Mandatory climate disclosures reveal wide divergence in reporting practices

Australia's first wave of mandatory climate-related financial disclosures has revealed significant differences in how major companies are interpreting the new reporting regime, despite widespread adoption of climate risk analysis, according to new research from consulting firm Finity.

The review examined 26 sustainability reports lodged by Group 1 entities under the Australian Sustainability Reporting Standards (AASB S2), which required companies to disclose how climate-related risks and opportunities could affect their financial performance and long-term resilience.

While the findings suggest large organisations are investing heavily in climate risk assessment, much of that analysis is not making its way into public disclosures.

Finity principal Sharanjit Paddam said the first reporting cycle demonstrated a strong commitment to meeting the new requirements but also highlighted inconsistencies in how companies approached disclosure.

"Reviewing these first reports has provided a real opportunity to understand how some of our largest corporations are interpreting and applying the detailed requirements of AASB S2," Paddam said.

"The analytical rigour is clearly there. What we expect to see develop over successive reporting cycles is greater confidence in translating that internal work into public disclosure," Paddam said.

The analysis found that 24 of the 26 entities reviewed voluntarily conducted climate scenario analysis, despite it not being explicitly required under the framework. Around 70% modelled three or more scenarios, exceeding the mandatory minimum of two.

However, while companies were undertaking increasingly sophisticated climate modelling internally, disclosure of the results remained limited. Most organisations published high-level quantitative assessments, with only a handful attempting to directly connect climate impacts to financial statements.

Finity's review also uncovered wide variations in the time horizons companies used to assess climate risks. Some organisations defined "long term" as little as five years, while others assessed impacts over 25 years or more, creating challenges for investors seeking to compare disclosures across sectors.

The divergence was particularly evident among resource companies, where reporting horizons ranged from five to 25 years despite operating within the same regulatory framework.

Transition plan disclosures also varied considerably. Some companies revised or scaled back emissions reduction commitments previously made through voluntary reporting channels, reflecting heightened scrutiny around target setting and greenwashing risks.

Paddam said organisations yet to enter the reporting regime should view climate disclosures as more than a compliance obligation.

"This is not a set and forget exercise, and Group 2 and Group 3 entities who treat it as a strategic planning tool rather than a compliance exercise will find it delivers value well beyond the report itself," Paddam said.

Under Australia's phased implementation timetable, Group 2 and Group 3 entities will begin reporting under the mandatory climate disclosures regime from 2027 and 2028 respectively.