A practical framework for conducting materiality assessments and preparing for mandatory climate reporting from July 2027
Last updated: May 2025
Group 3 companies must start climate reporting from July 2027, but should begin materiality assessments now. The process determines whether you need full disclosures or can simply state no material climate risks exist.
Build oversight and accountability framework
Map physical and transition risks/opportunities
Test resilience under different climate futures
Determine financial significance of impacts
Start preparing now for mandatory reporting beginning July 2027
Group 3 entities are companies required to report under Chapter 2M of the Corporations Act that meet two of three thresholds: consolidated revenue ≥$50 million, consolidated assets ≥$25 million, or 100+ employees in Australia.
Group 3 entities must start reporting for financial years commencing on or after 1 July 2027. However, preparation should begin now to ensure compliance and identify strategic opportunities.
Material information is what could reasonably be expected to affect primary users' (investors, creditors) decisions about the entity. Your materiality assessment determines whether you need comprehensive climate disclosures or can simply state no material climate-related risks and opportunities exist.
This decision must be thoroughly documented and defensible, especially for climate-sensitive sectors. Regulatory scrutiny will be particularly intense for companies that claim no material climate risks exist.
Board Oversight
Directors must monitor climate-related risks and opportunities and ensure management has appropriate expertise.
Cross-Functional Team
Include finance, risk, operations, and sustainability expertise
Documentation Standards
Create processes for recording all assessment decisions and rationale
• New products/services for low-carbon economy
• Cost savings from energy efficiency
• Access to green financing
• Enhanced brand reputation
Entities must develop at least two climate scenarios: one with global temperature increase of 1.5°C above pre-industrial levels, and another at least 2.5°C above pre-industrial levels.
Use this matrix to prioritize climate risks based on likelihood and impact:
$75M revenue, 150 employees, metal fabrication for construction industry
Financial impact: 2-8% of annual operating costs
Financial impact: 3-12% revenue risk/opportunity
Material due to aggregate 5-20% financial impact across scenarios.
Required Disclosures: Full climate statements covering governance, strategy, risk management, and metrics including Scope 1, 2, and 3 emissions.
Narrow Focus
Don't only assess direct operations; consider supply chain and customer impacts
Short Time Horizons
Climate risks often manifest over decades, not just immediate business cycles
Static Assessment
Materiality changes over time as climate impacts accelerate
Insufficient Documentation
Regulatory scrutiny requires robust evidence and clear reasoning
Key regulatory resources for Group 3 climate disclosure requirements.
Climate scenario databases and tools for conducting required 1.5°C and 2.5°C analysis.
Our AI Sustainability Analyst can guide you through materiality assessments, scenario analysis, and regulatory compliance preparation.
Group 3 entities must start reporting for financial years commencing on or after 1 July 2027. However, you should begin your materiality assessment now to ensure compliance and build necessary capabilities well in advance.
You can provide a statement that no material climate-related risks and opportunities exist, but this decision must be thoroughly documented with robust rationale. Expect regulatory scrutiny, especially if you're in a climate-sensitive sector.
You must conduct at least two climate scenarios: one consistent with limiting global warming to 1.5°C and another where warming exceeds 2.5°C above pre-industrial levels. Additional scenarios may be relevant depending on your circumstances.
The 5% threshold is a general guideline for financial materiality. Consider both individual and aggregate impacts across revenue, costs, assets, and strategic importance. Climate risks may warrant lower thresholds due to their long-term nature and potential for cascading effects.
Yes, if climate risks are deemed material. AASB S2 requires disclosure of Scope 1, 2, and 3 greenhouse gas emissions. There's a one-year relief period for Scope 3 emissions, so they become mandatory from your second reporting period.
Document all methodology, assumptions, scenario inputs, impact calculations, and decision rationale. Include governance processes, stakeholder engagement, and regular review procedures. This documentation is crucial for regulatory compliance and potential audits.
Track your progress toward compliance readiness
Start your materiality assessment now. Whether you conclude risks are material or not, the process must be thorough, documented, and defensible. Early preparation ensures compliance and may reveal strategic opportunities in the transition to a low-carbon economy.
CO₂ LAB's AI Sustainability Analyst can help you navigate materiality assessments, scenario analysis, and regulatory compliance for Group 3 climate reporting requirements.
