KEY TAKEAWAYS
• Mandatory climate-related sustainability reporting commenced 1 January 2026 under the Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Act 2024 (Cth).
• Large companies must now prepare an annual sustainability report disclosing climate-related risks, opportunities, and Scope 1, 2 & 3 greenhouse gas emissions.
• Obligations phase in by entity size over three years (Group 1: FY2025; Group 2: FY2026; Group 3: FY2027).
• Directors face personal liability for materially false or misleading sustainability disclosures — the same exposure as false financial reporting.
• Non-compliant companies face ASIC enforcement, civil penalties, and reputational damage. Early preparation is essential.
From 1 January 2026, mandatory sustainability reporting became law in Australia. Directors and company officers who ignore this obligation do so at significant personal risk. Under the Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Act 2024 (Cth), large Australian entities must now prepare an annual sustainability report as part of their financial reporting obligations — disclosing climate-related risks, opportunities, and quantified greenhouse gas emissions. The regime is administered by ASIC and enforced with the same rigour as financial reporting obligations under the Corporations Act 2001 (Cth). For Queensland directors of large commercial entities, this is not an environmental issue. It is a corporate governance and personal liability issue.
What Is Mandatory Sustainability Reporting?
Mandatory sustainability reporting requires affected entities to prepare a sustainability report that forms part of the annual report package under Chapter 2M of the Corporations Act. The report must be prepared in accordance with Australian Sustainability Reporting Standards (ASRS), which are issued by the Australian Accounting Standards Board (AASB) and are substantially aligned with the International Sustainability Standards Board (ISSB) framework.
The sustainability report must disclose:
- Governance: How the entity’s board and management oversee and manage climate-related risks and opportunities.
- Strategy: The actual and potential impacts of climate-related risks and opportunities on the entity’s business model, strategy, and financial planning.
- Risk management: How the entity identifies, assesses, prioritises, and monitors climate-related risks.
- Metrics and targets: Quantitative disclosure of Scope 1, Scope 2, and — progressively — Scope 3 greenhouse gas emissions, alongside any emissions reduction targets adopted by the entity.
This is a significant compliance obligation. For directors of affected entities, it adds a new layer of board oversight, internal governance, and disclosure management that must be integrated into existing financial reporting processes.
Who Must Comply? The Three-Group Phase-In
The obligation phases in based on entity size, measured by consolidated revenue, assets, and employee numbers.
| Group | First Reporting Year | Threshold (two of three) |
|---|---|---|
| Group 1 | FY commencing on or after 1 January 2025 | Revenue ≥ $500M, Assets ≥ $1B, Employees ≥ 500; or subject to NGER Act reporting |
| Group 2 | FY commencing on or after 1 January 2026 | Revenue ≥ $200M, Assets ≥ $500M, Employees ≥ 250 |
| Group 3 | FY commencing on or after 1 January 2027 | All other large proprietary companies and registered schemes required to prepare financial reports |
Group 1 entities — Australia’s largest companies — were required to begin sustainability reporting for financial years commencing on or after 1 January 2025. Group 2 entities (mid-tier large companies) are now in their first reporting year. Group 3 entities — which captures a broad range of large proprietary companies — enter the regime from 1 January 2027.
ASIC has indicated it will apply a graduated approach to enforcement in the early years, but has made clear that materially false or misleading disclosures will attract enforcement action regardless of the phase-in period.
What Are Scope 1, 2 and 3 Emissions — and Why Does It Matter?
The sustainability report requires disclosure of greenhouse gas emissions across three categories:
- Scope 1 emissions: Direct emissions from sources owned or controlled by the entity (e.g., fuel combustion, fleet vehicles, on-site processes).
- Scope 2 emissions: Indirect emissions from the generation of purchased electricity, heat, or steam consumed by the entity.
- Scope 3 emissions: All other indirect emissions across the entity’s value chain — including supplier emissions, employee commuting, business travel, and end-of-life treatment of sold products. Scope 3 disclosure is subject to a relief period, with requirements progressively phased in.
For directors, the practical implication is that the board must be able to stand behind quantified emissions data. Where data collection systems do not exist, this creates both a governance gap and a disclosure risk. Boards need to assess whether the entity currently has the capability to measure and report this information with sufficient accuracy to support a signed sustainability report.
Directors’ Personal Liability for Sustainability Disclosures
This is where the regime becomes acutely relevant to directors as individuals — not just as corporate officers.
Under the amended Corporations Act, the sustainability report forms part of the entity’s annual report. Directors who sign a directors’ declaration in respect of the annual report take on personal responsibility for the accuracy of the sustainability report. A materially false or misleading sustainability disclosure can expose directors to:
- Civil penalties under the Corporations Act (up to $1.565 million for an individual as at 2026 penalty unit rates).
- Criminal liability where the disclosure is dishonest (analogous to s 1308 Corporations Act false statements in documents).
- ASIC enforcement action, including banning orders under s 206F where directors are associated with repeated or serious compliance failures.
- Shareholder litigation — institutional investors are increasingly active in pursuing boards for material disclosure failures on climate risk.
- Reputational and market damage — for listed entities, materially inaccurate sustainability disclosures can trigger ASX continuous disclosure obligations.
The interaction between sustainability reporting obligations and existing director duties under ss 180–184 of the Corporations Act is significant. A director who approves a sustainability report without adequate oversight of the underlying data and methodology may breach their duty of care and diligence under s 180. The business judgment rule provides a defence — but only where the director informed themselves adequately and made a rational judgment in good faith. Approving a sustainability report based on incomplete or unvalidated data is unlikely to satisfy that test.
ASIC’s Enforcement Approach
ASIC has identified sustainability reporting as a priority area in its 2026 enforcement focus. While the regulator has signalled a graduated approach for the early years — focusing on education and guidance before escalating to enforcement — it has been explicit that greenwashing and materially false disclosures will not be tolerated even during the transition period.
ASIC has already taken action against entities for misleading sustainability-related representations made in financial products and services contexts. The mandatory reporting regime extends that scrutiny to the annual reporting process. Directors and boards should expect ASIC to compare year-on-year disclosures for consistency, interrogate the robustness of emissions measurement methodologies, and take action where disclosures are demonstrably inconsistent with other public statements made by the entity.
Practical Steps for Directors in 2026
For Group 2 entities whose first reporting year has now commenced, and Group 3 entities preparing for their 2027 obligation, there are six immediate steps every board should take:
- Assess group membership. Confirm whether the entity meets Group 2 or Group 3 thresholds. Consider consolidated group structures — the obligations apply at a consolidated level for reporting groups.
- Appoint a sustainability reporting owner. Determine whether this sits with the CFO, general counsel, or an external sustainability adviser. The board must have a clear accountability framework before the report is prepared.
- Audit data collection capability. Review existing systems for measuring Scope 1 and Scope 2 emissions. Commission a gap analysis for Scope 3 data requirements. Identify where manual data collection will need to be replaced with systematic measurement.
- Review existing public statements. Identify any net-zero commitments, emissions targets, or sustainability representations made in previous annual reports, websites, or marketing materials. These must be consistent with what will be disclosed in the sustainability report — inconsistency creates both ASIC and ACL exposure.
- Brief the board and audit committee. Directors need to understand the content of the AASB sustainability reporting standards and the governance expectations they impose. The audit committee must have the capacity to review sustainability disclosures with the same rigour applied to financial statements.
- Seek legal advice on disclosure risks. Before signing a directors’ declaration that includes a sustainability report, directors should obtain independent advice on the disclosure risk profile of the entity’s sustainability report — particularly where emissions data is incomplete or estimates have been used.
Frequently Asked Questions
Does mandatory sustainability reporting apply to private companies?
Yes, in part. The Group 3 phase-in from 1 January 2027 captures all large proprietary companies required to prepare financial reports under the Corporations Act — not just listed entities. Private company directors of large entities need to assess their obligations now.
What is the difference between sustainability reporting and ESG reporting?
Mandatory sustainability reporting under Australian law currently focuses on climate-related disclosures (financial risks and emissions). “ESG” (Environmental, Social and Governance) reporting is a broader concept that includes social and governance metrics. The mandatory Australian regime does not currently extend to social or governance metrics — though AASB has flagged potential future expansion. The immediate legal obligation is climate-specific.
Can directors rely on management’s representations when signing the sustainability report?
Partially. Directors may rely on management representations, but only where that reliance is reasonable and in good faith — as per the s 189 defence under the Corporations Act. Where there are known data gaps, methodology concerns, or inconsistencies with prior public statements, directors cannot simply accept management’s sign-off as sufficient. Independent verification of key data, and active board scrutiny of the report, is required to attract the protection of the business judgment rule and s 189.
What if the entity has already made public net-zero commitments?
This is a high-risk area. Where an entity has made public commitments (net zero by 2030, emissions reduction targets, carbon neutral claims), those commitments must be reflected in the sustainability report and supported by a credible transition plan. Vague or aspirational commitments unsupported by data or a plan are likely to constitute misleading conduct — under both the ASIC sustainability reporting regime and s 18 of the Australian Consumer Law. Legal advice on the consistency and supportability of existing commitments should be sought before the sustainability report is finalised.
Where can I get advice on sustainability reporting compliance?
Boss Lawyers advises company directors and boards on corporate governance, director duties, and disclosure obligations under the Corporations Act. If your entity is approaching its first sustainability reporting deadline, or you have concerns about director liability arising from the sustainability report, contact our team for practical, commercially focused advice.
For broader strategic guidance on director disputes and board governance, or if you are dealing with potential corporate liability issues, our commercial litigation lawyers Brisbane are available to assist.
This is general information only and is not legal advice. You should obtain professional advice specific to your circumstances.
