Introduction

This educational material explains how entities apply AASB S2 Climate-related Disclosures to identify and disclose material information about climate-related risks and opportunities in general purpose financial reports. AASB S2 requires disclosure of information that could reasonably affect an entity’s cash flows, access to finance or cost of capital across short-, medium- and long-term horizons. The material clarifies concepts and illustrates application to support preparers and other stakeholders.

AASB S1 provides voluntary sustainability disclosure requirements, while AASB S2 introduces mandatory climate-related disclosures for certain entities under the Corporations Act 2001 (Cth). The document complements the standard but does not alter its requirements. It also references related international guidance, including IFRS S1 and IFRS S2, to help entities understand the concept of material information within climate reporting.

Overview

AASB S2 requires entities to disclose material information about climate-related risks and opportunities that could reasonably affect financial prospects. Information is considered material if its omission, misstatement or obscuring could influence decisions made by primary users such as investors, lenders and other creditors.

The disclosures aim to provide decision-useful information about how climate-related issues influence financial performance, strategy and risk management. The standard emphasises connectivity between climate disclosures and financial statements so users can understand relationships between climate factors and financial outcomes. This integration improves transparency and assists stakeholders in evaluating financial implications of climate risks and opportunities.

Entities subject to climate-related financial disclosure mandates under the Corporations Act 2001 (Cth) must also comply with additional legislative obligations, including guidance from ASIC’s Regulatory Guide 280 on sustainability reporting.

Chapter 1—Definition and application of material information in AASB S2

Material information refers to climate-related financial information that could influence the decisions of primary users of general purpose financial reports. These users typically include existing and potential investors, lenders and other creditors assessing resource allocation decisions such as buying, selling or holding equity and debt instruments, providing loans, or exercising governance rights.

Materiality assessments consider both quantitative and qualitative factors. Entities evaluate whether information affects expectations regarding the amount, timing and uncertainty of future cash flows or management stewardship. Information must also be clearly presented and not obscured by immaterial or unrelated disclosures.

Climate-related financial disclosures differ from broader sustainability reporting because they focus on financial decision-making rather than broader social or environmental impacts. Although other stakeholders may use these disclosures, their primary purpose is to meet investor-focused information needs.

Chapter 2—Climate-related risks and opportunities that could reasonably be expected to affect an entity’s prospects and its application in AASB S2

AASB S2 requires entities to identify climate-related risks and opportunities that could influence financial prospects, including cash flows, financing access and cost of capital. These risks and opportunities arise from interactions between the entity and stakeholders, society, the economy and the natural environment throughout its value chain.

The value chain includes the full lifecycle of products and services, covering operations, supply chains, distribution channels and external conditions such as regulatory or geopolitical environments. Entities depend on resources and relationships within this system, including natural resources, workforce capabilities, financial capital and stakeholder relationships.

Climate-related risks may arise when these dependencies are disrupted or when an entity’s activities impact those resources. For example, water scarcity driven by climate change could reduce agricultural production or increase input costs, affecting profitability. Conversely, climate-related opportunities may emerge through technological innovation, improved efficiency or new products that meet shifting market demand for lower-carbon solutions.

Entities are not required to conduct exhaustive investigations across their entire value chains. Instead, AASB S2 introduces a proportionality approach, requiring the use of all reasonable and supportable information available at the reporting date without undue cost or effort. Climate-related risks and opportunities must also be reassessed when significant events or changes occur, such as regulatory developments or supply chain changes.

Chapter 3—Identifying and disclosing material information

The report outlines a four-step process for identifying and disclosing material climate-related information.

Step one involves identifying information about climate-related risks and opportunities that could potentially be material to primary users. Entities begin with disclosure requirements in AASB S2 but may also identify additional information necessary to explain financial effects.

Step two requires assessing whether the information is materially relevant using quantitative indicators such as financial impact and qualitative factors such as governance, industry context and stakeholder expectations. Information about low-probability but high-impact risks may also be material if it could influence user decisions.

Step three focuses on organising the disclosures clearly and concisely. Entities should avoid generic statements, duplication or aggregation that obscures material information. Appropriate disaggregation may be required, for example separating climate risks by geographic region when exposure differs significantly.

Step four involves reviewing the complete set of climate-related financial disclosures to ensure all relevant information is included and presented effectively. This review may result in additional disclosures, improved organisation or removal of immaterial information.

The outcome is a coherent set of climate-related disclosures that accurately reflects the entity’s risks, opportunities and financial implications while supporting informed decision-making by primary users.