Mandatory climate reporting arrived in Australia with a reassuring message for startups: this is a big-company regime. For Group 1 — the ASX giants and $500 million-revenue businesses reporting since the financial years commencing 1 January 2025 — that framing was accurate. But the regime was always designed to walk down the market in three steps, and the third step lands closer to the startup ecosystem than most founders realise. For financial years commencing on or after 1 July 2027, Group 3 entities must prepare a sustainability report — and the Group 3 size tests are met by satisfying any two of three criteria: consolidated revenue of $50 million or more, consolidated gross assets of $25 million or more, or 100 or more employees.
Read those limbs again with a founder’s eye. Gross assets includes cash. A startup that closes a $30 million Series B is most of the way to two limbs before it earns a dollar of revenue — the raise satisfies the assets test, and scaling past 100 full-time-equivalent employees completes the pair. The trigger isn’t your emissions profile, your sector or your carbon footprint. It’s your balance sheet and your headcount.
How the Regime Actually Works
The reporting obligation comes from the Corporations Act 2001 (Cth), not from an environmental statute. The Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Act 2024, which received royal assent on 17 September 2024, inserted a new creature into Chapter 2M: the sustainability report, sitting alongside the financial report and directors’ report as a component of annual reporting. Section 292A determines who must prepare one, and sections 296A to 296D prescribe its contents — climate statements, climate statement notes and a directors’ declaration, prepared in accordance with AASB S2 Climate-related Disclosures, the Australian standard built on the ISSB’s IFRS S2.
Two gating features matter for startups:
- You must already be a Chapter 2M reporter. The sustainability report obligation attaches only to entities that have to prepare annual financial reports under Chapter 2M. A small proprietary company with no financial reporting obligation has no climate reporting obligation, whatever its growth curve. It’s no coincidence that the Group 3 size tests mirror the large proprietary company thresholds — the same two-of-three test ($50 million consolidated revenue, $25 million consolidated gross assets, 100 employees) that makes you a large proprietary company and drags you into audited financial reporting also lands you in Group 3.
- The tests are consolidated. Revenue, assets and employees are measured across the entity and the entities it controls, so a group structure doesn’t dilute the numbers — and employees are counted across the group at the end of the financial year, with part-timers measured as an appropriate fraction of a full-time equivalent.
The practical timeline: a Group 3 company with a standard July–June year is first caught for FY2027–28, with the sustainability report due alongside the annual report filed in the back half of 2028. That feels distant. It isn’t — the first report requires a year of data you need to start capturing from 1 July 2027, with systems you need to design before then.
What a Sustainability Report Demands
AASB S2 is organised around the four ISSB pillars — governance, strategy, risk management, and metrics and targets — and the Corporations Act layers statutory content requirements on top. The headline items:
- Scope 1 and 2 greenhouse gas emissions from the first reporting year, with scope 3 (value chain) emissions from the second — the disclosure most businesses find hardest, because the data lives in other people’s systems.
- Climate scenario analysis assessing the entity’s resilience against at least two futures, one consistent with limiting warming to 1.5°C and one involving warming well in excess of 2°C.
- A directors’ declaration on compliance — this is a directors’ duties document, not a marketing one, and the board resolutions behind it will be scrutinised exactly like those behind the financial statements.
- Assurance. Sustainability reports must be audited on a phased basis under the AUASB’s framework, starting with limited assurance over a subset of disclosures and scaling to reasonable assurance — audit-grade scrutiny — over time.
There is a genuine concession for the newest cohort. The modified liability regime makes statements about scope 3 emissions, scenario analysis and transition plans in sustainability reports for financial years commencing between 1 January 2025 and 31 December 2027 “protected statements” — private litigants can’t sue on them; only ASIC (and criminal proceedings) can reach them. A Group 3 company’s first year, commencing 1 July 2027, squeaks inside that window. Its second doesn’t.
The Section 296B Off-Ramp — and Its Limits
Group 3 gets one carve-out the larger groups don’t. Under section 296B, a Group 3 entity that has no material financial risks or opportunities relating to climate need not prepare full climate statements. Instead, its sustainability report can contain a statement that there are none — together with an explanation of how it determined that, assessed against the sustainability standards.
For a capital-light SaaS business, that looks tempting. Treat it carefully. The materiality assessment is a genuine exercise, not a checkbox: it asks whether climate-related risks and opportunities could reasonably be expected to affect your prospects — think energy-intensive cloud and AI compute costs, customer procurement policies demanding emissions data, insurance availability, or physical risk to facilities. The directors still sign a declaration over the conclusion, and a wrong or lazy “nothing material here” statement is itself a misleading disclosure. ASIC has spent the last three years building a greenwashing enforcement practice, and understatement is as actionable as overstatement.
The Budget Curveball: Thresholds May Rise Before They Bite
In the 2026–27 Federal Budget handed down in May 2026, the Government announced it would lift the large proprietary company thresholds themselves — consolidated revenue from $50 million to $100 million and gross assets from $25 million to $50 million, with the 100-employee limb unchanged. Because the Group 3 tests piggyback on those definitions, a proprietary company below the new thresholds would fall out of audited financial reporting under Chapter 2M and, with it, sustainability reporting — Treasury estimates roughly 1,500 private entities would come out of the climate regime. Listed entities keep the existing thresholds. Separately, a Treasury consultation on improving the efficiency of the regime (submissions closing 2 October 2026) floats softer assurance settings, more guidance on the proportionality mechanisms — including the section 296B “no material risks” statement — and clearer limits on the supplier data requests large reporters can push down their chains.
As at the date of this article, none of this is law: the threshold increases are an announced Budget measure awaiting legislation, and the consultation items are proposals. A startup sitting between the current and proposed thresholds — say $30 million in assets and 110 staff — should watch this closely, but shouldn’t bet its compliance planning on relief that hasn’t been legislated.
Below the Threshold Isn’t Outside the Regime
Even a startup that never meets two limbs will feel AASB S2 through its customers. Group 1 and 2 reporters must disclose scope 3 emissions, which means their suppliers — including your startup — are already fielding emissions questionnaires as a condition of enterprise procurement. Expect climate data clauses to join the security schedule in enterprise contracts, and expect the question in due diligence from later-stage investors, exactly as happened with modern slavery reporting flowing down from $100 million-revenue reporters.
The sensible sequence for a growth-stage company: model when (and whether) you’ll satisfy two limbs on a consolidated basis; decide early whether section 296B is realistically available; start capturing scope 1 and 2 data a year before you must report it; and put climate on a board agenda that already owes directors’ declarations on everything else. Reporting regimes reward the companies that treat the first report as the end of a two-year project, not the start of one.
This article is general information only, not legal advice — whether and when your company is caught by the sustainability reporting regime turns on its consolidated financials, group structure and reporting obligations under Chapter 2M. Viridian Lawyers advises Australian startups and scale-ups on corporate structuring, governance and regulatory compliance. If your next raise might buy you a reporting obligation along with the runway, get in touch.
