Understanding the changes in Australia's climate regulations: lessons from Group 1 reporting

Australia’s sustainability reporting landscape has officially shifted from voluntary to mandatory. With the introduction of AASB S2, the country’s largest companies, known as Group 1 entities, have filed their first mandatory climate-related disclosures. These reports mark a turning point for how Australian businesses communicate their climate risks, opportunities, and transition strategies to investors and regulators.

Early reviews by KPMG and PwC have analysed these first-wave disclosures and the findings are telling. Australian businesses are building sustainability reporting capability in real time, with significant variability in quality, depth, and approach across industries and even between direct competitors.

For Group 2 entities preparing to report from 1 July 2026 and Group 3 entities following in 2027, these early lessons offer something invaluable: a real-world roadmap of what works, what doesn’t, and where to focus your preparation efforts. Here’s what the first wave got right, where they struggled, and what it all means for your business.

To learn more about how sustainability teams in Australia are managing the changing landscape, download out latest whitepaper here.

Lesson 1: Scope 3 is the defining challenge, and most aren’t ready

The clearest takeaway from Group 1 reporting is that Scope 3 emissions remain the single biggest hurdle for Australian companies. Unlike Scope 1 (direct emissions from your own operations) and Scope 2 (emissions from purchased energy), Scope 3 covers all the indirect emissions across your entire value chain. Think supplier manufacturing, logistics, product use by customers, and end-of-life disposal.

AASB S2 offers transitional relief that allows companies to defer Scope 3 disclosures in their first reporting year, and most Group 1 reporters took that option. However, PwC’s review of 22 first-wave reporters found that 12 companies voluntarily disclosed certain Scope 3 categories anyway. This signals that leading organisations already see early Scope 3 action as a competitive advantage rather than an optional extra.

Here’s why this matters for everyone else:

• Scope 3 becomes mandatory from each group’s second reporting period. For Group 1, that’s already on the horizon.

• Calculating Scope 3 requires value chain engagement, robust data estimation methodologies, and significant judgement calls. This is not something you can pull together in a few weeks.

• Scope 3 will be subject to assurance under ASSA 5010 in later years, meaning your numbers need to be audit-ready, not just directionally correct.

• Companies relying on supplier surveys and spreadsheets will find the gap between where they are and where they need to be is substantial
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The bottom line: if you haven’t started building your Scope 3 data capabilities, waiting for it to become mandatory is a risk you don’t need to take.

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Lesson 2: More pages doesn’t mean more clarity

One of the most striking findings from the early reviews is the sheer variability in how companies approached their disclosures. Report length, structure, and depth differed significantly, not just across industries but between companies that operate in the same sector and compete for the same investors.

Some organisations produced detailed AASB S2 indices that clearly mapped every disclosure to the specific requirement it addresses. This made their reports transparent, easy to navigate, and straightforward for regulators and investors to assess. Others delivered much longer documents that, despite their volume, lacked clarity and decision-relevance.

The key takeaways on report quality:

• Concise, well-structured disclosures consistently outperformed lengthy ones. Quality beats quantity every time.

• Companies that mapped disclosures directly to AASB S2 requirements made it easier for stakeholders to find and evaluate the information they need.

• The standard is qualitative by nature, which means there is no single template. But the best reports focused on information that is factual, specific, and decision-relevant.

• Report structure matters as much as content. A clear index and logical flow can make a shorter report far more effective than a comprehensive but disorganised one.

For companies preparing their first disclosures, this is a clear message: don’t aim for volume. Aim for clarity, structure, and relevance.

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Lesson 3: Governance and transition plans separate leaders from laggards

Group 1 reports revealed a clear maturity gap when it comes to governance and strategic planning around climate. This is the area where the difference between companies that have been preparing for years and those that started recently is most visible.

Here’s what the data showed:

• Just under two-thirds of reporters disclosed a climate transition plan. These ranged from basic operational initiatives like energy efficiency and fleet electrification to comprehensive strategies with defined investment programs covering Scope 1, 2, and elements of Scope 3.

• Scenario analysis was more developed in heavy-emitting sectors such as energy, utilities, and resources. The majority used IPCC scenarios to meet the Corporations Act requirement for a 1.5°C pathway.

• Half of the reports tied climate metrics to executive remuneration. This is a strong signal that leading boards are directly linking climate performance to leadership accountability and compensation.

• Organisations in heavy-emitting sectors demonstrated more mature disclosures overall, suggesting that companies with greater climate exposure have invested more in reporting readiness.

For companies yet to report, this sets a clear expectation. Investors and regulators will increasingly view the absence of transition plans and remuneration linkages as governance gaps, not stylistic choices. The bar has been set and it will only rise from here.

What it means for your industry

While the lessons from Group 1 apply broadly, the practical implications look very different depending on which sector you operate in. Here’s how these findings translate for three of Australia’s most affected industries.
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1. Retail

If Scope 3 is the defining challenge of AASB S2, the retail sector is where it’s felt most acutely. For a major Australian retailer, Scope 3 can account for over 95% of the total carbon footprint. This is split between pre-farmgate agricultural sources (think livestock, crop production, and fertiliser use) and post-farmgate activities (energy, packaging, transport, and refrigeration across the supply chain).

Consider the scale of the data challenge: a typical enterprise retailer operates over 1,000 supermarkets, hundreds of specialty outlets, and dozens of distribution centres. Each of these business units often tracks sustainability data in different systems and formats. The fact that most Group 1 companies deferred their Scope 3 disclosures should be a warning for retailers, not a comfort.

Key actions for retail:

• Treat the Scope 3 transitional relief as preparation time, not a free pass.

• Start building supplier engagement frameworks now. Thousands of suppliers means thousands of data points that need to be collected, validated, and consolidated.

• Invest in a unified data platform that can bring together emissions data from across all business units into a single, audit-ready dataset.
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2. Telecommunications

The Group 1 finding that report quality varies wildly between peers is especially relevant for telco operators. Australian telcos are making some of the boldest sustainability moves in the corporate world: ending carbon credit programs, setting absolute reduction targets, and investing directly in decarbonisation projects. But when you’re no longer buying your way to carbon neutrality, every tonne of reduction needs to be measured, verified, and assured across thousands of network sites and data centres consuming hundreds of GWh annually.

Telco Scope 3 is uniquely complex. It spans network equipment manufacturing, customer device usage, logistics across a workforce of tens of thousands, and a supply chain that covers global vendors, domestic contractors, and millions of end-user devices. On top of that, tracking renewable energy transitions across multiple solar and wind PPAs, each with different grid emission factors across states, requires dynamic baseline management that static annual reporting simply cannot deliver.

Key actions for telco:

• Prioritise structured, concise disclosures. Complex value chains can easily produce reports that are long on data but short on clarity.

• Build dynamic tracking for renewable energy transitions across different states and grid factors.

• Map your Scope 3 categories early and engage with assurance providers before your second reporting period.
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3. Construction and building materials

The governance and transition plan findings from Group 1 hit the construction sector particularly hard. Construction and building materials companies have strong sustainability ambitions, with many committing to SBTi targets, developing low-carbon cement and steel, and pioneering net-zero building designs. In fact, 74% of product revenue in some leading companies already comes from sustainably certified products. But the Group 1 data shows that proving those certifications through auditable disclosures is where many companies fall short.

Construction also faces a unique emissions profile. Unlike steady-state operational businesses, construction generates emissions in bursts tied to individual projects. A single major infrastructure project can run for years with hundreds of subcontractors, involving thousands of tonnes of concrete, steel, and timber from different suppliers. Each of these materials comes with fundamentally different measurement methodologies, making consistent, project-level emissions tracking a significant operational challenge.

Key actions for construction:

• Move beyond operational initiatives to strategic, investment-backed transition plans that align with the standard Group 1 has set.

• Build project-level emissions tracking capabilities that can handle different materials and methodologies.

• Prepare for scenario analysis requirements, especially around embodied carbon in major infrastructure projects.

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Now is the time to act

Group 1 has done the hard work of going first, and the rest of the market now has a clear picture of what good reporting looks like. Concise disclosures mapped to requirements. Governance structures that tie climate to executive accountability. Early voluntary Scope 3 engagement. Transition plans backed by real investment, not just good intentions.

For Group 2 entities beginning to report from July 2026 and Group 3 from July 2027, the path forward is no longer guesswork. Start with your data infrastructure, build Scope 3 capabilities before they become mandatory, and learn from what the first wave got right and where they stumbled. The companies that act now will be the ones that turn compliance into a genuine competitive advantage.

Want to explore how Zuno Carbon can support your business’s climate disclosure journey? Book a demo with our team today.

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FAQs

1. What is AASB S2 and why was it introduced?

AASB S2 is Australia’s mandatory climate-related disclosure standard, modelled on the International Sustainability Standards Board’s (ISSB) IFRS S2 framework with Australian-specific modifications. It was introduced under the Corporations Act 2001 to ensure that companies report on climate-related risks, opportunities, and transition strategies alongside their annual financial reports. The standard is designed to give investors and regulators consistent, comparable information on how businesses are managing climate risk.

2. Who needs to comply with AASB S2 and when?

AASB S2 is being rolled out in three phases. Group 1 entities (revenue of A$500m or more, assets of A$1b or more, or 500+ employees) began reporting from 1 January 2025. Group 2 entities (revenue of A$200m or more, assets of A$500m or more, or 250+ employees) start from 1 July 2026. Group 3 entities (revenue of A$50m or more, assets of A$25m or more, or 100+ employees) follow from 1 July 2027. Companies generally need to meet two of the three size criteria to fall into a group. NGER reporters are also captured under specific thresholds.

3. What are the four pillars of AASB S2 disclosure?

AASB S2 requires companies to report across four pillars: Governance (how the board oversees climate risks), Strategy (how climate risks and opportunities affect the business and its transition plans), Risk Management (how climate risks are identified, assessed, and managed), and Metrics and Targets (including Scope 1, 2, and eventually Scope 3 greenhouse gas emissions along with any climate-related targets the company has set).

4. What is Scope 3 and why is it so challenging to report?

Scope 3 emissions are all the indirect greenhouse gas emissions that occur across a company’s value chain, both upstream (such as supplier manufacturing and raw materials) and downstream (such as product use and end-of-life disposal). They are challenging because they require data from external parties like suppliers, customers, and logistics providers.

Calculating Scope 3 often involves estimation methodologies and significant judgement, and for many companies these emissions represent the largest portion of their total carbon footprint.

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