What Directors Need to Know About Sustainability Reports

Sustainability reports prepared under AASB S2 are lodged as part of the annual report under the Corporations Act. Directors sign the directors’ declaration. That signature creates accountability.

For most boards, this is new territory. Financial reporting has established processes, audit committees, and decades of practice. Climate reporting doesn’t — yet. Here’s what directors need to understand about their obligations.

The governance disclosure: it’s about your board

The first pillar of AASB S2 is governance. It requires disclosure of how the board oversees climate-related risks and opportunities.

This means the report must describe:

• Which body has oversight responsibility for climate — the full board, a specific committee (audit, risk, sustainability), or a combination?
• How often does that body receive information about climate risks and opportunities?
• What processes does management use to provide climate-related information to the board?
• How does the board incorporate climate into its strategic planning and major decisions?

This is not a philosophical question about whether the board cares about sustainability. It’s a disclosure about documented governance structures. If your board doesn’t have a defined process for climate oversight, AASB S2 requires you to say so — which creates reputational exposure.

Before the report is signed, directors should be satisfied that the governance section accurately describes what actually happens — not an aspirational picture of what the board would like to do.

The liability picture

ASIC has signalled active intent to enforce sustainability reporting requirements. Under the Corporations Act (as amended), false or misleading sustainability report statements carry the same penalties as false or misleading financial report statements.

This includes civil penalties (fines) and, for serious cases, criminal liability. ASIC’s enforcement powers apply to the entity and to officers who authorise or sign disclosures.

Greenwashing — where sustainability claims in reports or marketing are overstated or misleading — has already attracted ASIC enforcement action under the existing consumer law framework. AASB S2 mandated disclosures create a further layer of exposure where inaccurate emissions figures or materially misleading governance disclosures could be the subject of regulatory action.

The practical implication: directors need to be satisfied that the emissions figures in the report are supported by underlying data, not just a number the sustainability team produced. The assurance engagement provides some comfort — but not full indemnification.

The data question boards should be asking

Before signing off, a well-informed board should be asking its management:

1. Are the Scope 1 and Scope 2 figures supported by source documents? If the sustainability team says yes, the board should understand what that means in practice — invoices, meter readings, fuel records linked to calculations.

2. What proportion of the figures is estimated vs measured? Some estimation is acceptable and disclosed. A large proportion of estimates without explanation is a risk factor.

3. Which assurance provider is conducting the review, and what did they conclude? Limited assurance covers “nothing came to our attention” — if the provider had concerns, those concerns should reach the board before sign-off.

4. Is the governance section accurate? Does it describe what the board actually does — or what someone thought the board should be doing?

5. Have material climate risks been properly identified in the strategy section? This requires board-level judgement about which risks are material to the business — not just a list prepared by the sustainability team.

Preparing the board

Boards that are new to mandatory climate disclosure should consider:

• A board education session on AASB S2 requirements and the assurance process before the first report is lodged
• Formal appointment of a board committee (or the full board) as the oversight body, with documented terms of reference that include climate
• Regular management reporting on climate risks, opportunities, and emissions data — so the governance disclosure is accurate when it says the board receives periodic updates
• Pre-sign-off review of the sustainability report alongside (not after) the financial report

Directors who rely on a summarised briefing the week before sign-off, with no prior engagement in the climate governance process, face greater personal exposure if issues are later identified.

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Ayika provides the data and audit trail infrastructure that management needs to give the board confidence in the figures before sign-off. Book a conversation about board-level reporting readiness.