Mandatory Climate Reporting: Things your accountant is not telling you
Mandatory climate-related reporting may be a daunting prospect for organisations reporting under Australia’s sustainability reporting standard AASB S2. To support clients navigating the new reporting requirements, Westpac recently held a webcast event that combined insights from leaders at sustainability consultancy ERM with practical learnings from Westpac’s own mandatory climate reporting journey.
“We’ve been working closely with clients for several years on climate change and the transition to a low-carbon economy,” said event host Michael Munro, Director, Sustainability at Westpac Institutional Bank. “Mandatory climate reporting has become one of the most common topics raised by our clients.”
A consistent theme emerged from both Westpac’s experience and ERM’s review of early market disclosures. “Rather than looking at mandatory reporting as a one-off compliance exercise, there is an opportunity to treat climate reporting as a strategic capability,” said Michael Munro. “That requires a pragmatic, multi-year approach to building organisational understanding, strengthening data, and linking climate risks to financial outcomes. Ultimately, this capability supports improved risk management, capital allocation, access to sustainable finance, and better positions clients as the low-carbon transition accelerates.”
Building the reporting engine
Built around four pillars – governance, strategy, risk management and metrics and targets – AASB S2 is based on the framework developed by the Task Force on Climate-related Financial Disclosures (TCFD). Stephen Catchpole, Associate Partner at ERM, discussed the theoretical foundations of the reporting standard and the need to clearly articulate how climate risks and opportunities affect an organisation’s ambitions, resilience and future direction.
“Many organisations are comfortable doing this analysis internally, but publicly disclosing forward-looking statements is something boards and leadership teams are still getting comfortable with,” he said. “Ultimately, climate risk is forward-looking by nature.”
Some of the Group 1 entities with financial years ending 31 December 2025 have already lodged their reports with ASIC. As a September year-end reporter, Westpac is scheduled to release its first mandatory sustainability report in November this year.
Anatoly Logunov, Director, Climate Disclosures at Westpac, shared key learnings from the bank’s AASB S2 reporting journey, starting with the importance of embedding sustainability reporting into the operating model.
“It’s important to build the reporting engine – the tools, governance, forums, ownership and capabilities – so sustainability reporting becomes embedded and repeatable across the business, rather than reinvented each year,” explained Logunov. When that foundation is in place, the report becomes a natural output, underpinned by the structural uplift in data quality, governance, and strategic insight.
Learning from experience, determining materiality
AASB S2 is designed to deliver decision-useful, financially material climate disclosures for the primary users of financial reports. Logunov noted a key Westpac learning was the value of creating a holistic, connected narrative across its climate disclosure and stressed the importance of clear, well-documented interpretations of AASB S2.
“We socialised and documented key interpretations and judgments,” he said. “Otherwise, ambiguity can resurface late in the reporting cycle when pressure is highest.”
Westpac’s experience also showed that disclosures should be relevant and useful for primary users, through the lens of materiality.
“Focus on what is most relevant and decision-useful for primary users and ensure strong coverage of mandatory requirements without over-extending the report,” said Logunov.
Preparing mandatory climate reports is a complex organisational exercise, and Logunov said a further Westpac learning was to “start early, expect change and provide additional buffer to accommodate this”. Despite careful planning, last-minute changes still arose. He also shared the important learning of early external engagement and feedback.
“We engaged our assurance provider early to obtain feedback and challenge while there was still time to respond and improve,” he said. “The key takeaway here is that external review is most valuable when it happens early enough to shape outcomes, rather than simply validate decisions that have already been finalised.”
Diverse approaches to reporting
While Westpac’s experience offers valuable insights, ERM has also reviewed 33 public reports released by ASIC-registered companies. Dr Mary Stewart, Lead Partner for Corporate Sustainability and Climate Change at ERM Australia, noted that as the reports had been audited, assessing disclosure completeness was quite straightforward. However, the quality of disclosures, including narrative coherence and consistency, varied across the reports.
While clear strengths emerged, Stewart highlighted room for improvement in Scope 3 emissions disclosures, links to financial statements and financial quantification of climate risk. She explained that while 22 companies identified material climate risks, only 10 linked them directly to financial performance.
“Linking climate risk to financial outcomes and value at risk requires sophisticated analysis, and it’s something organisations should already be thinking about in year one if they want to be ready for later reporting cycles,” said Stewart, adding that while the links with financial performance might not undergo assurance in year one, it is essential in understanding strategic implications of climate for businesses and how responding can create value.
“The key point here is that there is no single ‘correct’ disclosure model emerging,” Stewart said. “The reports are already highly diverse, and we expect that variability to continue. So, as you develop your own disclosures, focus on telling your organisation’s story clearly.”
Starting early and taking a multi-year view
Victoria Cross, ERM Global Reporting and Disclosure Services Lead, joined the discussion to add more practical tips for organisations embarking on mandatory climate reporting. She noted that the disclosure itself is just “the tip of the iceberg”.
“The real work is the organisational conversation underneath it. Management teams and boards need to understand how climate change may affect the business, where opportunities exist and how the organisation might best position itself to respond,” she said.
“And, if you’re setting targets, which not every organisation currently is, there needs to be confidence internally around how those targets will actually be achieved. Transparency is important. It’s acceptable to acknowledge uncertainty if it’s clearly explained.”
At a more tactical level, Cross highlighted the importance of developing a multi-year roadmap.
“Many organisations simply don’t yet have the people, systems or financial resources to tackle this comprehensively in year one,” she said stressing it’s important to use the year one experience to make the business case to undertake this more efficiently for year two.
Cross also noted widespread struggle with data integrity and suggested using the lead-up to the first disclosure to strengthen data processes and controls by building repeatable workflows, templates and governance structures.
“Build assurance planning in early and seriously consider pre-assurance activities in year one to help identify issues before formal review begins,” said Cross.
Some of the pain points of ASRS S2 ERM are seeing in the market
Opportunities ahead
The event concluded with audience questions, including a query about the impact of mandatory reporting on sustainable finance transactions. Catchpole noted that getting the underlying frameworks right can set organisations up for broader sustainability outcomes.
“While mandatory disclosures currently focus primarily on climate – rather than nature, broader social impacts or other sustainability considerations – done well, reporting should support more efficient decision-making in sustainable finance transactions.”
Despite the challenges that accompany mandatory climate reporting, Cross observed that many entities are capitalising on the opportunities it presents.
“For many organisations, year one is understandably about achieving baseline compliance,” she said. But at the more mature end of the market, we’re seeing organisations approach this as a value creation opportunity.
“Ultimately, one of the key drivers behind this regulation is giving investors clarity on how organisations are positioned to participate in, and benefit from, the energy transition,” said Cross. “That creates opportunities across many sectors of the economy.”
For more information on ERM’s AASB S2 services, visit ERM’s Knowledge Bank, or reach out to Victoria Cross, Mary Stewart, or Stephen Catchpole.
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