Australia Chapter 2M Climate Reporting: 2025 Review

Australia’s mandatory climate disclosure regime under Chapter 2M commenced on 1 January 2025, marking a generational shift in corporate reporting. As we close out 2025, Group 1 entities have completed their first reporting year and are preparing to publish their inaugural sustainability reports in early 2026. Consequently, legal and compliance professionals need to understand what worked, what challenges emerged, and how to prepare for the expanding scope in 2026 and 2027.

What is the Chapter 2M climate reporting regime?

The Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Act 2024 received Royal Assent in September 2024. Subsequently, this legislation amended Chapter 2M of the Corporations Act to introduce mandatory climate-related financial disclosures.

The regime requires certain Australian entities to prepare annual sustainability reports containing climate-related disclosures. Furthermore, these reports must be prepared in accordance with Australian Sustainability Reporting Standards (ASRS), specifically AASB S2 Climate-related Disclosures.

The sustainability report is prepared for the same reporting entity and the same reporting period as the related financial statements. Moreover, it must be released at the same time and lodged with ASIC.

This positions Australia as a global leader in climate reporting. In fact, the country is one of the early movers in imposing ISSB-aligned requirements on reporting entities, maximising global consistency and comparability.

Which entities must report?

The regime applies to entities already required to prepare annual financial reports under Chapter 2M of the Corporations Act. This includes listed and unlisted companies, financial institutions, retirement funds, and registered investment schemes.

Entities must meet specific thresholds based on their group classification. Additionally, the regime uses a three-phased approach to implementation.

Group 1 entities commenced reporting for financial years starting on or after 1 January 2025. These include entities meeting two of three thresholds:

• Consolidated revenue of $500 million or more
• Consolidated gross assets of $1 billion or more
• 500 or more employees

Group 1 also includes entities required to report under Chapter 2M that are controlling corporations under the NGER Act and meet the NGER publication threshold.

Group 2 entities will commence reporting for financial years starting on or after 1 July 2026. Similarly, these entities meet two of three thresholds:

• Consolidated revenue of $200 million or more
• Consolidated gross assets of $500 million or more
• 250 or more employees

Group 3 entities will commence reporting for financial years starting on or after 1 July 2027. In contrast, these entities meet two of three thresholds:

• Consolidated revenue of $50 million or more
• Consolidated gross assets of $25 million or more
• 100 or more employees

Group 3 entities only need to provide climate-related financial disclosures if they identify material climate-related risks or opportunities for that reporting period. However, if they don’t have material risks or opportunities, they must disclose that fact and explain how they reached this conclusion.

When will the first reports be published?

Group 1 entities with December 2025 financial year-ends are currently finalising their first sustainability reports. Therefore, these will be published in March or April 2026 alongside their annual financial reports.

Group 1 entities with 30 June financial year-ends will publish their first sustainability reports later in 2026. Specifically, their first reporting period runs from 1 July 2025 to 30 June 2026.

Entities with other financial year-ends will report based on when their first financial year commencing after 1 January 2025 concludes. For example, an entity with a 30 September year-end will report for the year commencing 1 October 2025 and ending 30 September 2026.

Over 6,000 entities are expected to be climate reporting by 2030 as the regime expands to Groups 2 and 3.

What must sustainability reports contain?

The sustainability report must include a climate statement for the relevant year, including any applicable notes. Additionally, it must contain any statement prescribed by regulations and the directors’ declaration.

Climate disclosures follow four pillars established by AASB S2:

• Governance: Disclose the governance processes, controls, and procedures used to monitor, manage, and oversee climate-related risks and opportunities.
• Strategy: Disclose information about the climate-related risks and opportunities that could reasonably affect the entity’s prospects, including the entity’s business model and strategy.
• Risk Management: Disclose the processes used to identify, assess, prioritise, and monitor climate-related risks and opportunities.
• Metrics and Targets: Disclose information about the entity’s performance in relation to climate-related risks and opportunities, including progress towards targets the entity has set or is required to meet by law or regulation.

What are the scenario analysis requirements?

The Senate made a significant amendment before passage. Consequently, entities must now use scenario analysis examining at least two specified scenarios:

• Low warming scenario: Global average temperatures limited to 1.5°C above pre-industrial levels
• High warming scenario: Global average temperatures exceed 2.5°C above pre-industrial levels

This requirement ensures entities test the resilience of their strategy and business model under different climate futures.

What about greenhouse gas emissions disclosure?

Entities must disclose Scope 1, Scope 2, and Scope 3 greenhouse gas emissions. Indeed, this represents one of the most challenging aspects of the regime.

• Scope 1 emissions are direct emissions from owned or controlled sources.
• Scope 2 emissions are indirect emissions from purchased energy.
• Scope 3 emissions are all other indirect emissions occurring in the value chain, both upstream and downstream. These are often the largest portion of total emissions but the hardest to measure accurately.

AASB S2 requires disclosure of information about emissions measurement methods, contractual instruments, and any use of carbon credits to offset emissions.

What happened with ASIC’s regulatory guidance?

On 31 March 2025, ASIC released Regulatory Guide 280: Sustainability reporting (RG 280). This final guidance explains how ASIC will exercise its powers, interpret the law, and supervise the new regime.

RG 280 provides practical guidance on compliance with sustainability reporting obligations. Furthermore, it covers reporting content, interaction with other requirements, directors’ duties, disclosure of sustainability information outside the sustainability report, and ASIC’s administration approach.

ASIC acknowledged that reporting entities will continue building their capability over time. Consequently, the sophistication and maturity of controls, policies, procedures, systems, and data availability will develop as entities gain experience.

The regulator stated it would adopt a proportionate and pragmatic approach to supervising and enforcing climate reporting requirements. Therefore, ASIC will actively monitor the first reporters, primarily the largest firms, to gather key insights benefiting the broader market.

What are directors’ responsibilities?

RG 280 emphasises that existing directors’ duties under the Corporations Act apply to sustainability reporting. As a result, directors must act with care and diligence when preparing sustainability reports.

Directors are required to:

• Understand the entity’s sustainability reporting obligations
• Understand climate-related risks or opportunities affecting the entity’s prospects
• Establish systems to identify, assess, and monitor material climate-related financial risks
• Establish controls and procedures to manage and prepare sustainability reports
• Establish controls and procedures for keeping sustainability records
• Apply a critical lens to proposed disclosures, questioning methods, inputs, assumptions, and completeness

Whilst directors may rely on the special knowledge or expertise of staff or external consultants, they still need to make an independent assessment using their own skills and judgement.

What liability protections exist?

The regime includes modified liability settings for certain disclosures during the transition period. This recognises that some climate disclosures involve significant uncertainty.

Protected statements made in sustainability reports for financial years commencing between 1 January 2025 and 31 December 2027 receive temporary relief from civil actions. During this period, only ASIC can bring actions relating to breaches concerning:

• Scope 3 greenhouse gas emissions disclosures
• Scenario analysis disclosures
• Transition plans disclosures

However, the modified liability settings do not extend to statements made outside of a sustainability report. Therefore, greenwashing risks must be carefully considered when making external statements, including in separate public communications.

For financial years commencing between 1 January 2025 and 31 December 2027, directors must declare they have taken reasonable steps to ensure the sustainability report complies with the Corporations Act and AASB S2. Notably, this is a lesser standard compared to financial reports during the transition period.

What assurance requirements apply?

The Auditing and Assurance Standards Board (AUASB) approved two key standards in January 2025:

• ASSA 5000 provides general requirements for sustainability assurance engagements. Essentially, this is the Australian version of the global baseline assurance standard.
• ASSA 5010 outlines the timeline for phasing in assurance requirements. In practice, the regime takes a graduated approach, starting with limited assurance and progressing to full audit.

Sustainability reports are subject to audit (reasonable assurance) for financial years commencing on or after 1 July 2030. Until that time, the extent of assurance gradually increases according to ASSA 5010.

The same firm that audits the entity’s financial statements must provide assurance over the sustainability report. Consequently, this ensures consistency and leverages existing auditor knowledge of the business.

What challenges did Group 1 entities face in 2025?

• Data collection proved challenging, particularly for Scope 3 emissions. In addition, many entities lacked established systems to gather emissions data from suppliers and customers across their value chain.
• Scenario analysis required new capabilities. Therefore, entities needed to model how their business would perform under different climate futures, requiring cross-team work between finance, operations, and sustainability teams.
• Governance structures needed upgrading. As a result, many entities established new board committees or expanded existing risk committees to oversee climate-related financial risks.
• Internal controls required significant development. Similarly, entities needed systems to identify, assess, and monitor material climate-related financial risks, similar to financial reporting controls.
• Timeline pressure was real. In particular, entities that adopted a ‘just in time for filing’ approach faced major problems. In contrast, those that started early and built capability throughout 2025 fared better.

How did ASIC support implementation?

ASIC took a pragmatic approach during the first year. Indeed, the regulator recognised this was a new regime requiring entities to develop new capabilities and systems.

RG 280 provided flexibility on certain aspects. For example, ASIC revised its position on labelling of sustainability-related information in sustainability reports, allowing entities to include broader sustainability information alongside mandatory climate disclosures.

Furthermore, ASIC granted relief for stapled entities, allowing them to lodge one sustainability report on behalf of all members of the stapled group. This addressed a practical complexity for certain listed structures.

The regulator indicated it will update RG 280 or provide other regulatory guidance as it observes how sustainability reporting practices evolve.

What happens in 2026?

Group 1 entities with December 2025 year-ends will publish their first reports in March or April 2026. Therefore, ASIC, shareholders, investor advocacy groups, and community stakeholders are waiting to see the results of these first compliance efforts.

Group 1 entities with 30 June year-ends will publish later in 2026. Notably, this represents the largest cohort of Group 1 reporters.

Group 2 entities commence their first reporting period for financial years starting on or after 1 July 2026. As a result, these mid-sized entities should use 2025’s lessons from Group 1 to prepare their systems and processes.

Assurance requirements remain at limited assurance level for most disclosures during 2026. Meanwhile, the phased approach to full audit continues until 2030.

What should entities do now?

Group 1 entities finalising their first reports should document lessons learned. What data gaps existed? Where did governance processes need strengthening? How effective were your internal controls?

Group 2 entities should start preparation immediately. Indeed, your first reporting period begins in mid-2026 for many of you. Don’t wait until the reporting deadline approaches.

Group 3 entities have more time but should begin capability building. First, assess whether you face material climate-related risks or opportunities. Then, start thinking about data collection systems.

All entities should monitor ASIC’s responses to the first wave of reports. In turn, the regulator will provide insights that benefit later reporters.

What are the key compliance steps?

• Establish board oversight of climate-related risks and opportunities. Clearly, directors need to understand these matters as part of their duties.
• Build data collection systems for greenhouse gas emissions, particularly Scope 3. Consequently, this requires engagement with suppliers and customers.
• Develop scenario analysis capabilities. Specifically, you need to model your business under the required low and high warming scenarios.
• Create internal controls for sustainability reporting equivalent to those for financial reporting. This includes policies, procedures, and documentation requirements.
• Train your team on AASB S2 requirements. Indeed, this isn’t just a sustainability team project—it requires finance, legal, operations, and strategy input.
• Engage your auditors early. After all, they need to understand your approach and data sources to provide the required assurance.

What mistakes should you avoid?

• Don’t leave preparation until reporting deadline approaches. In fact, the New Zealand experience shows that late starters face major problems.
• Don’t treat this as a compliance tick-box exercise. Instead, climate reporting should integrate with strategic planning and risk management.
• Don’t make unsubstantiated statements outside your sustainability report. Remember, the modified liability settings don’t protect external communications, creating greenwashing risks.
• Don’t assume financial report exemptions automatically extend to sustainability reports. Therefore, check your specific situation with ASIC or legal advisors.
• Don’t rely solely on consultants without director oversight. Ultimately, directors must make independent assessments using their own skills and judgement.

What’s next?

Managing Chapter 2M climate reporting obligations requires detailed planning and full legal awareness. For more insights into corporate governance processes in other jurisdictions, explore our article on ASIC Virtual AGM Guidance.

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