AASB S2 Has Started for Group 2: Six Controls to Build Now
Mandatory climate reporting has begun for Group 2 entities with financial years starting on or after 1 July 2026. The first report may be more than a year away. The work that decides whether it holds together starts now.
At a Glance
▸ Mandatory reporting has begun for Group 2 entities with financial years starting on or after 1 July 2026. Group 3 applies to financial years starting on or after 1 July 2027
▸ ASIC reviewed a subset of the 259 reports lodged for the first reporting period and published six areas where reporting could be strengthened (18 May 2026)
▸ Separately, ASIC and the AASB released foundational education: three webinars in June 2026 and eight modules
▸ ASIC's observations point less to basic comprehension than to execution
▸ Assurance deepens over time, toward reasonable assurance over mandatory climate disclosures under the current phased assurance timetable
▸ Six controls, built during the reporting year, are what carry a disclosure through review. They are SustainTrue's recommended framework, not a regulator's
Mandatory climate reporting has begun for Group 2 entities with financial years starting on or after 1 July 2026. The first report may be more than a year away. But the work that decides whether it holds together happens inside the reporting year, not in the drafting weeks before it is due.
ASIC's observations point less to basic comprehension than to execution: producing evidence a reader can follow, recording the reason for a judgement, and connecting a climate risk to its financial effect or a business decision. This is a guide to building that evidence as you go, and the six controls that hold it together.
What the first year showed
ASIC reviewed a subset of the 259 reports lodged for the first reporting period and published six areas where reporting could be strengthened: disclaimers that undercut the report, risks described backward rather than forward, judgements left unexplained, material information buried in voluntary detail, loose cross-referencing, and targets read too narrowly.
Read as a group, they describe one problem. Reports that state conclusions without the trail behind them.
The regulator also, separately, taught the groundwork. Between 16 and 30 June 2026 ASIC and the AASB ran three webinars and eight modules: foundational capability building, not a complete implementation method.
What the three sessions actually ask for
| Session | What was taught | What it means in practice | What evidence should exist |
|---|---|---|---|
| 1. Physical risk | Acute and chronic risk; risk is hazard, exposure and vulnerability | A hazard is only a risk where an exposed, vulnerable asset or supplier sits in its path | A register naming the asset, site or supplier, its exposure and vulnerability, per hazard |
| 2. Transition risk and opportunity | Policy and legal, technology, market, reputation, and the opportunities alongside them | External shifts must connect to revenue, cost, asset value, financing or the business model | Each item linked to a financial effect or a business decision, with a response |
| 3. Emissions, scenarios and governance | Scope 1, 2 and 3; scenario analysis; governance and risk | Numbers trace to source and method; scenarios test resilience, not forecast; decisions are owned | Emissions with source, method and assumptions; scenario assumptions and owners; a governance trail |
Physical risk: name the asset, not just the hazard
A flood is a hazard. It becomes a financial risk only when you can point to what it threatens.
Take an illustrative case: a distribution centre on a known floodplain that holds a large share of finished goods, served by a single road that closes above a moderate flood. The hazard is the flood. The exposure is the centre and the stock inside it. The vulnerability is the single road and the concentration of inventory. The consequence is lost sales and emergency logistics for the weeks it takes to recover.
"Flooding is a risk to our operations" is a sentence. The version above is evidence. The register should hold the second kind.
Transition risk: connect the shift to a consequence
Transition risk is where mid-market reports tend to under-reach, because the risk is indirect.
A carbon price is not a risk until it lands on an input you buy. A customer's new procurement rule is not a risk until it threatens a contract. A technology shift is not a risk until it strands an asset you still depend on.
The session was also explicit that this runs both ways. The same shifts open opportunities: lower-carbon products, new demand, better financing terms for credible plans. Each item, risk or opportunity, should connect to revenue, cost, asset value, financing or a business-model decision, and carry a response.
Emissions, scenarios and governance
This is where review and assurance pressure becomes most visible.
Emissions. Scope 1, 2 and 3 are only as sound as what sits under them. Each figure needs its source (the bill, the meter, the supplier record), its method (activity or spend-based), and its assumptions (emission factor, boundary, estimate). When an assurer asks how you reached a number, that trail is the answer.
Scenario analysis. This is not a forecast. It tests whether the business holds up under different plausible futures: an orderly transition, a delayed one, a high-warming world. The value is not the prediction. It is the assumptions you record and the resilience, or fragility, they reveal.
Governance. Someone has to own it. Who prepares the numbers, who reviews the assumptions, how decisions are recorded, and how all of it moves into the board's risk reporting. This is what lets a director stand behind the disclosure.
The first 90 days: six controls to build now
These are SustainTrue's recommended implementation controls, not controls prescribed by ASIC or the AASB.
If the report is the output, these six are the machine that produces it. Stand them up early in the reporting period, not at the end.
- Reporting boundary and accountable owner. Fix what is in scope, and who owns the disclosure, before any data is collected.
- Climate-risk and opportunity register. Physical and transition, each item tied to an asset or driver and a financial effect or business decision.
- Source, method and assumption trail. For every number: where it came from, how it was calculated, and what was assumed. Captured as you go.
- Judgement and proportionality register. Every material judgement, and every use of the standard's relief, recorded with its reason.
- Financial and sustainability report reconciliation. The climate numbers and narrative should agree with the financial statements and prior disclosures.
- Pre-assurance walkthrough. Before the assurer arrives, trace a sample of numbers and judgements end to end. If you cannot follow the trail, neither can they.
A judgement reconstructed months later is a memory. Recorded when it was made, it is evidence.
How SustainQ supports the six controls
SustainQ is the system underneath these controls. It does not sign your disclosure or guarantee an assurance or audit outcome. It makes the six controls repeatable.
- Ingest source data and evidence. Bills, meters, supplier records and documents in one place, each tied to the number it supports (controls 3 and 5).
- Preserve methods, assumptions and judgements. Every calculation carries its method, every judgement its reason, captured when it is made (controls 3 and 4).
- Connect physical risk, transition risk and emissions. One register linking hazards, transition drivers and emissions to assets and consequences (control 2).
- Hold consistency across clients, sites and years. The same method applied the same way, so a second site or a second year is comparable (controls 1 and 5).
- Produce disclosure and assurance-supporting evidence from one base. The report and the evidence an assurer asks for come from the same system, not a separate reconstruction (control 6).
SustainQ is the operating layer for sustainability management, built for the mid-market and the advisers who serve it.
What makes it different is where it sits. Not a reporting tool bolted on at the end, but the layer underneath: one science-based input layer that takes your data, evidence, methods and judgements once, and turns them into the outputs you need. Climate disclosure, emissions, physical and transition risk, and the evidence trail behind every number, all from the same base.
That is how the six controls stop being a project and become the way the reporting year runs.
Sources
1. ASIC, Sustainability reporting: Educational modules (ASIC, AASB, UTS)
2. ASIC, Early observations on sustainability reporting ahead of 30 June 2026 (18 May 2026)
3. AASB, AASB S2 Climate-related Disclosures (September 2024)
4. AUASB, Sustainability Assurance (ASSA 5010, phased to reasonable assurance from 1 July 2030)