From compliance to credibility: what Group 2 reporters can learn from Australia’s first wave of climate disclosures

The first year of mandatory climate-related financial disclosures has provided Australian organisations with something far more valuable than regulatory guidance alone: a live market benchmark. Across more than 170 assessed disclosures from financial year reporters, in addition to over 30 reports from earlier in the year, spanning consumer, energy, finance, infrastructure, manufacturing, mining, property and public-sector organisations, a clear picture has emerged of what entities are doing well, where they are struggling, and what investors, regulators and assurance providers are likely to expect next. 

For Group 2 reporters, this creates a significant opportunity. Rather than building their reporting approach in isolation, they can learn directly from the experiences of the first wave of reporters and avoid many of the shortcomings that have consistently appeared across the market. 

The key lesson is that the conversation is already moving beyond ‘minimum’ compliance. The best Group 1 reports demonstrate that organisations can identify climate risks, establish governance structures and conduct scenario analysis. The challenge now is translating climate issues into financial consequences and demonstrating that organisations have credible plans to respond.

1. The foundations are now established

One of the strongest messages from the first year of reporting is that many organisations have successfully addressed the foundational requirements of AASB S2. 

Governance structures are generally well defined. Board and committee responsibilities are clearly articulated. Management accountability is increasingly embedded within organisational structures. Climate risk identification is becoming more systematic, and many organisations have integrated climate considerations into existing enterprise risk management frameworks. 

Similarly, scenario analysis has become a standard feature of climate disclosures. Most large reporters are now describing how different climate futures could affect their operations, assets and strategy. Scope 1 and Scope 2 emissions reporting is also maturing rapidly, with organisations demonstrating increasing confidence in their emissions inventories and measurement methodologies. 

These disclosures remain important, but they are quickly becoming baseline expectations. For Group 2 reporters, governance frameworks and emissions reporting are unlikely to be the areas that distinguish leaders from followers. Stakeholders increasingly expect these capabilities to exist. 

In practical terms, the market has largely solved the question of whether organisations can identify and govern climate risks. The more important question is becoming what those risks mean financially and how organisations intend to respond.

2. Financial quantification is becoming the next frontier

If there is one area where Group 1 disclosures consistently revealed a gap, it is financial quantification. Many organisations provide detailed descriptions of climate-related risks and opportunities but stop short of quantifying their potential impacts. Risks are often discussed qualitatively without clearly explaining their implications for revenue, costs, asset values, liabilities, cash flows or earnings. 

Investors and analysts increasingly want to understand questions such as: 

• Which assets are most exposed?
• What earnings are at risk?
• How might balance sheets be affected?
• What is the potential impact on future cash flows?
• Which assumptions are most sensitive to climate change? 

These are fundamentally financial questions rather than sustainability questions. 

By connecting climate disclosures to financial outcomes (i.e., linking risk assessments to impairment testing, capital allocation decisions, asset valuation processes, budgeting assumptions and long-term planning), Group 2 reporters can mitigate ‘audit pain’ and scrutiny, as financial quantification is likely to become one of the most important measures of disclosure quality and a company’s investability.

3. Transition plans and targets must evolve from aspiration to execution

Transition plans and climate targets remain among the most visible elements of climate reporting, yet Group 1 disclosures demonstrate that many organisations still struggle to connect long-term ambitions with credible implementation pathways. While ambitious net zero and emissions reduction targets are increasingly common, disclosures often provide limited detail about how those commitments will be achieved, funded, governed and monitored. This creates questions around credibility, feasibility and accountability. 

As stakeholder expectations mature, climate targets and transition plans are increasingly being assessed together. Investors and other stakeholders recognise that setting a target is relatively straightforward; demonstrating a realistic pathway to achieving it is considerably more challenging. Future disclosures are therefore likely to be judged not only on the ambition of targets, but on the quality and transparency of the plans supporting their delivery. Transition plans will need to resemble operational business plans rather than strategic aspirations, clearly explaining how climate objectives are integrated into broader business strategy and decision-making. 

Group 2 reporters should focus on providing clear disclosure of: 

• How targets were established and the assumptions underpinning them
• Interim milestones and expected delivery pathways
• Specific operational initiatives and actions required to achieve targets
• Capital requirements and funding sources
• Key dependencies, risks and the role of offsets, where relevant
• Performance measures and success metrics used to monitor progress
• Accountability arrangements, including responsible executives and governance mechanisms
• Progress against previous commitments and any adjustments to plans over time
• Integration of climate targets and transition activities within broader corporate strategy 

Stakeholders are increasingly seeking evidence of implementation rather than statements of intent. Organisations that can demonstrate clear execution planning, transparent progress tracking and realistic discussion of challenges are likely to inspire greater confidence than those relying solely on long-term ambitions. Indeed, transparency regarding obstacles, uncertainties and delivery risks may ultimately be more credible than overly optimistic commitments that lack supporting implementation detail. 

For organisations that have not established formal emissions targets, and therefore may not be required to disclose a transition plan, articulating a clear climate strategy remains strongly recommended. Doing so can help explain how the organisation intends to respond to climate-related risks and opportunities, and provide stakeholders with greater confidence in its preparedness and resilience in a changing operating environment.

4. Capital allocation will attract greater scrutiny

A notable characteristic of many first-wave disclosures is the limited explanation of climate-related capital deployment. Many reports describe intended actions without clearly identifying how much capital will be invested, where investment will occur, or what outcomes are expected.  

Yet climate transition is fundamentally a capital allocation challenge. 

Boards routinely assess major investments based on expected returns, costs, risks and strategic outcomes. Increasingly, stakeholders expect climate-related investments to be treated in the same way. Group 2 organisations have an opportunity to differentiate themselves by providing greater transparency around climate-related expenditure, resilience investments, emissions-reduction programs and adaptation initiatives.  

Demonstrating how climate strategy influences investment decisions can significantly strengthen the credibility of disclosures and support investor confidence. 

5. Risk assessment needs to move beyond qualitative approaches

Many organisations continue to rely heavily on qualitative risk assessments and heat-map style reporting. While these approaches help prioritise risks, they often provide limited insight into potential business impacts. The market appears to be moving toward more sophisticated assessment methodologies, including: 

• Asset-level exposure analysis
• Climate-adjusted valuations
• Revenue sensitivity modelling
• Carbon-price exposure assessments
• Insurance and resilience cost analysis
• Physical risk quantification 

Group 2 reporters should consider how their risk assessments can support decision-making rather than simply satisfy disclosure requirements. The strongest reports will likely demonstrate how climate risk analysis informs operational planning, investment decisions, strategy development and financial management. 

6. Assurance readiness starts now

One of the most practical lessons from Group 1 reporting is the importance of assurance readiness. Many organisations have discovered that producing the report itself is only part of the challenge. Equally important is the evidence and judgements supporting every disclosure. 

Assurance providers are increasingly examining data lineage, methodologies, calculations, review processes and governance records. Weak documentation can create significant challenges even where the underlying analysis is sound. Group 2 entities should therefore establish robust controls throughout the reporting year rather than attempting to create evidence retrospectively at year-end. 

Each material disclosure should have a clearly identifiable owner, supporting documentation, review process and approval record. 

7. The opportunity to leapfrog

Group 2 reporters are entering the market at a fortunate moment. The learning curve has already been established, and the strengths and weaknesses of inaugural disclosures are increasingly visible. 

The major lesson from Group 1 is that governance, risk identification and emissions reporting are rapidly becoming standard expectations. The real opportunity lies elsewhere. 

The organisations that stand out in the next phase of reporting are likely to be those that can quantify climate impacts financially, demonstrate credible transition plans, explain climate-related capital allocation decisions, provide decision-useful risk analysis and build confidence through robust implementation evidence. 

In short, the market is evolving from asking, “Do you understand your climate risks?” to “Can you quantify them, finance the response, and demonstrate delivery?” 

For Group 2 reporters, that shift represents both the challenge and the opportunity. Those that learn from the strengths and weaknesses of the first wave of disclosures have the opportunity not merely to comply with AASB S2, but to leapfrog the maturity curve and deliver disclosures that are more credible, more financially connected and ultimately more valuable to investors and stakeholders. 

We have included a set of priority actions for Group 2 reporters in the table below.

The table below can help Group 2 reporters to build a relevant peer benchmark set by highlighting the relative strengths of disclosures across sectors.  

A new way of working with you 

Drawing on our experience helping companies navigate the complexity of these disclosures and considering the support they will need in Year 2, we have formulated a service offering that weaves together deep technical expertise and access to the best minds in the business across all aspects of climate disclosures. Climate Advantage has been developed to enable you to tap this collective expertise at will, and to keep you up to date with changes in policy and the market, without locking you into a detailed project plan.  

If this approach is of interest, contact the authors: Bahador Tari, Andrew Tipping or Dr Mary Stewart.