Martin Fryer, Head of Strategy and Disclosures, thinkstep-anz

Climate risk is now a financial reporting issue. The Australian Sustainability Reporting Standard (AASB) S2 Climate-related Disclosures asks organisations to explain how climate-related risks and opportunities could affect their business performance and future plans.

For manufacturers in Group 2 and 3, this means preparing to disclose information that is decision-useful for investors, lenders and regulators. The focus is on understanding where climate could affect the business, and how those impacts are reflected in financial outcomes and strategic planning.

Who needs to report when:

Reporting group	Reporting starts	First report due (FY)	Thresholds (meet 2 of 3)
Group 1	From 1 January 2025	After 30 June 2026	$500m revenue, $1b assets, 500 employees
Group 2	From 1 July 2026	After 30 June 2027	$200m revenue, $500m assets, 250 employees
Group 3	From 1 July 2027	After 30 June 2028	$50m revenue, $25m assets, 100 employees

Find additional information here

What AASB S2 is asking organisations to do

At its core, AASB S2 connects climate with enterprise value. It is built around one key question: Would this information matter to someone making a financial decision about the business?

To answer that, organisations need to:

• identify climate-related risks and opportunities
• assess which ones are significant
• explain how they affect the business and financial outcomes
• show how they are being managed.

The AASB’s recently released educational material offers a few practical points:

• Materiality requires judgement
  Organisations need to assess which climate issues are significant enough to influence decisions by users of their financial reports. This involves both qualitative and quantitative considerations.
• Link to financial outcomes
  It is not enough to describe risks. You need to show how they affect revenue, costs or asset values.
• Transparency builds credibility
  Clear disclosure of assumptions, ranges and limitations is encouraged. Early disclosures show that acknowledging uncertainty is more credible than presenting overly precise estimates.
• Governance matters
  Finance, risk and leadership teams need to be part of the process, not just sustainability teams, to demonstrate that climate is being considered alongside other strategic risks.

These expectations apply regardless of organisational size. For Group 2 and 3 manufacturers, the level of detail may be more proportionate, but the underlying principles are the same.

What this means in practice for manufacturers

Manufacturers are often directly affected by climate through their day-to-day operations and the suppliers they rely on. This can show up in higher costs, disrupted production or changing customer demand. The key is to focus on the risks and opportunities that are most likely to impact business performance.

Common areas of focus include:

• Energy and input costs
  Changes in electricity, gas and fuel prices, including potential carbon pricing.
• Physical risks to sites
  Factories, warehouses and infrastructure exposed to extreme weather, heat or flooding.
• Supply chain disruption
  Delays, shortages or cost increases from suppliers affected by climate impacts.
• Market shifts
  Changing customer preferences, low-emissions product demand, and export market requirements such as carbon border adjustments.
• Regulatory change
  Evolving standards, reporting requirements and compliance costs across jurisdictions.

The goal is to determine which of these are most relevant to the organisation, and how they could affect financial performance over the short, medium and long term.

Deciding what is material

For manufacturers, material risks could:

• increase operating costs
• affect production or supply
• reduce demand or market access
• require new investment

It is just as important to explain what is not material and why. Regulators are increasingly expecting organisations to show their reasoning, not just the final list.

Working with uncertainty

What matters is being clear about:

• what data you used
• what assumptions you made
• where there are gaps or uncertainty

In practice, this might mean:

• using ranges instead of fixed numbers
• explaining different scenarios (for example, high vs low energy price increases)
• noting where estimates are based on limited data

This approach is more useful and more credible than trying to be overly precise.

Integrating climate into business processes

Climate-related information needs to be connected to existing business systems and processes. This includes:

• enterprise risk management frameworks
• financial planning and budgeting
• capital investment decisions
• operational data systems

For many manufacturers, this is a new step. Energy, emissions and operational data are often held separately from financial systems, making it harder to link climate risks to financial outcomes.

A practical approach is to:

• start with what you already know
• bring finance, operations and sustainability teams together
• agree on a consistent way to assess risks and impacts

This can be improved over time as systems and data get better.

Expect questions from your customers and stakeholders

Even before reporting becomes mandatory, many manufacturers are being asked to provide climate-related information by customers, lenders and insurers.

Requests may include:

• emissions data (particularly scope 1 and scope 2)
• exposure to climate-related risks
• evidence of transition planning or emissions reduction initiatives

Preparing for AASB S2 can help streamline these requests. Developing consistent, well-documented information reduces duplication and supports stronger relationships across the value chain.

What good looks like

It should:

• focus on the most relevant risks and opportunities
• explain how they affect the business
• show how they are being managed
• be honest about assumptions and uncertainty

Consistency is important. Disclosures should align with other public statements, internal plans and incentive structures. This helps build trust with investors and reduces the risk of challenge.

How disclosurekit can help

You can do your climate-related disclosures in house with some guidance. We have developed the do-it-yourself tool disclosurekit to support organisations to meet AASB S2 requirements in a structured, practical way. It shows teams how to identify and prioritise climate-related risks and opportunities, assess their impacts, and link these to strategy and financial outcomes. The modules break down AASB S2 into plain English, so teams can work through the process without specialist knowledge.

This offers a cost-effective way to develop disclosures that are transparent, defensible and aligned with regulatory expectations, while staying in control of the process. Find more information here.

About: Martin Fryer, Head of Strategy and Disclosures at thinkstep-anz
Martin has made a career out of effecting positive change from the inside – 99 percent of his working life has been spent helping large corporate organisations to succeed sustainably. He is a Chartered Environmentalist who works with clients on sustainability strategy, climate-related risk, materiality assessments, and all manner of corporate disclosures.