The Australian Sustainability Reporting Standard (AASB) Climate-related Disclosures (S2) sustainability report landed on schedule. All four pillars addressed. The company directors’ declaration signed. And somewhere between the data that entered the process and the assertions that left it, a set of structural questions about accountability were never asked.
In Brief
- AASB S2 climate-related disclosure requirements became legally enforceable for the largest Australian reporting entities from January 2025.
- Directors must sign a declaration confirming compliance — making the board personally accountable for what the sustainability report claims.
- The accountability architecture behind the disclosure — who owns the data, who assured it, who can defend it — is rarely as clear as the report suggests.
- A false or misleading climate statement can result in penalties up to $15 million or 10% of annual turnover, with directors personally liable.
- Signing the next disclosure with confidence requires examining the accountability structure, not just the reporting process.
That is not a criticism. For Group 1 reporting entities — those with consolidated revenue of $500 million or more, gross assets of $1 billion or more, or more than 500 employees — the first mandatory reporting cycle under the Australian Sustainability Reporting Standards began on 1 January 2025 (Australian Accounting Standards Board [AASB], 2024). The effort required to get to disclosure has been substantial. Most of it was directed at the report itself: what it contains, whether it meets the standard, whether it can be defended in form. The question of whether it can be defended in substance — whether the accountability structures behind the claims will hold under scrutiny — is the one that tends not to surface until scrutiny arrives.
Disclosure and accountability diverge
AASB S2 requires entities to disclose the governance processes, controls, and procedures used to monitor and oversee climate-related risks and opportunities (AASB, 2024). It requires disclosure of strategy, risk management processes, and the metrics and targets against which progress is measured. And it requires directors to declare that reasonable steps have been taken to ensure the report complies with the Corporations Act and the standard.
That declaration is a legal act. A false or misleading climate statement under the amended Corporations Act 2001 can attract penalties of up to $15 million or 10% of annual turnover — whichever is greater. Directors can be held personally liable (Australian Government Treasury, 2024). ASIC’s enforcement approach in analogous Environmental, Social, and Governance (ESG) contexts:
- Active Super ordered to pay $10.5 million in March 2025 for false ESG claims
- Mercer Super ordered to pay $11.3 million in August 2024 for misleading sustainable investment statements
This makes clear that the regulator is prepared to act (Australian Securities and Investments Commission [ASIC], 2024; ASIC, 2025).
The declaration, however, does not validate the accountability structure behind the report. It attests to a process. Whether the data underpinning the claims is traceable, whether the people who own the data understand what they are accountable for, whether the assurance process examined the right things — none of that is answered by signing. It is answered by whether those structures were designed and maintained before the report was written.
What tends to happen at this stage of a new mandatory regime is that disclosure capability develops faster than accountability architecture. The technical expertise to produce a compliant report — the four pillars, the format requirements, the directors’ declaration — gets procured, built, or contracted. The underlying question of who is actually accountable for the claims the report makes, and whether they could defend those claims under direct questioning from an auditor or regulator, runs on a slower cycle. The disclosure becomes the reference point. The accountability behind it is assumed.
Scrutiny finds a governance gap
Compliance-era scrutiny of sustainability reporting does not primarily surface formatting failures. What ASIC’s regulatory guidance identifies — and what enforcement actions in analogous disclosure contexts consistently reveal — is that the gap between what is reported and what can be defended is almost never a documentation gap. It is a governance gap. The claims were not wrong in the technical sense. The ownership of those claims inside the organisation was never clearly established.
When the Governance Institute of Australia surveyed directors on their 2026 governance agenda, the concern emerging most consistently was not whether sustainability disclosures could be produced, but whether boards had genuine visibility over the accountability structures behind them (Governance Institute of Australia, 2026). The compliance infrastructure — data systems, reporting workflows, external assurance — had been stood up. What boards were less certain about was whether the executive responsible for a given data set actually owned it in the sense of being able to defend it under examination. Whether the assurance had tested the right assumptions. Whether a line could be drawn from any claim in the report to a person inside the organisation who understood they were accountable for it.
This is not an implementation failure. It is a structural condition that persists when disclosure capability and accountability architecture develop on different timelines. The report improves each cycle. Whether the people behind it can account for what it says is a different question, and it does not resolve itself through better reporting. Each new cycle that produces a more polished disclosure without examining the accountability structure underneath it adds another layer of legal exposure on the same untested foundation.
Before the report, not after
Executives who have led their organisations through the first reporting cycle under AASB S2 have done something genuinely difficult. They built reporting infrastructure, navigated an unfamiliar standard, and produced a disclosure under real time pressure. The question the next cycle puts to them is structurally different from the one the first cycle did.
The first cycle asked: can we produce a compliant disclosure? For most Group 1 entities, the answer was yes. The next cycle asks something harder: can we defend what we disclosed — and is the accountability architecture behind the next disclosure robust enough that we should not be the ones to discover its weaknesses?
This is not a question about reporting capability. It is a question about governance design. Who owns the data inputs to each material claim? Does the assurance scope cover the assertions most likely to attract regulatory attention? Where does accountability for the disclosure actually sit — with the reporting function, or with the executive accountable for the underlying activity?
These questions have to be directed at the governance structure before the reporting cycle begins. The executive who asks them in that sequence is in a substantially different position to the one who discovers the gap when the auditor does.
A sustainability report that cannot be defended under examination is not a disclosure problem. It is an accountability design problem — and the disclosure process is what exposed it.
What this means for senior leaders
- AASB S2 accountability is a governance design question, not a reporting compliance question — the two require different responses from different parts of the organisation.
- A directors' declaration attests to process, not to the integrity of the accountability structures that process rests on; each is the board's separate responsibility.
- The ASIC enforcement record shows that penalties follow from governance failures, not documentation failures — the claim was made but the ownership behind it was absent.
- Organisations that examine their accountability architecture before each reporting cycle carry materially less regulatory exposure than those that examine it after scrutiny arrives.
- The executive accountable for AASB S2 compliance is not the reporting team; it is the executive whose name can be traced from each material claim back to the governance structure that produced it.
References
Australian Accounting Standards Board. (2024). AASB S2 Climate-related Disclosures (September 2024 ed.). Australian Accounting Standards Board. https://standards.aasb.gov.au/sites/default/files/2024-10/AASBS2_09-24.pdf
Australian Government Treasury. (2024). Climate-related financial disclosure: Exposure draft legislation. Australian Government. https://treasury.gov.au/consultation/c2024-466491
Australian Securities and Investments Commission. (2024). 24-173MR ASIC’s first greenwashing case results in landmark $11.3 million penalty for Mercer. ASIC. https://www.asic.gov.au/about-asic/news-centre/find-a-media-release/2024-releases/24-173mr-asic-s-first-greenwashing-case-results-in-landmark-11-3-million-penalty-for-mercer/
Australian Securities and Investments Commission. (2025). 25-042MR Active Super ordered to pay $10.5 million penalty in ASIC’s third greenwashing court action. ASIC. https://www.asic.gov.au/about-asic/news-centre/find-a-media-release/2025-releases/25-042mr-active-super-ordered-to-pay-10-5-million-penalty-in-asic-s-third-greenwashing-court-action/
Governance Institute of Australia. (2026). The 2026 governance agenda: Priorities for directors. https://www.governanceinstitute.com.au/news_media/the-2026-governance-agenda-priorities-for-directors/
