Australia's first wave of mandatory climate disclosures has revealed a pattern of compliance failures that boards and communications teams cannot afford to repeat. On 18 May 2026, ASIC published its early observations from a desktop review of sustainability reports lodged by Group 1 entities for the financial year ending 31 December 2025 - and the findings carry direct implications for every listed company preparing to report by 30 June 2026.
The regulator identified six recurring compliance problems. None of them are obscure technical failures. They represent something more fundamental: a mismatch between what investors need to assess climate-related risk and what companies are currently choosing to disclose.
For boards, IR teams, and corporate affairs leaders, the message is clear. ASIC is watching, the June deadline is imminent, and the regulator has now defined exactly what inadequate looks like.
Why This Review Matters for Investor Communications
Mandatory sustainability reporting in Australia entered a new phase when Group 1 entities - the country's largest publicly listed and unlisted companies - were required to publish climate-related disclosures under the Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Act. These reports sit inside the Chapter 2M statutory framework, meaning they carry the same legal weight as financial statements.
ASIC reviewed 259 sustainability reports submitted by 6 May 2026 - 34 from listed entities and 225 from unlisted entities - and identified patterns of non-compliance that, in the regulator's view, undermine the entire purpose of mandatory disclosure.
The review is explicitly framed as guidance for companies preparing June 2026 reports. It is not a compliance warning issued in isolation. It is a signal of where enforcement attention will be directed.
The Six Compliance Gaps: What ASIC Found
1. Prior Weather-Related Losses Ignored in Climate Risk Assessments
This is perhaps the most commercially significant gap identified. ASIC found cases where entities had previously disclosed - through their financial statements or ASX announcements - that their assets or operations had been materially affected by extreme weather events. Yet those same entities then failed to identify comparable climate risks when examining their short-, medium-, or long-term exposures in their sustainability reports.
The inconsistency is not defensible. Where a company has already acknowledged financial impact from climate-related events, that acknowledgement creates a direct obligation to connect those events to forward-looking climate risk assessments. Institutional investors conducting integrated analysis across financial and sustainability disclosures will identify the gap. So will ASIC.
Companies operating in sectors with known climate exposure - agriculture, energy, resources, infrastructure, and insurance - need to ensure their sustainability risk narrative is consistent with what has already been communicated to markets.
2. Unexplained Assumptions in Forward-Looking Estimates
Sustainability reports are expected to include scenario analysis and forward-looking climate-related estimates. ASIC found that some entities disclosed these figures without adequately explaining the assumptions, methodologies, or judgments underlying them.
Presenting a climate transition figure without explaining how it was derived is not meaningful disclosure. It may satisfy a formal checkbox but it fails the investor who needs to assess whether management's assumptions are reasonable, conservative, or optimistic. Under AASB S2, entities are required to explain the basis for key estimates and judgments, not simply state their outputs.
This is a communications challenge as much as a technical one. IR teams need to ensure that the assumptions behind scenario analysis are explained in plain language, with sufficient context for a sophisticated investor to evaluate them.
3. Mandatory Disclosures Buried in Voluntary Content
Several entities published extensive voluntary climate-related content alongside their mandatory disclosures without clearly distinguishing between the two. ASIC has been direct: where mandatory information cannot be readily identified by a reader, the report fails in its statutory purpose.
The practical fix is straightforward - index tables that clearly identify which disclosures are required under Chapter 2M and which represent voluntary additional information. ASIC explicitly recommended this approach in its observations.
For investor communications professionals, this is a structural design issue. The primary purpose of a mandatory sustainability report is to provide investors with the material information they are legally entitled to. Voluntary commentary is supplementary. When the two are indistinguishable, investor confusion is the predictable result.
4. Non-Compliant Cross-References
AASB S2 imposes specific limits on the use of cross-references within sustainability reports. ASIC found entities linking to external websites and third-party documents that the entity itself did not publish, or referencing other reports without specifying which section or data point was relevant.
A cross-reference to a website can be updated or removed after the report is lodged. That creates the risk - and ASIC's concern - that the disclosure is not stable or verifiable at the time of investor reliance. Reports must be self-contained in the ways the standard requires.
5. Regulatory Emissions Targets Not Recognised as Climate Targets
This gap has significant implications for companies operating under Australia's Safeguard Mechanism. ASIC reminded entities that the definition of "climate-related targets" in AASB S2 covers not only voluntary targets that companies set for themselves, but also those imposed by law or regulation.
For companies subject to the Safeguard Mechanism - Australia's framework for reducing emissions from large industrial facilities - this means that regulatory emissions obligations must be disclosed as climate-related targets in the sustainability report. Several entities appear to have treated these obligations as regulatory compliance matters sitting outside the scope of climate disclosure, when in fact they sit squarely within it.
This is an area where legal, sustainability, and communications teams need to be aligned before the 30 June reporting cycle.
6. Misleading Disclaimers
ASIC found that some entities placed disclaimers in or near their sustainability reports advising readers not to rely on the content for investment decisions. The regulator has been unambiguous: disclaimers of this kind are not permitted.
Mandatory sustainability reports are produced under statute for the express purpose of providing investors with decision-relevant information. A disclaimer that attempts to sever the connection between the report and investment decision-making contradicts the legal foundation of the document. ASIC noted that such disclaimers may confuse or mislead investors and are not consistent with the obligations under Chapter 2M.
This finding speaks to a broader cultural tension that is still being resolved in many boardrooms - the instinct to hedge and disclaim that was appropriate for voluntary ESG reporting cannot be carried unchanged into a mandatory statutory framework.
What Changes Before 30 June 2026
With Group 2 entities beginning their mandatory reporting obligations and Group 1 entities already in their second reporting cycle, the June 2026 deadline is a material moment.
ASIC's early observations function as a pre-enforcement warning. The six gaps identified are not obscure interpretive questions - they are patterns of conduct that the regulator has now explicitly flagged. Boards that disregard them are accepting compliance risk that is now clearly foreseeable.
The practical implications for investor communications strategy are direct.
Review prior ASX disclosures for consistency. If weather-related financial impacts have previously been acknowledged in financial statements, that history must flow through to climate risk assessments. An IR team conducting materiality reviews should now include a backwards-looking consistency check.
Ensure the report's structure is investor-navigable. Index tables, clear distinctions between mandatory and voluntary content, and stable cross-references are not presentation niceties - they are compliance requirements. The report must allow an investor to quickly locate the specific information they are entitled to.
Align legal and sustainability teams on regulatory obligations. The Safeguard Mechanism inclusion is a practical issue for resources, energy, and industrial companies. The risk of inadvertent non-disclosure is real.
Remove investment disclaimers from sustainability reports. The instinct to include them is understandable, but legally untenable under the current framework. Legal teams should flag any such language in draft reports before lodgement.
The Investor Expectations Dimension
Institutional investors in Australia and globally are conducting increasingly sophisticated cross-report analysis. The emergence of mandatory climate disclosure means that fund managers, superannuation trustees, and activist shareholders now have standardised, statutory data with which to compare disclosures across companies and over time.
Where a company's climate narrative shifts materially between periods, or where financial disclosures and sustainability disclosures appear inconsistent, investors will notice. The governance risk is compounded: audit committee members and sustainability committees now carry accountability for climate disclosure accuracy in the same way they carry accountability for financial statements.
For IR teams, this means the sustainability report should be approached with the same communications rigour as the annual report or results presentation. It is a primary investor document, not a compliance annexure.
Frequently Asked Questions
What are the six compliance gaps ASIC identified in Australia's mandatory sustainability reports?
ASIC identified: prior weather-related losses not reflected in forward-looking climate risk assessments; unexplained assumptions in climate-related estimates; mandatory disclosures buried within voluntary content; non-compliant cross-references to external sites or documents; regulatory emissions obligations (including under the Safeguard Mechanism) not recognised as climate-related targets; and misleading disclaimers advising investors not to rely on reports for investment decisions.
When did ASIC publish its findings?
ASIC published its early observations on 18 May 2026, drawing on a desktop review of reports lodged for the financial year ending 31 December 2025.
Which companies must lodge mandatory sustainability reports by 30 June 2026?
Group 1 entities - Australia's largest listed and unlisted companies - are in their second mandatory reporting cycle. Group 2 entities begin their first mandatory reporting cycle for financial years ending on or after 30 June 2026.
Can companies include disclaimers in their sustainability reports?
No. ASIC has stated that disclaimers advising investors not to rely on sustainability report content for investment decisions are not permitted under the Chapter 2M framework. They contradict the statutory purpose of mandatory climate disclosure.
What does AASB S2 require regarding the Safeguard Mechanism?
Under AASB S2, "climate-related targets" include targets imposed by law or regulation - not just voluntary targets set by the company. Companies subject to the Safeguard Mechanism must disclose those regulatory obligations as climate-related targets in their sustainability reports.
What should IR teams do now to prepare for the June 2026 reporting cycle?
IR teams should conduct a consistency review between prior ASX disclosures and the climate risk section of the sustainability report; ensure the report's structure clearly distinguishes mandatory from voluntary content; align legal, sustainability, and communications functions on regulatory emissions obligations; and remove any investment disclaimer language from the draft report before lodgement.
ARC supports ASX-listed companies with investor communications strategy, disclosure planning, and shareholder engagement. Visit waitech.com.au to learn more.