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What the 2026 budget reforms mean for Australia's climate disclosure obligations
Australia's mandatory climate disclosure regime is mid-rollout, and the rules are already shifting, writes Lynton Norris.
The 2026 budget reforms would lift the large proprietary company reporting thresholds, potentially removing some entities from the regime and pushing others' first reporting date back by a full year. For finance and sustainability teams currently planning their AASB S2 response, a threshold reassessment is now the first order of business.
To understand who is affected, the starting point is the trigger for the reporting obligation.
The reporting obligation applies when an entity is required to prepare an annual financial report under Chapter 2M of the Corporations Act and meets one of the sustainability reporting thresholds set out in section 292A. ASIC confirms that entities not required to prepare annual financial reports under Chapter 2M are not required to prepare a sustainability report.
The federal budget proposal would increase the financial reporting thresholds for large proprietary companies from $50 million in consolidated revenue to $100 million and from $25 million in consolidated gross assets to $50 million. The 100-employee threshold remains. Businesses that fall below the updated thresholds would no longer be required to lodge an annual audited financial report, a directors’ report, or a sustainability report.
The government has also said it will consult on reforms to improve the efficiency of climate-related financial disclosures, including clarifying how concepts such as “undue cost or effort” apply in practice, adjusting assurance settings to be proportionate and practical, and setting clearer boundaries for supplier information requests.
Summary of climate-related financial disclosure changes
| Area | Current position | Proposed change | Practical impact |
| AASB S1 | AASB S1 is the voluntary Australian sustainability disclosure standard for broader sustainability-related financial information. | No proposed change identified in the budget material. The reform proposal is directed at climate-related financial disclosures. | No direct change. Organisations should distinguish between voluntary broader sustainability reporting under AASB S1 and mandatory climate reporting under AASB S2. |
| AASB S2 | AASB S2 is the mandatory climate disclosure standard for in-scope entities. It sets requirements for disclosure of climate-related risks and opportunities. The AASB states that AASB S2 is mandatory for certain entities under the Corporations Act. | No proposed removal of AASB S2. The government will consult on clarifying practical application issues, including “undue cost or effort”. | AASB S2 remains the core climate disclosure standard. The expected change is practical clarification, not removal of the climate reporting obligation. |
| Corporations Act reporting scope | An entity must prepare a sustainability report if it is required to prepare an annual financial report under Chapter 2M and meets a sustainability reporting threshold in section 292A. | Large proprietary company thresholds are proposed to increase from $50 million to $100 million revenue and from $25m to $50 million gross assets. The 100 employee threshold remains. | Some proprietary companies may no longer be required to lodge annual audited financial reports, directors’ reports or sustainability reports. This may remove them from direct mandatory climate reporting. |
| Group 1 | Begins reporting for financial years commencing on or after 1 January 2025. Group 1 applies where the entity satisfies at least two of three tests: revenue greater than $500 million, assets greater than $1 billion, more than 500 employees. | No proposed change identified to Group 1 thresholds. | No change identified. Group 1 entities remain the first reporting cohort. |
| Group 2 | Begins reporting for financial years commencing on or after 1 July 2026. Group 2 applies where the entity satisfies at least two of three tests: revenue greater than $200 million, assets greater than $500 million, more than 250 employees. | No proposed change identified to Group 2 thresholds. | A company that meets Group 2 remains due to report from financial years commencing on or after 1 July 2026. |
| Group 3 | Begins reporting for financial years commencing on or after 1 July 2027. Group 3 currently applies where the entity satisfies at least two of three tests: revenue greater than $50 million, assets greater than $25m, more than 100 employees. | The proposed change would increase the relevant financial thresholds to $100 million revenue and $50 million gross assets, while retaining the 100 employee threshold. | Some entities that would have been Group 3 under the existing thresholds may no longer be required to prepare a sustainability report. |
| Potential movement from Group 2 to Group 3 | Group 2 requires at least two of: $200 million + revenue, $500 million + assets, more than 250 employees. Group 3 is the smaller reporting cohort and starts one year later. | The budget proposal does not state that Group 2 thresholds are changing. The relevant issue is classification: an entity that does not meet Group 2 but meets Group 3 would report later. | A company previously assuming it was Group 2 should retest the thresholds. If it does not meet at least two Group 2 tests but does meet Group 3, first reporting would move from financial years commencing 1 July 2026 to financial years commencing 1 July 2027. |
| CPG 229 | APRA’s CPG 229 provides prudential guidance on climate change financial risks for APRA-regulated entities. It is not the Corporations Act sustainability reporting threshold test. | No proposed budget change identified to CPG 229. | APRA-regulated entities should continue to consider climate change financial risk governance, risk management and disclosure expectations under CPG 229. |
| Assurance settings | Climate disclosures are subject to phased assurance requirements under the sustainability reporting regime. | The Commonwealth government will consult on adjusting assurance settings so they are proportionate and practical. | Assurance requirements may be refined, but entities should still keep evidence, assumptions, approvals and calculations capable of review. |
| Supplier information requests | AASB S2 reporting may require value chain information, including where relevant to climate-related risks, opportunities and emissions. | The Commonwealth government will consult on clearer boundaries for supplier information requests to reduce cost and complexity, particularly for small businesses. | Reporting entities should limit supplier requests to information that is relevant and supportable, rather than broad or duplicative questionnaires. |
What this means for companies near the thresholds
The main issue is not that climate disclosure has disappeared. It has not.
The issue is whether an entity is correctly classified as Group 1, Group 2 or Group 3, or whether it is outside the mandatory sustainability reporting regime because it is no longer required to prepare an annual financial report under Chapter 2M.
For companies near the Group 2/Group 3 boundary, the timing difference is material.
A company that meets Group 2 begins reporting for financial years commencing on or after 1 July 2026. A company that does not meet Group 2 but does meet Group 3 begins reporting for financial years commencing on or after 1 July 2027.
That means a reassessment of revenue, gross assets and employee numbers could change the first reporting year.
If your organisation is near the Group 2 or Group 3 thresholds, now is the time to retest your position and align your climate disclosure plan to the correct reporting date.
The proposed 2026–27 Commonwealth budget reforms make threshold analysis more important for Australian climate reporting:
- If your company is preparing for mandatory climate-related financial disclosure, the first question is not which template to use. It is whether you are correctly classified as Group 1, Group 2 or Group 3 under the Corporations Act.
- For some proprietary companies, the proposed increase in reporting thresholds may affect whether they are required to prepare an annual audited financial report, directors’ report or sustainability report at all.
- For others, a reassessment may confirm that they are not Group 2, but Group 3 – moving the first reporting period from financial years commencing 1 July 2026 to financial years commencing 1 July 2027.
That extra time should be used to prepare properly: confirm scope, identify required AASB S2 disclosures, document assumptions, manage supplier data requests, and build an evidence base for assurance.
Lynton Norris is the co-founder and director of Accredibly and Accredibly Climate.
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