A technical guide: Measuring materiality and defining emission boundaries under the AASB Sustainability Standards

Australian businesses facing mandatory climate reporting under the Australian Sustainability Reporting Standards (ASRS) face two critical questions: 

• What exactly needs to be disclosed under AASB S1 (Voluntary - General Requirements for Disclosure of Sustainability-related Financial Information) and AASB S2 (Mandatory Climate-related Disclosures)?
• Where do the reporting boundaries lie for Greenhouse Gas emissions? 

These can be some of the most complex aspects of ASRS implementation. Uncertainty around materiality and emissions boundaries can delay reporting readiness and more importantly, slow progress on emissions reduction and transition planning. 

Understanding materiality under the AASB Sustainability Standards and defining appropriate emission boundaries isn't just about regulatory compliance, it's about building a reporting framework that is consistent, defensible and aligned with how your business is assessed by capital markets. 

In this article, we breakdown these concepts so you can approach AASB reporting with greater confidence.

Materiality under AASB S1 and AASB S2

Materiality acts as the filter determining which sustainability-related and climate-related information must be disclosed in your ASRS report. Under AASB S1 and AASB S2 materiality is defined as:

“Information is material if omitting, misstating, or obscuring it could reasonably influence decisions made by primary users of your financial reports.”

This is a financial materiality test. It differs from double materiality approaches used in some international frameworks, such as the European Sustainability Reporting Standards (ESRS) and the Global Reporting Initiative (GRI), which require reporting both on financial impacts and on the organisation’s impacts on the environment and society. 

Under AASB S1 and S2, the focus is on sustainability-related and climate-related risks and opportunities that could reasonably be expected to affect the entity’s prospects, including future cash flows, access to finance or cost of capital, over the short, medium or long term.

You are not required to disclose environmental impacts purely because they are environmentally significant. Disclosure is required where those impacts create climate-related risks or opportunities that could reasonably influence decisions made by primary users of general purpose financial reports (investors, lenders, creditors etc).

This distinction is fundamental to understanding how ASRS reporting differs from broader sustainability reporting frameworks.

Emission boundaries under AASB S2

Your emission boundary determines which activities, operations and relationships fall within  your greenhouse gas inventory for reporting. AASB S2 requires entities to measure and disclose greenhouse gas emissions in accordance with the GHG Protocol Corporate Standard. This includes reporting emissions across:

• Scope 1 (direct emissions)
• Scope 2 (indirect emissions from purchased energy)
• Scope 3 (other indirect value chain emissions)

While broader climate disclosures are subject to financial materiality, the disclosure of Scope 1, Scope 2 and Scope 3 greenhouse gas emissions under AASB S2 is required.

Defining your emission boundary therefore involves two key decisions:

1. Organisational boundary – which entities and operations are included in your reporting perimeter; and
2. Operational boundary – which emission sources are captured across Scope 1, 2 and 3.

We cover the definitions of Scope 1, 2 and 3 in more detail in our Australia's Mandatory Climate Reporting Rollout article.

Defining emission boundaries for reporting

The AASB Sustainability Standards introduce a financial materiality lens for climate-related disclosures. Rather than focusing solely on total environmental footprint, the standards focus on climate-related risks and opportunities that could reasonably influence decisions by primary users of financial reports (investors, lenders, creditors etc) such as transition risks and opportunities impacting financial prospects and cash flows. This means your climate-related disclosures must focus on the risks and opportunities that genuinely matter to your business's financial future, while your emissions inventory must be defined in accordance with the GHG Protocol boundary principles.

Your organisational reporting boundary depends on your chosen consolidation approach. One approach is financial control, which requires reporting 100% of emissions from operations where the organisation directs the financial policies of an operation (i.e. you capture the majority of economic risks and rewards), even if you don't legally own 100% of the operation.  

Another (more common) approach is operational control, which requires reporting emissions from assets and operations where your organisation has the authority to introduce and implement operating policies. 

Most Australian businesses will adopt the operational control approach because it reflects where they actually have influence to reduce emissions, which is ultimately what transition planning and decarbonisation targets are built around. However, both approaches can create complex boundary questions, particularly for joint ventures, franchises or outsourced operations. Let’s look at some hypothetical examples to help illustrate this concept.

Emission boundaries across different business models

A facilities management company operating sporting venues under contract, faces boundary decisions around whether emissions from those operations fall within their Scope 1 and 2 (if they hold operational control) or within Scope 3 (if the venue owner maintains control). The answer depends on the specific contract and where operational decision-making authority sits.

For professional service organisations, business travel and employee commuting are distinct Scope 3 categories. Flights to client sites for project work fall within business travel (Scope 3, Category 6). Travel between an employee’s home and their usual or assigned place of work is classified as employee commuting (Scope 3, Category 7). Where employees are embedded at long-term client locations, classification depends on whether that site is treated as their normal place of work, rather than temporary business travel. 

The transport and logistics sector encounters boundary complexity when dealing with subcontractors. Purchased transportation services fall within Scope 3, while vehicles you lease and operate under your own dispatch and operational policies may constitute operational control, shifting those emissions into Scope 1.

The role of materiality and emission boundaries, and why both are important

The interplay between materiality and boundaries becomes crucial during Scope 3 assessment as not all 15 of the Scope 3 categories will be material for every business.

Materiality determinations must be documented and defensible. Organisations must include not only the determination of materiality, but the methods and assumptions they used to get there. This is where dedicated software is critical to to keep track of these processes and withstand scrutiny from auditors.

Organisations can disclose that they have no material climate-related risks but only if they've conducted a rigorous materiality assessment demonstrating that. However, this “no” disclosure still requires evidence of a defensible and well-documented materiality  assessment including the factors considered and the reasoning.

Understanding materiality under ASRS

The materiality definition (as above) introduces several practical implications for how you approach your climate assessment:

Quantitative thresholds don't automatically determine materiality. A relatively small emission source could be highly material if it's connected to significant transition risk. For example, a transport company's exposure to fuel price volatility and potential carbon pricing could make even a modest fleet material due to the financial risk it represents.

Qualitative factors matter as much as quantitative measures. Reputational risk, regulatory exposure, customer requirements and access to capital all factor into materiality assessments. A sporting facility facing pressure from government clients to demonstrate emissions reductions may determine that certain Scope 3 categories are material based on contractual risk, even if the absolute emissions are relatively small.

Materiality can change over time. What isn't material in your first reporting year might become material as climate policy evolves, stakeholder expectations shift or your business model changes. The standards expect ongoing reassessment rather than a single static determination.

Connected information matters. AASB S2 requires disclosure of connections between climate-related financial information and your financial statements. If you're making assumptions about carbon pricing in your long-term financial models, those assumptions need to align with the climate scenarios and metrics you disclose under AASB S2.

What to include for your business (and how)

Once you've determined materiality and defined your boundaries, the next question is practical implementation: how do you actually measure and account for emissions within those boundaries?

The path forward becomes clearer when you approach these requirements methodically:

1. Define your organisational and operational boundaries based on operational or financial control and relevant value chain relationships.
2. Apply financial materiality to identify the climate-related risks and opportunities that genuinely influence your financial position.
3. Build measurement systems that align with your defined boundaries and scale with your resources while meeting the standard's expectations for reasonable effort.

Moving forward with confidence

The AASB Sustainability Standards represent a fundamental shift in how Australian businesses understand and report climate risk. Materiality and emission boundaries are strategic tools that help you focus effort where it matters most to your business's financial resilience and stakeholder relationships.

You don't need to solve every complexity immediately. The standards explicitly recognise that capabilities will develop over time. However, Australian businesses that invest in understanding these requirements today will find themselves much better positioned over the coming years - for regulatory obligations and conversations with key stakeholders about their strategy to respond to climate-related risk. 

Ready to streamline your ASRS compliance? Climate Zero's carbon accounting platform helps Australian businesses measure, track, and report emissions with confidence. Book a demo to see how we simplify mandatory climate reporting.

Further Reading

• Australia’s Mandatory Climate Reporting Rollout: What Australian companies must do now
• Mandatory Climate Reporting ‍Guide
• ASRS: What you need to know

Official Regulatory Resources

For the most current information on mandatory climate reporting requirements, refer to these official Australian sources:

• AASB Sustainability Standards: Australian Accounting Standards Board
• ASIC Guidance: Sustainability Reporting Resources
• GHG Protocol Corporate Standard
• IFRS S2 Industry-based Guidance

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Frequently Asked Questions

What counts as material information under AASB S2?

Information is material if omitting, misstating, or obscuring it could reasonably influence decisions made by primary users of general purpose financial reports, such as investors, lenders and other creditors. 

How do I define emission boundaries for AASB reporting?

Emission boundaries must be defined in accordance with the GHG Protocol Corporate Standard. This requires an organisation to select a consolidation approach (equity share, financial control or operational control) and apply it consistently. Many Australian businesses adopt the operational control approach which includes emissions from operations and assets where the entity has authority to introduce and implement operating policies, regardless of financial ownership. The key is documenting which entities, operations and value chain relationships fall within the company’s reporting boundary and why.

Is AASB S1 mandatory alongside AASB S2?

AASB S2 (Climate-related Disclosures) is mandatory for entities meeting the reporting thresholds under the Corporations Act. AASB S1 (General Requirements for Disclosure of Sustainability-related Financial Information) is voluntary and can be adopted by entities wanting to report on broader sustainability risks beyond climate. 

What happens if an entity determines it has no material climate risks?

An entity may conclude, after applying the financial materiality test, that it does not have material climate-related risks or opportunities to disclose under AASB S2.

However, this conclusion must be based on a robust and well-documented materiality assessment. Entities must use reasonable and supportable information and be able to substantiate how the determination was reached, including the process followed, the factors considered and the reasoning applied.

Which emissions measurement standard does AASB S2 require?

AASB S2 requires using the GHG Protocol Corporate Standard to measure Scope 1, 2, and 3 emissions. For Scope 3 specifically, you must consider all 15 categories from the GHG Protocol Corporate Value Chain (Scope 3) Standard, but you only need to disclose those determined to be material. 

Can boundaries change over time?

Yes, as your business grows, acquires new assets, or restructures, boundaries should be reviewed. When boundaries change, you must disclose the nature of the change, the reason for it and its effect on your reported emissions. 

What if we share operational control with another entity?

Where operations are conducted through joint arrangements, you must determine your organisational boundary based on the consolidation approach selected under the GHG Protocol (equity share, financial control or operational control).

If you apply the operational control approach, only the entity with authority to introduce and implement operating policies reports the emissions as Scope 1 and 2. If you apply the equity share approach, emissions are reported in proportion to your ownership interest. Emissions outside your organisational boundary may instead be captured in Scope 3, depending on the nature of the relationship.

Do we include assets we don't own?

Yes (if you operate them). The determining factor is typically operational control, not ownership. Assets you own but don't control are excluded from Scope 1 and 2 but may appear in Scope 3.

What if we outsource major parts of our operations?

Outsourced activities (e.g. logistics, waste disposal etc.) often fall under Scope 3. They must be included if they are material. Materiality refers to the relative size of emission sources or categories within a corporate GHG inventory.