Guide · Updated 22 October 2026

How to assess climate materiality for a Group 3 company (step by step)

Whether you end up lodging full disclosures or the short s296B statement, it starts with the same thing: an assessment under AASB S2 of whether any climate-related risk or opportunity is material. Here is a practical way to do it.

Published by Ransom Designs AU, the independent maker of the Group 3 Kit. Every rule is cited to a primary source listed at the end.

Why it matters. For a Group 3 entity, the question of whether there is a material climate-related financial risk or opportunity is decided under AASB S2 (s296B(6); RG 280.75). The answer decides whether you lodge full disclosures or the short statement allowed by s296B(1). The steps below are a practical method. They are our suggested order of work, built on the standard’s requirements, not an official procedure.

Step 1: Fix the reporting entity and period

AASB S2 requires climate-related financial disclosures to be for the same reporting entity as the related financial statements, unless the law permits otherwise (AASB S2 Appendix D para Aus20.1). If the financial statements are consolidated, the assessment covers the parent and its subsidiaries. Record which entities, sites and the financial year are in scope.

Step 2: Define your time horizons

AASB S2 asks entities to say over which time horizons (short, medium or long term) each risk or opportunity could reasonably be expected to occur, and to explain how they define those terms and link them to the planning horizons they use for strategic decisions (AASB S2 para 10(c)–(d)). Write your definitions down before you start. A long-term horizon that is shorter than the life of your key assets or leases is hard to defend.

Step 3: Map operations and the value chain

List your sites and key assets, and where they are. Then list the parts of your value chain you depend on: major suppliers, logistics routes, key customers, and financing and insurance. ASIC found reporting entities could have better explained indirect effects from the value chain, such as risks to international suppliers or to roads, railways and other infrastructure the business relies on (REP 839, p. 11).

Step 4: Identify physical risks

AASB S2 defines climate-related physical risks as risks that can be event-driven (acute), such as storms, floods, drought or heatwaves, or from longer-term shifts in climate patterns (chronic), such as changes in rainfall and temperature, sea level rise and reduced water availability (AASB S2 Appendix A). For each site and key dependency, ask what has happened before and what could happen. ASIC found cases where assets or operations had been affected by extreme weather in past years, but similar risks to future prospects weren’t identified or disclosed (REP 839, p. 11).

Step 5: Identify transition risks

Transition risks arise from efforts to move to a lower-carbon economy, and include policy, legal, technological, market and reputational risks (AASB S2 Appendix A). For a mid-sized business, useful prompts are:

climate or emissions questions from customers, lenders or insurers, including requests for emissions data;
energy, fuel and carbon-related costs, and how easily you could pass them on;
changes in demand for your products or services;
technology changes in your sector, and the value of assets that could become outdated.

Step 6: Identify opportunities

The s296B test needs no material opportunities as well as no material risks (s296B(1)(a)). Look at efficiency savings, new products or customer segments, and access to finance. If you are investing in a growth area linked to the energy transition, the opportunity side may be the harder one to rule out.

Step 7: Gather reasonable and supportable information

When identifying risks and opportunities, an entity must use all reasonable and supportable information that is available at the reporting date without undue cost or effort, including information about past events, current conditions and forecasts (AASB S2 para 11). It doesn’t need to undertake an exhaustive search, and what counts as undue cost or effort depends on the entity’s circumstances (AASB S2 Appendix D para B10). Useful sources include insurance claims and premiums, maintenance and outage records, board and risk register papers, customer and lender questionnaires, and public hazard information for your locations.

Step 8: Judge materiality

Information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that primary users of general purpose financial reports make on the basis of those reports (AASB S2 Appendix D para 18). A few points from the standard shape the judgement:

No preset thresholds. Materiality judgements are entity-specific, and AASB S2 doesn’t set thresholds (Appendix D para B19). If you use a percentage of profit or assets as a guide, label it as your own indicator.
Low probability, high impact. An entity must consider whether low-probability, high-impact outcomes might be material, individually or together. Several unlikely sources of the same disruption, such as supply chain disruption, can be material in aggregate (Appendix D para B23).
Before and after mitigation. ASIC found it was sometimes unclear whether a disclosed risk was inherent (before mitigation) or residual (after mitigation) (REP 839, p. 11). Say which you assessed and why.

ASIC highlighted one report that assessed flooding, extreme heat and severe weather, concluded none was material, and explained the adaptation measures in place and how they reduced residual risk, rather than just stating the conclusion (REP 839, p. 12). That is the standard of explanation to aim for.

Step 9: Record each judgement

An entity that must prepare a sustainability report must keep written records that correctly explain its preparation, for 7 years (s286A). ASIC lists board and committee minutes, internal analysis, third-party reports and “any assessment undertaken for the purposes of making the statement under s296B(1)” as examples (RG 280.51). Give each piece of evidence a reference and link it to the judgement it supports.

Step 10: Take it to the board and the auditor, then repeat

The directors make the declaration on the sustainability report under a board resolution (s296A(6)–(7)), so the board should see the assessment, the judgements and the evidence, not only the conclusion. Share your approach with your auditor before year end, since a s296B statement is reviewed in Group 3’s first year (ASSA 5010 para 10(a)(iv)). Then repeat the assessment each year (RG 280.76).

Frequently asked questions

Do we need scenario analysis to conclude there are no material climate risks?

The Act and RG 280 don’t say so. The scenario analysis requirements in s296D don’t apply in a year when s296B(1) applies (s296D(3)). Some auditors may still ask how you considered longer-term physical risk, so discuss it with yours early.

Is there a percentage threshold for climate materiality?

No. AASB S2 says materiality judgements are entity-specific and it does not specify thresholds (Appendix D para B19).

How far do we have to search for information?

You must use all reasonable and supportable information available at the reporting date without undue cost or effort (AASB S2 para 11), but you don’t need an exhaustive search (Appendix D para B10).

Who should do the assessment?

The law doesn’t say. In practice it is usually led by the CFO or financial controller with input from operations, with the board reviewing the judgements before the directors’ declaration.

Sources

Pinpoints in this guide: “s” is a section of the Corporations Act 2001; “reg” is a regulation of the Corporations Regulations 2001; “RG 280.x” is a paragraph of ASIC Regulatory Guide 280. All sources were opened and checked on 22 October 2026.

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General information only. This is not legal, accounting or assurance advice. The kit and this website don’t take account of your circumstances. Whether your entity has no material climate-related risks or opportunities depends on your own facts and the judgement of your directors. Confirm your approach with your auditor or adviser before relying on it. Using the kit doesn’t guarantee compliance or any audit outcome.

The 2026–27 Budget proposal to lift the thresholds to A$100m revenue and A$50m gross assets is proposed, not law. Law and sources last verified 22 October 2026.