Australia’s mandatory climate-related financial disclosure regime has moved into its second wave, and this round looks meaningfully different from the first. From 1 July 2026, a broader, more varied group of mid-sized companies, superannuation funds, and managed investment schemes became subject to reporting obligations that previously applied only to the country’s largest entities. For commercial lawyers, this shift is showing up in client conversations that go well beyond a general climate law briefing, and it’s exactly the kind of practical compliance question worth building into CPD for lawyers this year.
What is this regime, and why does the second wave matter?
Australia’s climate disclosure framework, built around the accounting standard AASB S2, requires in-scope entities to report on climate-related risks and opportunities as part of their annual sustainability report, lodged with the regulator alongside standard financial statements. The largest entities, Group 1, started reporting from financial years beginning on or after 1 January 2025. The group now coming into scope, generally referred to as Group 2, is considerably larger and more varied in size, sector and prior experience with structured reporting, which changes the nature of the compliance challenge considerably.
Which companies actually fall into Group 2?
An entity qualifies if it meets at least two of three thresholds on a consolidated basis, consolidated revenue of $200 million or more, gross assets of $500 million or more, or 250 or more employees. The group also captures certain superannuation funds, registered schemes and managed investment vehicles above specified asset thresholds, along with entities separately caught through greenhouse gas reporting obligations. First reporting periods begin for financial years commencing on or after 1 July 2026, meaning many affected companies are only now working through their first full reporting cycle.
What does a compliant sustainability report actually need to include?
A compliant report would cover four pillars, consistently required from the very first reporting period:
- Governance: covering how the board and management oversee climate-related risk.
- Strategy: covering how climate risk affects the business model and financial outlook.
Risk management: covering the processes used to identify and manage that risk. - Metrics and targets: covering measurable data including greenhouse gas emissions.
Scope 1 and Scope 2 emissions reporting is mandatory from year one. Scope 3 emissions, covering a company’s broader supply chain footprint, isn’t mandatory until the second reporting period, but the data collection and supplier engagement work behind it genuinely needs to start well before that deadline arrives. External assurance also applies from the first reporting period, starting with limited assurance over specific disclosures.
Why is this harder for Group 2 than it was for Group 1?
Scale and prior exposure, mainly. Group 1 largely captured Australia’s biggest listed companies, entities that generally already had sustainability teams, existing voluntary reporting practices, and board-level familiarity with climate governance well before it became mandatory. Group 2 is a much broader church, mid-sized companies across sectors that have never produced anything resembling a structured climate disclosure, alongside superannuation funds and investment schemes without the same in-house sustainability infrastructure. Many are building governance processes, data collection systems, and board reporting structures from close to a standing start, all while working to the same four-pillar standard as much larger, better-resourced Group 1 entities.
Where can commercial lawyers add the most value?
Beyond the disclosure content itself, legal advice tends to matter most. Confirming whether a client actually meets the Group 2 thresholds is a genuine starting point, since the calculation is consolidated and can shift with acquisitions, divestments or workforce changes in ways clients don’t always track closely. Reviewing the new, modified directors’ declaration obligations is another, since directors are required to confirm reasonable steps were taken to ensure the report’s substantive content complies, a governance exposure point that deserves proper legal attention rather than being left entirely to the sustainability team. Helping clients understand the assurance requirement early, rather than treating it as a last-minute lodgement step, also tends to prevent a scramble closer to the reporting deadline.
The thresholds themselves are reassessed each year, meaning a company’s status can change with growth, restructuring or a change in workforce size, and the broader regime is still being extended, with a further group of smaller entities set to come into scope from mid 2027. For commercial lawyers, treating this as an evolving area worth genuine ongoing attention, through legal CPD that keeps pace with each new wave, puts a practice well ahead of clients who are only just realising the obligation applies to them.
