Turning climate reporting into credible action

Year one was about getting a baseline disclosure out. Year two is where scrutiny starts to deepen. Both assurance requirements and regulatory expectations increase. Beyond that, the focus will be on whether your disclosure is credible and decision-useful, particularly when it comes to quantifying financial impacts.  

In this analysis, we look at what shifts in year two, what best practice looks like, and what reporters can do now to successfully prepare.  

While being assurance-ready matters, year two is also an opportunity to ask a bigger question: is your reporting helping you make better decisions, sharpen strategy, and take real action on risk mitigation and opportunities for growth?

From Scope 1 and 2 compliance, to Scope 3 scrutiny

In year one, many organisations made extensive use of the transitional relief available for Scope 3. That is, took advantage of a ‘grace period’ for reporting complex supply chain data (indirect emissions from their supply chain and customers).

Year two changes that. Scope 3 disclosures become mandatory—and need to be approached as assurance-ready from the outset to avoid restatements. That means documented methodologies, formalised controls, and a transparent basis for what you have included, excluded, and estimated.

For many reporters, this will be one of the most challenging parts of AASB S2. It relies on value chain data that may be incomplete or inconsistent, and often involves high levels of estimation and judgement. That is why the basis for those judgements needs to be clearly documented and disclosed—an area ASIC has already highlighted in its early observations on sustainability reporting. It’s an area of growing interest to report users because it can help them understand exposure across the value chain, understand potential future impacts and identify and realise opportunities to reduce or influence emissions.

So, where to focus first? 

Start with materiality. Not every Scope 3 category will matter equally. The priority is to identify the categories that provide meaningful information to report users and are genuinely relevant to your business and its climate-related risks and opportunities. Then be transparent about the basis for your approach. If you are using supplier data, hybrid methods, or estimates, say so. If data quality varies, explain that too, and show how you plan to improve it over time.

Common readiness challenges and practical steps:

• Data availability and quality: start with the most important suppliers and categories, use data quality tiers, apply an estimation hierarchy, and document gaps clearly.
• Value chain complexity: map your key suppliers and stakeholders early, and work out how information will actually be gathered.
• High judgement and uncertainty: maintain a clear record of assumptions and implement review controls over calculations.

Financial impacts: quantify where you can, explain where you can’t

One of the biggest challenges in year one was how to measure and disclose financial impacts. Trying to calculate those impacts created understandable nervousness. Quantifying future financial impacts often depends on forward-looking assumptions and estimates. Where measurement felt uncertain, using the available relief may have seemed like the practical option. 

The aim is not to create false precision. It is to provide useful information, be transparent about assumptions and limitations, and show how those judgements have been made. This will remain a highly judgemental area, particularly where financial impacts depend on forward-looking assumptions and estimates. But it is also one of the clearest tests of whether reporting is doing what the standard intends: giving users a clearer view of how climate could affect a business now, and in the future.

From running scenarios, to using them

In year one, many organisations completed scenario analysis because the standard required it. In year two, the question becomes more practical: what is that analysis actually telling you about the resilience of your business?

That means testing how resilient your business model and strategy is under different climate pathways and being clear about what would change under each one. Would you invest differently? Reassess particular assets? Change your risk appetite? Sequence your transition plan another way?

This is where scenario analysis becomes genuinely useful. It helps you prioritise investment, avoid stranded or inefficient capital, and respond earlier to changes that could affect cash flow or competitiveness¹.

The credibility test is connectivity: scenario assumptions need to link through to financial impacts, key sensitivities, and the actions management would realistically take. And beyond that, how does it connect in with your financial statements including impairment modelling and fair value estimations?

Practical step: 

• Identify and communicate a small set of agreed “trigger points” (e.g., carbon price, demand shift, input cost shock, policy change) tied to pre-defined management responses and board monitoring. 

From transition plan ambition, to financed delivery

In year one, transition plans were often narrative-led. Many explained ambition and direction, but with limited connection to execution, funding, or governance. Year two changes that. 

Attention is shifting to deliverability, particularly for organisations with more significant decarbonisation challenges. Regulators, investors, bankers and other stakeholders are likely to look more closely at whether a plan appears feasible and achievable, and whether it aligns with the risks you have identified, the strategy you are pursuing, and the financial commitments you are making.

For year two, that means showing more clearly how your plan will be financed and delivered in practice.

In our view, transition plans are likely to be judged more like business plans over time: by how they shape budgeting and capital allocation, and what trade-offs are being made along the way, including what is accelerated, deferred or stopped.

From a once-a-year project, to embedded process

For many organisations, first-year reporting was a major project. The priority was clear: meet the compliance requirements and get the report out. For year two, reporting will increasingly need to look less like a once-a-year exercise, and more like a repeatable, controlled, and integrated process embedded in business as usual.

That starts with stronger foundations. Reporting processes should have clear ownership, defined review and governance points, documented controls over data and calculations, and evidence retention so disclosures can be supported end‑to‑end under assurance. 

That’s why automation and other technology will matter more over time. The goal is to rely less on spreadsheets and manual workarounds, and more on traceable data flows from source systems through to calculations and reported outputs.

This does not mean everything needs to be fully mature straight away. But year two is the point where you should start moving climate reporting out of project mode and into your normal operating rhythm.

One way to tackle year two is to break it into three practical focus phases across the reporting cycle. We’ve outlined these below: 

Immediate priority (next 3-6 months): build stronger foundations

• Mobilise Scope 3 early 
  Prioritise the categories that are most material, assign ownership, and be clear on the methods, assumptions, and data sources you plan to use. Where relevant, engage with your value chain to leverage what information already exists. 
• Get clear on judgement areas 
  Document key methodologies, boundaries, assumptions, and estimation choices early, especially where uncertainty is high.
• Focus on and align the narrative with financial reporting 
  Agree where climate risks and opportunities credibly affect budgets, forecasts, key financial assumptions, and the financial impacts you may need to explain. 

Mid-cycle focus: turn analysis into action

• Test what matters most 
  Run end-to-end dry runs on priority Scope 3 categories and other key disclosures to identify gaps in data, process, or evidence.
• Make scenarios decision-useful 
  Translate scenarios into a small set of decision variables and trigger points that could realistically change management actions.
• Move transition plans from ambition towards delivery 
  Clarify costs, sequencing, dependencies, and links to capital allocation and funding decisions.

Year-end readiness: make the story hold together

• Test assurance readiness early 
  Use pre-assurance or targeted reviews to identify gaps in evidence, documentation, and reproducibility, before reporting is finalised.
• Prove consistency and connectivity 
  Make sure risks, scenarios, transition plans, metrics, and financial impacts tell one coherent story.
• Align narrative to evidence 
  Explain movements, uncertainty, and limitations clearly, while reinforcing the credibility of your plan and the conviction behind it.