Ten steps to a comprehensive sustainability report
Ten steps to a comprehensive sustainability report
Organisations are facing an increasing number of legal and regulatory requirements related to sustainability. With the introduction of the Australian Accounting Standards Board’s (AASB) S2 Climate-related Disclosures, organisations will be required to report information about climate-related risks and opportunities to the market.
Preparing a sustainability report, as required by AASB S2, can be challenging, especially with the evolving regulatory environment. Our expertise lies in establishing and preparing sustainability-related reporting activities. We can assist you in designing your report, from conducting materiality analysis to setting up data collection and monitoring systems and providing pre-assurance on reported information.
To help you navigate this process, we’ve outlined 10 steps to create a comprehensive sustainability report. These steps will guide you from the initial planning stages to the final publication, ensuring you meet all regulatory requirements and effectively communicate your business's resilience to climate-related impacts.
Step 1: Defining the framework conditions
Which regulatory requirements need to be met?
Your first step is to understand the scope and intent of the disclosure requirements and determine how these apply to your organisation.
AASB S2 requires the inclusion of a sustainability report in the annual report, with staggered implementation. We have summarised the most important aspects of the standard including which entities need to report, and the phases and timing of reporting:
| Meet two of three reporting thresholds: | National Greenhouse and Energy Reporting (NGER) reporters | Asset owners (registered schemes, registrable superannuation entities and retail CCIVs) | |||||
|
Group 1 Reporting periods beginning on or 1 January 2025 |
|
Above NGER publication threshold |
Scoped out of Group 1 |
||||
|
Group 2 Reporting periods beginning on or after 1 July 2026 |
|
All other NGER reporters |
$5 billion or more assets under management |
||||
|
Group 3 Reporting periods beginning on or after 1 July 2027 |
|
N/A |
N/A |
||||
Step 2: Get the right people involved
Which stakeholders do you need, and do all understand the regulatory requirements?
The impact of climate change on your business is a cross-functional topic, that requires the involvement of various specialist departments. Strategy, operations and risk teams are often the first to engage with climate-related considerations, closely followed by audit and accounting since it’s now part of the annual report requirements.
However, expertise and commitment from other business functions, such as marketing, sales, health and safety, research and development, and procurement are necessary to fully grasp the range of issues relevant to your organisation.
Additionally, the support of your organisation’s legal representatives is crucial for defining the company's strategic direction and for defining tasks and responsibilities related to sustainability reporting.
Step 3: Identify key climate-related risks and opportunities.
What are your most significant climate-related risks and opportunities, and what material information is required to be disclosed?
One of the key activities in meeting the reporting requirements is the completion of a climate risk assessment.
Organisations are required to report only on climate-related risks and opportunities that are material to them. This multi-step process forms the foundation for reporting by identifying these material climate-related risks and opportunities.
As part of this assessment, you need to define all potential climate-related risks and opportunities, identify key internal and external stakeholders, assess impacts and financial risks and opportunities, and finally, validate and approve the identified material climate-related risks and opportunities with your key stakeholders.
When determining whether specific risks and/or opportunities are material and should be included, an organisation should consider whether omitting or misstating that information could reasonably be expected to influence the decisions of primary users.
Step 4: Carry out a gap assessment
Which structures, systems, and processes are already in place, and what is missing to fulfil the regulatory requirements?
For efficient and effective implementation of reporting obligations, it’s best to build on existing structures within your organisation. If you already voluntarily publish a sustainability report, this can serve as a starting point. Similarly, you might have an environmental management system that collects data on greenhouse gas emissions.
Using the disclosure requirements of AASB S2, you can compare the target and actual status of your sustainability reporting to identify any gaps.
In this gap assessment, take a detailed look at the individual data points and information to be disclosed for each of the AASB S2 disclosures. Ensure that the comparison between your target and actual status is thorough and detailed, rather than abstract and superficial.
Step 5: Closing gaps in content and processes
How can the gaps in meeting regulatory requirements be addressed and reflected in the sustainability report?
The next step is to address the previously identified gaps in both content and processes. It’s important to align this effort with your enterprise strategy, define clear objectives, and derive actionable measures.
Where possible, adapt definitions from existing KPIs and establish new ones where needed. Refine, develop and create policies, procedures and governance documents, to clearly document and define controls, processes and systems.
A well-defined sustainability governance structure will be crucial when assurance requirements are phased in.
Step 6: Compile relevant report content
How are the disclosure requirements on governance, strategy, risk management and metrics and targets represented in the sustainability report, and who is responsible for which content?
The disclosure requirements are structured around four key pillars: governance, strategy, risk management, and metrics and targets. Each of these pillars must be clearly represented in the sustainability report to ensure comprehensive and transparent reporting.
- Governance: The governance processes, controls and procedures the entity uses to monitor and manage climate-related risks and opportunities.
- Strategy: The approach the entity uses to manage climate-related risks and opportunities.
- Risk Management: The processes the entity uses to identify, assess, prioritise and monitor climate-related risks and opportunities.
- Metrics & Targets: The entity's performance in relation to its climate-related risks and opportunities, including progress towards climate-related targets.
Given the cross-functional nature of sustainability, it‘s crucial to clearly define responsibilities across various business functions. This involves identifying who is responsible for the content or data and determining which documents are required for the external audit. By establishing clear roles and responsibilities, you can ensure a more efficient sustainability reporting process with clear lines of accountability.
Step 7: Involve an external auditor
Does the report contain all the required content, and is the information accurate?
The sustainability report will be subject to external assurance requirements, which will be phased in over time. For first-time reporters, it’s essential to involve your external auditors in the sustainability reporting process as early as possible.
The audit will focus on two key questions: Is the report’s information accurate? And is the content complete? To answer these, information and data checks may be conducted through interviews, analytical procedures, and sample checks. Clear and comprehensive documentation is crucial for the external audit.
Ensure you have the necessary people, processes, and systems in place to meet reporting obligations. Engage the external auditor early in the implementation process e.g., during the materiality assessment, to get feedback on the methodology and to gain pre-assurance on the data and information being reported before mandatory assurance requirements are introduced.
Step 8: Writing a sustainability report
How is the draft sustainability report structured, and what input is required from stakeholders?
Once a rough report structure is established, the actual writing begins. Text and initial data are gathered from various departments. Similar to financial reporting, continuous coordination and adjustments occur. Feedback from various departments and the external auditor is incorporated into the draft report. Since the sustainability report is part of the annual report, financial business functions should also be involved.
Step 9: Report release, approval and publication
Are there any other relevant stakeholders who need to provide feedback on the report?
Before publishing the sustainability report, approval from your organisation’s legal representatives and pre-assurance by an external auditor, is essential. Early planning should account for deadlines for internal approvals, the timing of assurance requirements, and the planned publication date.
Step 10: Continuous sustainability management
What actions can be derived from previous sustainability reports for future sustainability efforts?
The sustainability report reflects your organisation's efforts to identify, manage and monitor climate-related risks and opportunities. Once published, it is crucial to continuously improve practices and address the report’s findings. Given the ever-changing regulations, it is essential to stay updated on regulatory developments.
More information
In summary, you’re in a great position if you start now, get the right people involved, monitor the regulations, and continuously compare your targets with actual outcomes.
Our national sustainability team is here to support you in conducting a readiness assessment against the reporting requirements. We can help you ensure you have the people, processes, and systems to meet the expected reporting obligations.