Australian Sustainability Reporting Standards (ASRS): The role of proportionality in climate reporting

Key points

• Climate reporting under AASB S2 is about starting from your current position and improving over time
• Proportionality enables Group 1, 2 or 3 entities to apply the requirements in a way that is proportionate to their circumstances
• “Minimal Viable Compliance” is not the same as proportionality and should not be the finish line

As organisations grapple with Australia’s new mandatory climate reporting regime, AASB S2 Climate Related Disclosures embeds a proportionality principle within the framework that is often misunderstood.

This principle is consistent with ASIC’s Regulatory Guide 280 and the AASB’s Proportionality Mechanisms in AASB S2 guidance. These publications explain the application of the proportionality mechanisms and emphasise a pragmatic and proportionate approach to supervision and enforcement as entities build climate reporting capability.

What is proportionality?

At the centre of proportionality is the concept that entities should use reasonable and supportable information that is available at the reporting date without undue cost or effort. In relation to determining anticipated financial effects and scenario analysis, entities are required to use approaches that are commensurate with the skills, capabilities and resources available to the entity.

This proportionality concept exists because regulators recognise that entities differ enormously in scale, complexity, emissions profiles and internal capability. Climate reporting isn’t meant to be standardised or boilerplate; its purpose is to provide credible, decision‑useful information that can improve over time.

What does this mean in practice?

AASB S2 recognises that entities start from very different places. Proportionality does not remove the obligation to comply or exempt an entity from providing disclosures, but it does shape what “reasonable and supportable” looks like based on its size, emissions profile, data availability and internal capability.

Consider a Group 1 transport and logistics group already reporting under the NGER scheme. These entities are typically fuel intensive, have established emissions data and mature regulatory reporting processes. In this context, proportionality sets a high bar. It would generally be reasonable to expect quantitative scenario analysis linking transition risks – such as fuel prices, decarbonisation policy and fleet renewal – to financial impacts. Claims that meaningful analysis would involve “undue cost or effort” are unlikely to be persuasive where data, systems and market expectations already exist.

By contrast, a Group 2 manufacturing business may have reliable energy data and a solid understanding of its operations, but more limited modelling capability and value chain visibility. For these entities, a proportionate approach may involve a mix of quantitative and qualitative scenario analysis, focused on the most material physical and transition risks. In due course scope 3 emissions may initially be estimated using reasonable proxies for key categories, with sophistication increasing over time.

For a Group 3 private or family owned business with limited finance teams and no prior sustainability reporting experience, proportionality reasonably supports a pragmatic starting point especially in the earlier years. Compliance may involve predominantly qualitative scenario analysis, describing how extreme weather, energy costs or regulatory change could affect operations, supported by high level emissions estimates using publicly available factors. Disclosures would be expected to evolve to more quantitative information as capability, data and resources improve.

Does this meet the compliance requirements?

All three entities can be compliant because all three have applied judgement that is reasonable for their circumstances. The critical question is not how complex the assessment and modelling is, but whether the approach reflects the entity’s actual access to resources and expertise, and whether the resulting analysis is appropriate.

Why “minimal viable compliance” is a dangerous mindset.

Minimum viable compliance and proportionality are not interchangeable. Proportionality determines the way requirements are met; minimum viable compliance focuses on thresholds. Treating minimum viable compliance as an end point risks undermining meaningful disclosure.

Proportionality requires judgement about whether information can be obtained without undue cost or effort based on an entity’s specific circumstances. This judgement is expected to evolve as capabilities, systems and data improve.

Increasingly, high quality climate disclosures are a source of competitive advantage, influencing access to capital, pricing, insurance and customer relationships. Entities that use proportionality as a starting point, not a ceiling, are better placed to build trust and adapt over time.

“Businesses need to look at sustainability as a long-term investment, not just an immediate expense. The key challenge is aligning sustainability goals with financial objectives, which is hard to do without the right investment planning and people in place.”

Mark J Lumsdon-Taylor, Global Executive Lead Development & Sustainability, MHA the UK Member firm Baker Tilly International.

Proportionality does not lower the bar. It defines how the bar is reached.

Entities that document their judgements, are transparent about limitations and demonstrate year on year improvement will turn compliance into insight. Those that aim only for minimal viable compliance may meet the letter of the Standard but risk falling behind market and regulatory expectations far sooner than they anticipate.

We can help you navigate the Mandatory Climate Reporting with confidence by applying proportionality appropriately today, while positioning your organisation for stronger, more strategic climate reporting tomorrow.