Since the introduction of mandatory climate-related financial disclosures under AASB S2, organisations have been grappling with one of the most challenging aspects of reporting: understanding and disclosing the current and anticipated financial effects of climate-related risks and opportunities (CRROs). 

Unlike many traditional financial reporting exercises, financial effects quantification often requires organisations to apply new methodologies, make judgement-based assumptions and assess impacts over long-term planning horizons where uncertainty can be significant. As a result, many early reporters have been navigating complex questions around what can be reasonably quantified, how uncertainty should be reflected, and when the relief provisions available under AASB S2 may be appropriate. 

While much of the market's attention has focused on compliance requirements, financial effects quantification can deliver benefits well beyond reporting. Done effectively, it helps organisations better understand the financial significance of CRROs, supports prioritisation of investment decisions, and strengthens long-term business planning. 

ERM reviewed a sample of early AASB S2 reporters to understand how organisations are approaching this challenge in year one and what lessons can be drawn for future reporting cycles and Group 2 reporters.  

What does AASB S2 require? 

AASB S2 requires entities to disclose information about the current and anticipated financial effects of CRROs on their financial position, financial performance and cash flows. The objective is to help investors, lenders and other creditors understand how climate-related matters may affect an entity's prospects. 

The requirements apply to CRROs that could reasonably be expected to affect the entity's prospects and include both current reporting period impacts and future impacts expected over the short, medium and long term. 

Financial effects under AASB S2 

Current financial effects 

Anticipated financial effects 

Impacts affecting the entity during the current and next reporting period 

Impacts expected to affect the entity in the short, medium and long term 

Examples may include increased insurance costs, repair expenses or asset impairments 

Examples may include resilience investment and adaptation investments, expenditure required to achieve climate-related targets and strategic objectives, changing operating costs or shifts in revenue 

AASB S2 requires the use of both qualitative and quantitative information. Quantitative information may be disclosed as a single amount or a range and should be based on reasonable and supportable information available at the reporting date. 

What are we seeing from early reporters? 

ERM's review of around 100 Group 1 reporting entities found that relatively few organisations disclosed quantified financial effects associated with CRROs. 

Market observations from early reporting 

Observation 

Market trend 

Quantified current financial effects disclosed 

26% 

Quantified anticipated financial effects disclosed 

22% 

Predominantly qualitative disclosures 

78% 

Most cited reason for not disclosing quantified effects 

High measurement uncertainty (54%) 

Other commonly cited reasons 

Information was not decision-useful, effects were not separately identifiable, capability and resource constraints 

Many early reporters described CRROs in detail but stopped short of assigning financial values or ranges to anticipated impacts. Others disclosed that quantitative analysis had been performed internally but concluded that results were immaterial or too uncertain to disclose externally.  

Relief does not remove the disclosure obligation 

The standard recognises that quantification may not always be possible. Relief provisions are available where impacts cannot be separately identified, where measurement uncertainty is too high, or in some circumstances where organisations lack the skills, capabilities or resources required to provide quantitative information.  

Importantly, applying a relief does not remove the requirement to disclose financial effects altogether. Where quantitative information is not provided, entities are still expected to explain why, identify the relevant financial statement line items that have been or may be affected, and consider whether combined financial effects can be disclosed. 

Entities should also clearly explain the assumptions, methodologies and judgements that underpin their assessment, allowing users to understand how conclusions were reached. This is particularly important, as the sustainability reporting regime matures and directors move toward full compliance declarations from 1 January 2028.1 Directors will increasingly need robust evidence to support conclusions, including where no material financial impact is expected. 

Why financial effects quantification matters 

The value of financial effects quantification extends well beyond regulatory compliance. 

Quantification assists with: 

  • Improving decision-making by translating CRROs into financial terms that are meaningful to executives, finance teams and boards.
  • Supporting prioritisation and capital allocation by identifying the risks, opportunities and adaptation initiatives likely to have the greatest financial significance.
  • Strengthening business planning and risk management by highlighting potential impacts on costs, revenues, assets, liabilities and cash flows over time.
  • Building organisational capability and maturity by improving collaboration across teams, while identifying data, process and system gaps to support continuous improvement. 

Importantly, the process of financial quantification can be as valuable as the outcome itself. Even where organisations ultimately conclude that quantitative disclosure is not currently feasible, the assessment can improve understanding of how CRROs may affect the business, identify critical assumptions and data gaps, and help establish a roadmap for more mature analysis and disclosures over time.  

Moving from compliance to strategic insight 

Regardless of reporting maturity, organisations can take practical steps today to strengthen future disclosures and unlock greater value from the quantification process. 

Group 1 reporting entities who have already quantified financial effects 

Focus should now shift from compliance to continuous improvement. ERM recommends refining methodologies, addressing data gaps and uncertainties identified during the assessment, developing metrics and targets to monitor progress, and embedding financial effects into broader business planning and decision-making processes. 

Group 1 reporting entities who leveraged relief provisions and have not yet quantified financial effects 

The next reporting cycle provides an opportunity to begin the quantification journey. Even where precise financial estimates cannot yet be disclosed, undertaking the assessment can help identify key assumptions, data gaps, priority risks and opportunities, and areas where additional capability or analysis may be required. 

Organisations preparing for future AASB S2 reporting 

Based on ERM’s experience in supporting Year 1 reporters, we encourage early consideration of financial quantification to integrate financial thinking from the outset, as this can support more efficient assessments, stronger decision-making and a clearer pathway towards mature disclosures over time. 

ERM supports organisations across CRRO assessments, scenario analysis, climate-related financial disclosures and financial effects quantification under AASB S2. Our experience shows that integrating financial thinking throughout the reporting process, particularly in climate risk and scenario analysis, can not only support compliance outcomes, but also provide valuable insights to inform business strategy, investment planning and long-term resilience.

1296A of the Corporations Act 2001