.
Transition Plans
Only 47.5% of entities disclosed information about climate-related transition plans in their sustainability reports. While not universally mandatory at this stage, entities should consider the expectations that Treasury's voluntary guidance on climate-related transition planning sets for market practice.
ASIC's Forward-Looking Supervisory Approach
ASIC has confirmed that in 2026–27 it will review a sample of sustainability reports lodged by Group 1 entities with financial years ending 30 June 2026. It will also continue engaging with large audit firms on assurance methodologies. While ASIC did not exercise its powers to direct amendments to any sustainability reports in this first cycle, the report makes clear that ASIC retains these powers and expects disclosure quality to improve over time.
Key Takeaways and Next Steps
- Group 1 entities (30 June 2026 year end): Your sustainability reports will form the next cohort subject to ASIC review. Treat ASIC's eight action items as a practical checklist when finalising reports.
- Group 2 and Group 3 entities: Use this report as an early roadmap. The issues ASIC has identified (particularly around judgement disclosure, connectivity with financial reports and cross-industry metrics) will apply equally to your reporting when the obligations commence.
- Scope 3 readiness: Begin preparing now for the loss of transitional relief on scope 3 greenhouse gas emissions disclosure in the second reporting year.
- Board engagement: Ensure the board is briefed on ASIC's findings. Given that ASIC expects governance bodies to take a central role, boards should satisfy themselves that climate risk assessment processes, remuneration linkages and target-setting practices are robust and clearly disclosed.
- Review disclaimers and cross-references: Remove or amend any disclaimers that could be seen as undermining reliance on the sustainability report, and ensure all cross-referenced information meets the accessibility requirements in AASB S2 Appendix D.
Author: Miriam Kleiner, Partner.
