2025 has certainly been characterised by uncertainty and bifurcation in the approach to climate change financial risk management around the world. Australia has not been immune, with the Federal Opposition announcing that they would scrap AASB S2, the mandatory climate-related financial reporting regime, should they be elected on 3 May. As a consequence, many Australian companies had slowed – or in some cases paused – their preparations for compliance. Now, the result is known. The re-elected Labor government has shown no signs of resiling from or moderating the legislated requirements, which commenced for larger Group 1 companies for financial years from 1 January 2025. Australia is not an outlier in this regard – we are in a cohort of jurisdictions representing nearly 55% of the global GDP that have announced that they will apply similar standards, based on financial reporting standards promulgated by the International Sustainability Standards Board.

There is no doubt that AASB S2 represents a step-change, rather than an incremental evolution, in how companies need to approach to the measurement, governance and strategic integration of climate change through the lens of financial performance, position and prospects. It not only significantly expands the information in relation to climate-related risks and opportunities across a company’s entire value chain, across the short-, medium- and long-term (the what?), but a step-change in:

• disclosure of the corporate how? (for example – how does our board stay informed of relevant developments, and satisfy themselves that adequate skills and capabilities are to hand? How have we assessed the relevant risks and opportunities? How are they integrated into strategy and strategic decision making?) and;
• the so what? (so what are the impacts that we can reasonably expect on our cash flows, our access to finance and cost of capital? So what is the climate resilience of our strategy and business plan tested against different scenarios?).

Given these requirements, the new regime significantly increases the requirements on a company – and the boards charged with making the directors’ declaration in relation to the Sustainability Report – to demonstrate the reasonable grounds in relation to forward-looking statements, and to make significant management judgments. Both in the face of extreme complexity, uncertainty and dynamism. As a consequence, there has been significant appetite for additional guidance on the application of the regime, and where companies can find ‘bright lines’ as the navigate through the field of complex judgments.

In April, ASIC published its final Regulatory Guidance 280 and the AASB launched its Knowledge Hub – the latter of which purports to summarise the requirements at a high-level.

However, ASIC largely resisted calls from many to provide further particularity and ‘bright lines’ around its interpretation of the normative provisions of AASB S2.

In short, the regulator made clear that there is now no alternative but for companies – and their boards – to lean in to preparations for the regime, and to actively turn their minds to the judgments at hand. Judgment is par for the course.

So – yes, this is complex. It is likely to require a significant program of capacity building for both board and executive teams. Yes, this is costly. Significant resourcing – of both governance and management – is required. Even the most basic gap assessment and preparation work program will reveal that this is not an uplift that can be undertaken ‘off the side of the desk’ of already stretched sustainability and finance teams. And yes, this will take time. But the time to start is undeniably now for companies and their boards.

To discuss these issues in more depth please get in touch with Sarah Barker at sarah.barker@pollinationlaw.com.