Mandatory climate reporting is no longer a problem for the ASX 200 alone. Since 1 July 2026, a second, much larger group of Australian companies has been in its first reporting year under the sustainability reporting regime in Chapter 2M of the Corporations Act 2001. Over the past two months the corporate regulator has handed down its assessment of the first reports, and Treasury has opened the door to easing some of the regime’s most expensive features.

Who is now in scope

The regime is being phased in over three years. Group 1 entities, the largest companies and financial institutions, started with financial years beginning on or after 1 January 2025. Group 2 entities report for financial years beginning on or after 1 July 2026. Broadly, Group 2 captures entities that must prepare financial reports under Chapter 2M and meet at least two of three tests: consolidated revenue of $200 million or more, gross assets of $500 million or more, or 250 or more employees. It also includes other National Greenhouse and Energy Reporting (NGER) reporters, and asset owners such as super funds and registered schemes with $5 billion or more in assets.

Group 3 follows from 1 July 2027. Sustainability reports must comply with the climate standard AASB S2 and cover governance, strategy, risk management, and metrics and targets, including greenhouse gas emissions. They are lodged with ASIC alongside the annual financial report.

ASIC’s verdict on year one

On 21 September 2026, ASIC released Report 839, its review of a sample of 40 sustainability reports lodged by entities with financial years ending 31 December 2025. By then, 312 reports had been lodged by that cohort.

The tone was constructive. ASIC Commissioner Kate O’Rourke said “it appears that statutory reporting has not only resulted in heightened transparency, but also more meaningful engagement by entities with climate-related risks and opportunities”, noting examples of entities adapting existing governance and risk processes. ASIC observed that the quality, quantity and consistency of climate information had all improved compared with earlier voluntary disclosures.

The weak spots were forward-looking disclosures and those that depend on assumptions and judgement, particularly in strategy and in metrics and targets. ASIC set out eight practical action items for preparers. In the 2026–27 financial year it will review a sample of reports from Group 1 entities with June 2026 year-ends and continue engaging with large audit firms on assurance methods.

Treasury’s efficiency review

On 24 August 2026, Treasury released a consultation paper on improving the efficiency of the regime. Submissions closed on 2 October. The paper does not propose changes to AASB S2 itself, and the reforms would not affect reporting for the 2026–27 financial year. According to analysis by Gilbert + Tobin, the proposals fall into three areas:

  • Assurance. The current law phases in a move from limited to reasonable assurance by 1 July 2030. Treasury canvassed three options: keeping limited assurance permanently, delaying reasonable assurance to 2035, or a tiered model requiring reasonable assurance only for Scope 1 and 2 emissions.
  • Guidance on proportionality. More guidance on concepts such as “reasonable and supportable information … without undue cost or effort”, and on when a Group 3 entity can conclude it has no material climate-related risks or opportunities.
  • Supply-chain data requests. Clearer limits on what reporting entities can reasonably ask of suppliers when preparing Scope 3 disclosures, and a greater government role in producing domestic emissions factors.

Separately, the government announced in the 2026–27 Budget that it intends to raise the thresholds for a “large” proprietary company from $50 million to $100 million in consolidated revenue and from $25 million to $50 million in consolidated gross assets. If implemented, that would take some smaller Group 3 entities out of mandatory reporting.

ASIC has signalled support for reducing the burden while keeping the core of the regime. Ms O’Rourke said the regulator was “supportive of measures that reduce regulatory burden whilst preserving core sustainability reporting requirements”.

Why directors should care

The sustainability report forms part of the annual report, and directors must make a declaration about it. Climate statements that cannot be supported also create exposure under the misleading conduct provisions. ASIC’s greenwashing cases against fund managers and super trustees show the regulator is willing to litigate unsupported sustainability claims.

For lenders and investors, the regime is creating a deeper pool of comparable climate data that can inform credit assessment, portfolio construction and engagement with management.

What Group 2 boards should be doing now

  • Confirm whether the entity is in Group 2 or Group 3, and which financial year is the first reporting period.
  • Read ASIC’s eight action items in REP 839 and test draft disclosures against them, especially scenario analysis and forward-looking statements.
  • Engage the assurance provider early. Limited assurance over parts of the report is required from the first year.
  • Prepare suppliers for Scope 3 data requests, which apply from the second reporting year.
  • Keep implementing the current rules. Treasury’s proposals do not change 2026–27 obligations.

This article is general information only and is not legal advice. Readers should seek advice specific to their circumstances.