Background

(a) Mandatory climate-related financial disclosures began on 1 January 2025, with Australia’s largest listed and unlisted entities phased into reporting obligations across three groups under Chapter 2M of the Corporations Act 2001 (Cth).¹

(b) Now that Group 1 entities have completed their first reporting cycle, Treasury says early experience, combined with international developments, has identified opportunities to reduce compliance costs without compromising the quality, consistency or international comparability of disclosures made under AASB S2 (Australia’s climate disclosure standard, aligned with the ISSB’s IFRS S2).

(c) This is aligned with recent international developments in sustainability reporting where as adoption has increased, other jurisdictions have taken the opportunity to refine their regulatory frameworks to ensure they remain fit for purpose.

(d) Treasury has outlined that any reforms will be sequenced with appropriate transition time.

(e) To learn about the background of the sustainability reporting regime, please read our previous articles: From Voluntary to Vital: The Shift to Mandatory Sustainability Reporting (link) and Learning from the First Wave: Insights from Australia’s sustainability reporting regime (link).

The Proposed Change to Group 3 Thresholds

A significant development for many businesses is a reform that was announced in the 2026-27 federal budget as part of the government’s productivity package, being an increase to the monetary thresholds used to determine whether a proprietary company is classified as ‘large’ under the Corporations Act.
The proposed changes would raise the large proprietary company thresholds as follows:

(a) revenue threshold: increasing from $50 million to $100 million;

(b) consolidated gross assets threshold: increasing from $25 million to $50 million.

Given that Group 3 reporting entities are defined by reference to these large proprietary company thresholds, raising them will have the effect of removing smaller Group 3 entities (those that fall between the current thresholds and the new higher thresholds) from mandatory sustainability reporting entirely. This applies to both listed and unlisted entities that fall within the affected band.

The third criteria to constitute a Group 3 reporting entity remains unchanged at 100 or more employees. As a reminder, entities only need to meet two of the three criteria to fall within Group 3, which if the new reform thresholds are adopted, means the criteria will be: (a) $100 million or more revenue, (b) $50 million or more gross assets; or (c) 100 or more employees).

For businesses currently preparing (or expecting to be phased in) for Group 3 reporting, this is a materially different proposition to the other reforms discussed in the paper. Rather than adjusting how compliance is achieved, it may remove the compliance obligation altogether for entities in the affected revenue or asset range.

Treasury has not yet confirmed the timing of this proposed threshold change, and it will depend on the broader regulatory reform package. Entities that may fall within the affected band should not assume relief will apply before it is legislated and should continue current preparations unless and until the change is confirmed and its commencement date is known.

Other Reforms open for Consultation

The consultation paper seeks feedback on three further proposals affecting different aspects of the climate disclosure framework and includes a list of detailed questions for reporting entities, investors, assurance providers and other users of climate disclosure to reflect on.

Adjusting assurance settings

The framework currently requires reporting entities to transition from limited assurance to reasonable assurance by 1 July 2030. Treasury has put forward three options:

(a) retaining limited assurance permanently;

(b) deferring the transition to reasonable assurance to 2035; or

(c) introducing a two-tier model under which only ‘mature’ metrics (for example, Scope 1 and Scope 2 emissions disclosure) would require reasonable assurance, while Scope 3 emissions disclosures continue under limited assurance.

Improving consistency in applying existing requirements

Treasury is seeking views on where additional guidance would help entities apply proportionality concepts embedded in AASB S2, particularly ‘reasonable and supportable information … without undue cost or effort‘ and the threshold for concluding an entity has ‘no material climate-related risks or opportunities‘. Treasury has indicated a preference for guidance over legislative or standard amendments, to preserve the flexibility of the principles-based regime.

Setting clearer boundaries on value chain information requests

As Scope 3 emissions reporting begins to apply to entities in their second reporting year, Treasury is considering additional guidance on what constitutes a reasonable information request to value chain participants (particularly SMEs), and whether the government should develop or curate domestic emissions factors to reduce reliance on primary data collection from suppliers.
Treasury has also flagged two further issues for comment:

(a) aligning sustainability reporting periods with National Greenhouse and Energy Reporting periods where they diverge; and

(b) whether sustainability assurance experience should count toward registered company auditor practical experience requirements.

What this means for Your Business

(a) (Group 3 entities, or those approaching the large proprietary company thresholds) The proposed threshold increase could result in your entity not being required to comply with mandatory sustainability reporting, depending on the revenue and gross assets and/or employee thresholds. Your entity should assess where it sits against both the current and proposed thresholds, so your business is ready to respond if and when the change is legislated, and to avoid abandoning or under resourcing preparatory work prematurely.

(b) (Group 1 or Group 2 entities) The assurance and guidance proposals may still affect your compliance timeline and cost base, particularly around the pathway to reasonable assurance and the practical application of proportionality concepts.

(c) (Entities in the value chain of a reporting entity) The proposals on value chain information requests may affect the nature and volume of climate data requests received from customers in the coming reporting cycles.

Next Steps

Submissions to the consultation close on Friday, 2 October 2026. Treasury has indicated that feedback, including quantified cost and benefit data, will directly inform a policy impact analysis and advice to government on implementation.

We are reviewing the consultation paper in detail and are well placed to help your business assess the impact of these proposals, and to prepare a submission articulating your position, particularly if your entity may benefit from the proposed Group 3 threshold relief.

Please contact the authors if you have any questions.

This article was written by Thomas Kim, Partner and Kenneth Lee, Special Counsel.

¹ As a brief recap of the thresholds:

Group 1 entities are those required to lodge financial reports under Chapter 2M and meet two or more of the following: (a) 500 or more employees; (b) $1 billion or more in consolidated assets; or (c) $500 million or more in consolidated revenue.

Group 2 entities are those required to lodge financial reports under Chapter 2M and meet two or more of the following: (a) 250 or more employees; (b) $500 million or more in consolidated assets; or (c) $200 million or more in consolidated revenue. Group 2 entities also include NGER reporters, registered schemes, registrable superannuation entities and retail corporate collective investment vehicles.

Group 3 entities are those required to lodge financial reports under Chapter 2M and meet two or more of the following pre-reform thresholds: (a) 100 or more employees; (b) $25 million or more in consolidated assets; or (c) $50 million or more in consolidated revenue. If the reforms are passed, the thresholds will lift to $50 million or more in consolidated assets, or $100 million or more in consolidated revenue.

A unit trust that is not a registered scheme is not automatically caught by the regime as it will depend on whether the trust is an entity that has a Chapter 2M financial reporting obligation.

A partnership is not required to prepare financial reports under Chapter 2M and is therefore generally not a sustainability reporting entity.