Climate reporting: What Group 2 and 3 entities can learn from Australia’s first reporters

Climate reporting: What Group 2 and 3 entities can learn from Australia’s first reporters

Australia’s first climate reporters have begun building the capabilities needed for mandatory reporting. Their experience offers practical lessons for executives preparing for the next phase.

Australia’s mandatory climate-related reporting regime is moving into its next phase.

Group 1 entities were the first to enter the regime. Group 2 entities generally commence reporting for financial years beginning on or after 1 July 2026, followed by Group 3 entities from 1 July 2027.

Here are five lessons for executives to consider.

1. Build capability, not just a report

Climate reporting requires more than an understanding of disclosure requirements. Entities may need new systems, governance arrangements, skills and data collection processes.

An entity might know that it needs Scope 3 emissions information yet lack reliable processes to collect it. Similarly, it might understand the need for scenario analysis without having the expertise or methodology to carry it out.

A question that executives should ask: What capabilities do we need, and how long will they take to build?

2. Plan for the resources required

More than half of Group 1 entities engaged external expertise to help prepare their climate disclosures. These are Australia’s largest entities, many with established finance, governance, risk and sustainability functions.

Using external expertise does not necessarily indicate a lack of internal capability. A new reporting regime creates demand for specialist knowledge. It does, however, underline the need to plan resources early.

Executives should consider:

• What expertise do we already have?
• Where are the gaps?
• What can we realistically develop internally?
• Where will we need external support?
• How will we build lasting internal capability?

3. Involve assurance providers early

Most entities surveyed preferred to use the same provider for their financial statement audit and sustainability assurance. Whatever the choice of provider, assurance should be considered during preparation, rather than left until the report is complete.

Climate disclosures may draw on systems and processes that differ substantially from those used in financial reporting. Scope 3 emissions data, for example, may come from outside the organisation and rely on estimates, assumptions and relatively new controls. Scenario analysis and forward-looking information can also involve significant uncertainty and judgement.

Producing a figure or narrative is only part of the task. The organisation also needs evidence to support it. Executives should ask whether the team can explain:

• Where the information came from and how it was calculated.
• Which methods and assumptions were used.
• Who reviewed the information and what controls were applied.

Asking these questions early gives teams time to address weaknesses before assurance begins.

4. Address the difficult disclosures now

The research identifies three areas requiring continued attention: forward-looking disclosures, scenario analysis and Scope 3 emissions. These need executive attention as well as technical expertise.

Scenario analysis helps management consider how different climate-related scenarios could affect the organisation. Scope 3 emissions can require information from across the value chain, while forward-looking disclosures involve uncertainty, assumptions and judgement.

These are management issues as well as reporting issues. Executives do not need to perform every calculation, but they should understand where the most difficult judgements lie.

A useful question is: Which three disclosures would we be least comfortable defending if challenged today? The answer can reveal readiness gaps that a project plan marked “on track” might miss.

5. Connect climate and financial reporting

Assurance providers highlighted challenges in maintaining consistency between sustainability disclosures and financial statements. This deserves particular attention from CFOs, audit committees and boards.

If an organisation identifies a climate-related risk that could significantly affect its operations or assets, executives should consider how that risk is reflected elsewhere:

• Are impairment assumptions and asset useful lives consistent with the risk described?
• Does the capital expenditure plan reflect the organisation’s stated response?
• Could provisions or other estimates be affected?
• Do the outlook and assumptions in the sustainability disclosures align with those in the financial statements?

There will not always be a direct accounting consequence, and the two reports need not contain identical information. They should, however, tell a coherent story about the same organisation.

This requires finance, sustainability, risk, strategy and governance teams to work together. Climate reporting cannot sit solely with the sustainability function.

The advantage of going second

Group 2 and Group 3 entities may have fewer resources than Australia’s largest organisations, but they can draw on the experience of the first reporters.

Those organisations have already worked through questions about systems, governance, data, expertise and assurance. Their experience can help later entrants identify where preparation is likely to be difficult.

The aim is to develop a reporting process proportionate to the organisation’s circumstances. Smaller entities need not replicate every approach taken by a large Group 1 entity, but they should not assume that implementation will be straightforward simply because they are smaller.

The research suggests that the task is substantial, but manageable when preparation starts early.