Group 2 Sustainability Reporting Assurance in Australia 2026-27: What Businesses Must Know

From financial years beginning on or after 1 July 2026, a new wave of Australian businesses — classified as Group 2 entities — must comply with mandatory climate-related financial disclosure requirements under the Corporations Act 2001. This is not a voluntary sustainability initiative. It is a legally enforceable reporting obligation backed by civil penalty provisions, director personal liability, and independent assurance requirements governed by the Auditing and Assurance Standards Board (AUASB).

For Group 2 entities and their boards, understanding what is required — and what to look for in an auditor with genuine sustainability assurance capability — is now an urgent governance priority.

Understanding the Group 2 Sustainability Reporting Regime

Australia's mandatory climate disclosure framework was introduced through amendments to the Corporations Act 2001 and is implemented through the Australian Sustainability Reporting Standards (ASRS). The primary standard is AASB S2 Climate-related Disclosures, which requires entities to disclose information about climate-related risks and opportunities, governance arrangements, strategy, risk management processes, and metrics including Scope 1 and Scope 2 greenhouse gas emissions.

The regime uses a phased approach based on entity size and reporting characteristics. Group 1 entities — the largest listed companies and financial institutions — began reporting for financial years commencing on or after 1 January 2025. Group 2 entities are next in line, with obligations commencing for financial years beginning on or after 1 July 2026.

Who Qualifies as a Group 2 Entity?

• Listed entities that meet at least two of three size thresholds: consolidated revenue of $50 million or more, consolidated gross assets of $25 million or more, or 100 or more employees
• Unlisted disclosing entities meeting the same size thresholds
• Registrable superannuation entities (RSEs) with assets of $5 billion or more that are not already captured as Group 1
• Entities required to report under the National Greenhouse and Energy Reporting (NGER) Act that fall within the Group 2 size parameters

Boards and CFOs should verify their entity's classification carefully. The thresholds are assessed on a consolidated basis, meaning subsidiaries of large groups may be captured even if they appear small in isolation.

What Group 2 Entities Must Disclose

AASB S2 requires Group 2 entities to prepare a sustainability report as part of their annual report. The sustainability report must address four interconnected disclosure areas.

The Four Disclosure Pillars

• Governance — How the board and management oversee climate-related risks and opportunities, including board-level accountability, management roles, and integration into existing governance frameworks
• Strategy — The climate-related risks and opportunities the entity has identified over short, medium, and long time horizons, and how these affect the entity's business model, strategy, and financial planning
• Risk management — The processes used to identify, assess, prioritise, and monitor climate-related risks, and how these processes are integrated into the entity's overall risk management framework
• Metrics and targets — Quantitative disclosures including Scope 1 and Scope 2 greenhouse gas emissions (measured in tonnes of CO2 equivalent), climate-related targets, and progress against those targets

ASIC has issued early observations from its review of Group 1 sustainability reports, noting that entities must use "reasonable and supportable" information to identify climate-related risks, must not use disclaimers that conflict with the statutory framework, and must disclose judgements and assumptions clearly. These observations apply equally to Group 2 entities preparing their first reports.

Assurance Requirements Under ASSA 5000 and ASSA 5010

Unlike voluntary sustainability reporting, the mandatory regime requires independent assurance. The AUASB has issued two standards that govern this assurance.

ASSA 5000 General Requirements for Sustainability Assurance Engagements sets the foundational requirements for conducting assurance engagements on sustainability information. It applies to both mandatory and voluntary assurance and establishes requirements for independence, professional scepticism, evidence gathering, and reporting.

ASSA 5010 Timeline for Audits and Reviews of Information in Sustainability Reports specifies the phasing of assurance requirements. For Group 2 entities in their initial reporting years, the requirement is for limited assurance over specified disclosures, including Scope 1 and Scope 2 emissions and governance disclosures. The framework is designed to transition to reasonable assurance over all climate disclosures for financial years commencing on or after 1 July 2030.

Limited vs Reasonable Assurance

• Limited assurance — The auditor performs procedures sufficient to conclude that nothing has come to their attention that causes them to believe the information is materially misstated. This is a lower level of assurance than a financial audit and involves primarily inquiry and analytical procedures
• Reasonable assurance — The auditor performs more extensive procedures, including detailed testing of underlying data and systems, sufficient to express a positive opinion that the information is free from material misstatement. This is the standard applied to financial statement audits

Even at the limited assurance level, the engagement requires the auditor to have genuine expertise in sustainability reporting standards, greenhouse gas accounting methodologies, and the entity's specific industry context. Not all registered company auditors have this capability.

Common Mistakes and Red Flags

Group 2 entities preparing for their first sustainability report and assurance engagement face several common pitfalls that can result in qualified assurance opinions, ASIC scrutiny, or director liability.

• Treating sustainability reporting as a communications exercise — AASB S2 disclosures are legally equivalent to financial reporting. Aspirational language, unsubstantiated targets, and vague risk descriptions that might be acceptable in a voluntary sustainability report will not meet the statutory standard
• Inadequate Scope 1 and Scope 2 data systems — Assurance over emissions data requires that the underlying data collection, calculation, and verification processes are documented and auditable. Many Group 2 entities have not yet built the data infrastructure required to support assurance
• Engaging an auditor without sustainability assurance capability — The skills required for sustainability assurance are distinct from those required for financial statement auditing. Entities should verify that their proposed auditor has specific training, experience, and quality management systems for ASSA 5000 engagements
• Leaving assurance engagement planning too late — Sustainability assurance requires the auditor to be involved in planning the data collection and reporting process, not just reviewing the finished report. Engaging an auditor after the sustainability report is drafted significantly increases the risk of findings that require material revision
• Using disclaimers that conflict with the statutory framework — ASIC has specifically flagged this issue in its early observations. Disclaimers that attempt to limit the legal effect of sustainability disclosures are prohibited and may themselves constitute misleading conduct

Australian Regulatory Context

The sustainability reporting and assurance regime sits within a broader regulatory framework that Group 2 entities and their auditors must navigate.

ASIC is the primary regulator for sustainability reporting under the Corporations Act 2001. ASIC has commenced its first review cycle of mandatory sustainability reports lodged by Group 1 entities and has indicated it will apply the same surveillance approach to Group 2 reports. ASIC possesses a "directions power" allowing it to compel entities to correct, complete, or explain sustainability disclosures it considers misleading or incomplete.

The AUASB sets the assurance standards (ASSA 5000 and ASSA 5010) and provides implementation guidance for auditors. The AUASB is currently evaluating whether assurance reports should cover the directors' declaration for reporting periods between 1 July 2026 and 31 December 2027.

Director liability is a significant feature of the regime. Directors who sign off on sustainability reports containing misleading statements may face civil penalties under the Corporations Act. This creates a strong incentive for boards to invest in robust data systems, internal controls, and qualified assurance providers before the first reporting deadline.

The NGER Act continues to apply to entities that report greenhouse gas emissions under that framework. For Group 2 entities that are also NGER reporters, there is an opportunity to leverage existing NGER data and verification processes to support AASB S2 emissions disclosures, but the two frameworks have different scope and methodology requirements that must be carefully reconciled.

Questions to Ask When Choosing an Auditor for Sustainability Assurance

Not every registered company auditor is equipped to conduct sustainability assurance engagements. Use these questions to assess capability before engagement.

• What sustainability assurance engagements have you completed under ASSA 5000, and for which industries? — Look for specific experience with AASB S2 disclosures and greenhouse gas emissions assurance, not just general sustainability reporting familiarity
• What training and quality management systems do you have in place for sustainability assurance? — ASQM 1 requires audit firms to have quality management systems that cover sustainability assurance engagements. Ask for evidence of this
• How early in our reporting process do you recommend engaging, and what data systems will you need access to? — A capable auditor will want to be involved in planning data collection, not just reviewing the finished report
• How do you approach the reconciliation between NGER Act reporting and AASB S2 emissions disclosures? — For entities that are NGER reporters, this is a critical technical question that reveals the auditor's depth of knowledge
• What is your approach to assessing the "reasonable and supportable" standard for climate risk identification? — This is a key ASIC focus area and requires the auditor to have a methodology for evaluating the quality of the entity's climate risk assessment process
• Can you provide references from Group 1 entities you have provided sustainability assurance for? — Group 1 experience is the most relevant indicator of readiness for Group 2 engagements

How MyMoney® Can Help

Finding an auditor with genuine sustainability assurance capability — not just a financial statement auditor who has attended a sustainability training course — is one of the most important decisions a Group 2 entity will make in 2026. The consequences of an inadequate assurance engagement include qualified opinions, ASIC scrutiny, director liability, and reputational damage.

MyMoney® connects Australian businesses with qualified auditors who have demonstrated expertise in sustainability assurance, AASB S2 compliance, and ASSA 5000 engagements. Whether you are a Group 2 entity preparing for your first mandatory sustainability report or a board seeking to understand your assurance obligations, our platform helps you find the right professional.

Post a Brief to describe your sustainability assurance requirements and receive proposals from qualified auditors. Or Browse Auditors on the MyMoney® Marketplace to explore professionals with the specific expertise your organisation needs.