Summary

• The amended Chapter 2M of the Corporations Act imposes mandatory sustainability reporting requirements on Australian entities that meet certain thresholds (see below for mandatory reporting thresholds).
• The new regime commenced on 1 January 2025, and is being incrementally rolled out, with the aim of having all large Australian entities who meet the mandatory sustainability reporting thresholds preparing and issuing annual sustainability reports by FY28 ending 30 June 2028. ASIC continues to develop and issue guidance to entities involved in preparing sustainability reports (see below for details on ASIC’s approach).¹
• ASX released its consultation paper on 31 October 2025 where ASX is currently consulting on a potential amendment to the ASX listing rules where a listed entity fails to lodge required documents by the due date.²

Background

Achieving net zero emissions by 2050 is at the forefront of global policy initiative. Following Australia’s commitment to the Paris Climate Agreement, United Nations Framework Convention on Climate Change and the Kyoto Protocol, the Government are prioritising climate-action on a national level. Subsequently, Australia have announced the national target of reducing emissions by 62-70% (below 2005 levels) by 2035.

The Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill 2024 (Cth) (the Bill) received royal asset on 17 September 2024. Having commenced on 1 January 2025, the new climate-related financial disclosure regime (the Regime) within Chapter 2M of the Corporations Act 2001 (Cth) (Corporations Act) requires Australian entities that meet a defined threshold to issue annual reports on sustainability-related financial information. By FY28 ending 30 June 2028, all large Australian companies will be required to comply with the new Regime by making annual material financial disclosures relating to climate change impacts.

The new laws are reflective of Australia’s national and economic interest in speeding up climate action. The Australian economy’s ability to “mitigate and adapt to climate change” is being heavily monitored and assessed.³ Therefore, governed by the Australian Securities & Investments Commission (ASIC), the purpose of the new legislation is to enhance accountability, transparency and opportunity amongst Australia’s largest corporations.

Pursuant to the Corporations Act, the process of sustainability reporting is summarised below:⁴

1. Prepare the sustainability report (which requires reporting entities to establish appropriate internal systems and collect the necessary data in order to compile the sustainability report).
2. Arrange for the sustainability report to be either audited or reviewed.⁵
3. Obtain auditor’s report.
4. Provide sustainability report and auditor’s report to members.
5. Lodge sustainability report and auditor’s report with ASIC by the applicable deadline, which may be three or four months after the end of the financial year.⁶

Reporting

Who must report?

The Regime outlines the thresholds that determine whether an entity is subject to mandatory sustainability reporting. To assist with the transition, the Corporation Act details a three-stage roll out, with each financial year imposing new thresholds, as detailed below:⁷

What must be reported?

Each entity that meets the monetary or employee thresholds must complete a sustainability report, in addition to annual financial reporting. According to the Corporations Act, the sustainability report must include:

1. climate statements and notes;
2. statements and notes required by legislative instruments; and
3. Directors’ declaration.¹⁰

From December 2025, ASIC plan to release an updated sustainability reporting form which can be lodged online via a portal. The intention of the new form is to streamline the process and “improve quality, consistency and comparability.”¹¹

Climate statements:

In complying with the AASB S2 Climate-related Disclosures (AASB S2) and the Corporations Act, the climate statement should include a disclosure of:

1. material financial risks or opportunities in relation to climate;
2. Scope 1, 2 and 3 greenhouse gas metrics or targets of the entity (this may vary depending on the group and the timing of the roll-out); and
3. information relating to internal management or governance strategies adopted by the entity to manage the risks or opportunities.

Greenhouse Gas Emissions:

The AASB S2 defines greenhouse gas emissions within three scopes being:

• Scope 1: emissions that occur from sources that are controlled by the entity;
• Scope 2: indirect emissions that occur from purchased or acquired consumables; and
• Scope 3: indirect emissions that occur in the value chain of the corporation.

Importantly, an entity is typically required to only disclose Scope 1 and Scope 2 emissions pursuant to the Greenhouse Gas Protocol.¹² However, the AASB S2 clearly outlines that Scope 3 emissions are also required to be disclosed, which is the standard that mandatory reporters will need to comply with.¹³

Scenario Analysis

The entity must include a scenario analysis on the entity’s response to an increase in global temperature. The scenario analysis, as described by ASIC, has the intention of assessing a companies’ resilience to climate change by analysing their response to possible future states. The two scenarios are an increase in global temperature (above pre-industrial levels), where the increase is:

1. at least 1.5 degrees Celsius; and
2. well exceeds 2 degrees Celsius (noting, the Revised Supplementary Explanatory Memorandum states that an increase of 2.5 degrees Celsius or more would meet the reporting requirements).¹⁴

The AASB S2 outlines the importance of disclosing the climate resilience “of the entity’s strategy and business model,”¹⁵ which also requires assessment of the entity’s existing financial resources that may be flexibly applied to address climate risk or take advantage of climate opportunities.

Legislative Instruments:

The reporting entity is also required to make disclosure notes that the Minister may require by legislative instrument. As outlined within the regulatory guide issued by ASIC in March 2025, (RG 280), this is not a current requirement because the Minister has not yet made any requirements by legislative instrument relating to financial matters.¹⁶

Directors’ Declaration:

Pursuant to the Corporations Act, for the sustainability report to be complete, it must include a directors’ declaration regarding the climate statement.

For the period between 1 January 2025 and 31 December 2027, the declaration must state that, in the directors; opinion, “the entity has taken reasonable steps to ensure that the sustainability report is in accordance with the Corporations Act and AASB S2.”¹⁷

Following 1 January 2028, the declaration holds greater accountability on directors. It must state that in the directors’ opinion “the sustainability report is in accordance with the Corporations Act and AASB S2.”¹⁸

Helpful tips in generating your sustainability report:

Auditor’s Report

For entities that are required to prepare a mandatory sustainability report, they are also required to have the report audited or reviewed. The auditors must then produce an ‘auditor’s report’, which is included with the sustainability report for the purposes of lodgement with ASIC. Lodgement with ASIC is required within three or four months after the end of the financial year, depending on the relevant category of entity.

The RG 280 confirms that, for financial years prior to 1 July 2030, the reports will need to be audited or reviewed to the extent required by the Australian Auditing and Assurance Standards Board.¹⁹ Following 1 July 2030 onwards, all reports must be audited.

Both ASIC and the AUASB have published responses to frequently asked questions to assist auditors and preparers of sustainability reports with practical information about the auditing process.²⁰

Lodging the Reports

ASIC have announced that from January 2026, mandatory reporters will be able to lodge their sustainability reports through the existing ASIC online portals, being the company officeholder portal, registered agent portal and auditor portal.²¹

Additionally, a new form is being developed by ASIC designed specifically for sustainability and auditor’s reports. This form will be separate to the current Form 388.

Once lodged, all sustainability reports will be made publicly available through the ASIC register online.²²

Consequences of non-compliance

Three-year modified liability

The Corporations Act has implemented civil penalties and an offence for contravention of Part 2M.2, 2M.3 and provisions within Part 2M.4.²³ However, to assist with the transition, the Regime allows for a three-year period whereby liability is modified.

As detailed within the RG 280, for the period between 1 January 2025 and 31 December 2027, statements in the sustainability report, and the auditor’s report; relating to the following are not subject to civil penalties:

• Scope 3 greenhouse gas emissions (including financed emissions);
• scenario analysis; and
• transitions plans.²⁴

The modified liability does not include criminal action, or action initiated by ASIC.

Additionally, for the period between 1 January 2025 and 31 December 2025, statements made in relation to climate (including forward looking statements) for the purposes of complying with the AASB S2 or the Corporations Act are entitled to the modified liability.²⁵

ASIC Crackdown: what will this look like?

The Regime is still in the infancy of its enforcement. Accordingly, we are yet to understand precisely how ASIC will regulate non-compliance, although ASIC have indicated its approach (at least initially) will be pragmatic and proportionate and the regulator will work together with entities that are required to prepare sustainability reports under the Regime.

Whilst not sustainability reporting-related, based on recent greenwashing action taken by ASIC against an ESG investment fund, Fiducian Investment Management Services Limited (FIMSL), the regulatory body is seeking transparency and accuracy in reporting climate-related misleading and deceptive conduct.²⁶

By way of a media release, ASIC have alleged that FIMSL have breached its duties as a responsible entity and engaged in misleading and deceptive conduct relating to the description of how the fund works in the fund’s product disclosure statement (PDS). The fund selected investments by using processes that ASIC alleges did not align with the approach outlined in  the fund’s PDS. ASIC’s Deputy Chair Sarah Court had commented that “the bar for governance standards that underpin ESG representations for investment products is high and ASIC will ensure that entities which we believe may have failed to meet those standards, are held to account”. Whilst this statement relates to ASIC’s position on greenwashing, it potentially foreshadows how ASIC may govern the Regime, especially once the initial transition period is over.

ASX Suspension

On 31 October 2025, the Australia Securities Exchange (ASX) issued a consultation paper on the interaction between mandatory sustainability reporting and ASX suspension powers.²⁷ The current wording of Listing Rule 17.5 states that failure to prepare annual reporting documents will result in mandatory suspension.²⁸ Responding to the Corporations Act amendments introducing mandatory reporting, ASX have indicated their initial position that failure to lodge a sustainability report should not result in automatic mandatory suspension, although ASX will retain discretion to suspend the entity for non-compliance, if deemed necessary, under Listing Rule 4.5. ²⁹

The rationale for this stems from industry concerns regarding the practical requirements and uncertainty regarding identifying which entities are required to report under the new Regime.

Pending the results of the consultation, we would encourage listed entities to keep a close eye on future updates to ensure they remain compliant with their obligations under the Listing Rules.

Relief

ASIC have released a public register that discloses certain instances where entities have been granted relief from sustainability reporting requirements (note that the register is not comprehensive and does not provide details of every single decision made). ASIC retains discretion under the Corporations Act to determine relief applications.³⁰

Based on the register as of the date of this article, ASIC have granted relief to three entities that are wholly owned by a registered superannuation entity. The entities in question are classified as ‘group 1’ based on the reporting thresholds, however, the registered superannuation entity falls within a separate category and is classified as ‘group 2’. ASIC have granted a one-year relief on the basis that the entities “primarily perform internal support functions and services” to the registered superannuation entity and therefore, should not be required to commence reporting until 1 July 2026.³¹ There may be other decisions to come shortly – so watch this space.

Key Takeaways

Addressing climate change and complying with the new Regime requires a collective effort, corporate transparency and factual accountability. In understanding how climate change will affect the Australian economy, accurate and diligent sustainability reporting is an important step towards strengthening Australia’s climate resilience (and is now required for regulatory compliance).

The additional reporting requirements imposed on entities within Australia may expose entities to substantial penalties and repercussions if these obligations are not complied with. In addition to starting the process of reporting early, entities should take note of the following key takeaways:

1. Directors’ accountability: we suggest that all directors have a solid understanding of the entity’s requirements under the Corporations Act and AASB S2 to avoid non-compliance and minimise risk when required to sign off on the sustainability report.
2. Retain key documentation and evidence: the RG 280 recommends that sustainability report must include evidence-based sustainability records which are formed from internal documentation. We suggest retaining all documents that may be used as sustainability records (as defined in section 9 of the Corporations Act).
3. Timing: note that ASIC requires the sustainability report to be disclosed with the auditor’s report within three or four months of the end of financial year. The report will be lodged with ASIC along with the financial reports and directors report.
4. Scope 3 Risks: on a practical basis, it is difficult for entities to control and measure scope 3 greenhouse gas emissions. To assist with overcoming this, we recommend revisiting contractual agreements with parties that may have a material impact on the entity’s sustainability report. The contractual provisions should provide for the reporting entity to have access to relevant and accurate data from the contracting parties as a key requirement.
5. Start Relief Applications Early: ASIC have recommended that all entities applying for reporting relief apply as soon as possible to avoid refusal due to insufficient time for ASIC to review the application.³²

This article was written by Thomas Kim, Partner, Kenneth Lee, Special Counsel, and Paige Kakolyris, Law Graduate.

¹ASIC, ‘Reporting and audit update – Issue 2’ (Media Release, 7 November 2025).
²ASX, ‘Amendment to Listing Rule 17.5: Public consultation on a consequential amendment to Listing Rule 17.5 following the introduction of mandatory sustainability reporting’ (Media Release, 31 October 2025).
³Explanatory Memorandum, Laws Amendment (Financial Market Infrastructure and Other Measures) Bill 2024, [4.7].
⁴Corporations Act (2001) (Cth) (‘Corporations Act’), s 285.
⁵See generally Auditing and Assurance Standards Board, ‘Australian Standard on Sustainability Assurance ASSA 5010’ (Standard, 28 January 2025).
⁶For a disclosing entity, registered scheme, registrable superannuation entity or notified foreign passport fund, the deadline is three months. For anyone else, four months.
⁷ASIC, Regulatory Guide 280: Sustainability Reporting (at March 2025) (‘RG 280’) [33].
⁸National Greenhouse and Energy Reporting Act 2007 (Cth), s 13(1)(a).
⁹RG 280 (n 6) [74].
¹⁰Corporations Act (n 3) s 285(1)(1AA).
¹¹ASIC, ‘InFocus’ (Newsletter, November 2025 – Volume 34 Issue 10′
¹²see World Resources Institute and World Business Council for Sustainable Development ‘The Greenhouse Gas Protocol’ A Corporate Account and Reporting Standard: Revised Edition (Reporting Standard, March 2004).
¹³Australian Accounting Standards Board, Australian Sustainability Reporting Standards: Climate-related Disclosures: AASB S2 (at September 2024) (‘AASB S2’),13.
¹⁴Revised Supplementary Explanatory Memorandum, Laws Amendment (Financial Market Infrastructure and Other Measures) Bill 2024, [2.17].
¹⁵Ibid 12.
¹⁶RG 280 (n 6) [97].
¹⁷Ibid [58].
¹⁸Ibid [59].
¹⁹RG 280 (n 7) [185].
²⁰ASIC, ‘Reporting and audit update – Issue 2’ (Media Release, 7 November 2025).
²¹These portals are the same as the existing portals that can be used by the relevant party (company, registered agent, auditor) to lodge financial reports.
²²Ibid.
²³Corporations Act (n 3) s 344.
²⁴RG 280 (n 7) [61] – [66].
²⁵Ibid.
²⁶ASIC, ‘ASIC acts against ESG investment fund responsible entity alleging governance failures and misleading conduct’ (Media Release 25-225MR, 3 October 2025).
²⁷ASX (n 1).
²⁸ASX, Listing Rules (as at 5 November 2025) rr 17.5.
²⁹Ibid rr 4.5.
³⁰Corporations Act (n 3) s 340.
³¹ASIC, ‘Sustainability reporting,’ Sustainability reporting and audit relief decisions register (Web Page) <https://www.asic.gov.au/regulatory-resources/sustainability-reporting/asic-s-administration-of-the-sustainability-reporting-requirements/sustainability-reporting-and-audit-relief-decisions-register/>
³²ASIC, ‘Reporting and audit update – Issue 2’ (Media Release, 7 November 2025).