Clean opinions, thin numbers: What ASIC's AASB S2 review means for Group 2 companies

ASIC has reviewed the first AASB S2 reports, and its findings are the clearest public view yet of what the regulator looks for. In September 2026 it published Report 839, a review of 40 of the 312 sustainability reports lodged for 31 December 2025 year ends. The sample leaned towards high-emitting sectors, and ASIC reviewed what entities disclosed rather than the records behind them.

The overall picture is reassuring. The detail is less so. Governance, risk identification and Scope 1 and 2 emissions were generally clear. Financial effects, scenario analysis, Scope 3 and the link to the financial report were where reports were thinnest. For Group 2, whose first reporting years begin from 1 July 2026, those are the areas to start on now.

Here is what ASIC found, area by area, and what each finding means for a Group 2 finance team.

Governance: Is oversight on the record?

Group 1 did well here. ASIC found that 67.5% of the entities it reviewed named the board as the body that oversees climate-related risks and opportunities, and 42.5% linked executive remuneration to climate factors in some way. Risk management processes were generally described clearly.

For Group 2, naming the owner is the easy part. The work is in showing the oversight happened during the year: the board papers, the committee minutes, the decisions made about climate risks. ASIC also noted that some wholly owned subsidiaries didn't explain how their parent's governance applied to them, which matters for any Group 2 entity that sits inside a larger group.

Risks and opportunities: Is every climate risk assessed?

95% of the entities reviewed identified at least one climate-related risk or opportunity. The two that identified none each received an emphasis of matter paragraph from their auditor.

The gaps were in the assessment. ASIC found that in some cases it was difficult to tell inherent risk from residual risk. Entities that had already been hit by extreme weather didn't always carry similar risks into their view of the future, and disclosures about where risk concentrates across the value chain were sometimes high-level or limited.

The practical test for Group 2 is whether each climate risk sits in the risk register with an assessment behind it, the same way any other material risk would.

Financial effects: Can you put a number on it?

This was the weakest area in the review. 37.5% of the entities ASIC reviewed gave only qualitative information about the current and anticipated financial effects of climate risks, and 57.5% relied on measurement uncertainty to some extent. Some didn't explain why figures were left out, or which line items in the financial statements would be affected.

Measurement uncertainty is a genuine allowance in the standard. It does need explaining, though, and finance teams are better placed than most to do that well, because estimates and sensitivity ranges are everyday work. ASIC pointed to one entity that showed a sensitivity range as percentage changes to its future cash flows.

Scenario analysis needs the same attention. Around 20% of entities used qualitative scenarios only, and most drew on published scenarios. Both are reasonable starting points for a first report, and scenario analysis is one of the requirements assurers say concerns them most.

Scope 3: Is it ready for your second report?

Scope 1 and Scope 2 emissions were the most consistent numbers in the review. ASIC found them generally consistent across entities, and more reliable given they were subject to limited assurance.

Scope 3 is still to come for most. 82.5% of the entities reviewed relied on the transitional relief that lets an entity leave out Scope 3 in its first reporting year. That relief covers the first year only, so every Group 2 entity that reports will need Scope 3 in its second year. Scope 3 covers emissions across the value chain, so much of the data sits with suppliers and customers rather than in your own systems.

Targets were mixed. 55% of entities disclosed a climate-related target, and ASIC found significant differences in how the other cross-industry metrics were reported, such as assets exposed to climate risk and climate-related capital expenditure, with some not disclosed at all.

Judgements: Can you show how you decided?

ASIC reported no modified audit opinions across the 40 reports, on what was assured in year one. That didn't make every judgement easy to follow. ASIC flagged entities that left items out as 'not material' without explaining the threshold they used, and it expects material judgements to be disclosed clearly.

Assurers are focused on the same areas. In research published in June 2026, assurance providers named forward-looking information, scenario analysis and assuring Scope 3 among their biggest concerns, and saw more work ahead for Group 2 and Group 3 entities than those entities expect. That research is covered in more detail in Your auditor's eyesight is sharper than yours.

Does your sustainability report connect to your financial report?

ASIC gave the example of one entity whose financial statements showed an impairment on an investment project linked to a climate-related opportunity. Its sustainability report didn't describe the impairment or connect the two. The first of ASIC's eight actions for entities is to explain how the two reports connect.

For a CFO, this is home ground. The same board signs off both reports, and the same firm often assures both: in the June 2026 research, 88% of the Group 1 entities surveyed were choosing their financial statement auditor as their climate assurer.

What should Group 2 fix first?

Start with the areas the first wave found hardest: financial effects, scenario analysis, Scope 3 and the link to the financial report. Then check the rest one requirement at a time, while there is still time to act on what you find.

Finding it first means knowing where your AASB S2 gaps are before your assurer starts looking. Drova's AASB S2 solution turns the standard into a plan with an owner and a deadline on every clause. Your team links the evidence it already has, and can see which requirements are covered and which are still open.

Find it first: start free and see which AASB S2 requirements are still open for your business.