Appendix B (AASBS1_09-24)

This Standard requires an entity to disclose information about all sustainability-related risks and opportunities that could reasonably be expected to affect the entity’s cash flows, its access to finance or cost of capital over the short, medium or long term (referred to as ‘sustainability-related risks and opportunities that could reasonably be expected to affect the entity’s prospects’) (see paragraph 3).

An entity’s sustainability-related risks and opportunities arise out of the interactions between the entity and its stakeholders, society, the economy and the natural environment throughout the entity’s value chain. These interactions—which can be direct and indirect—result from operating an entity’s business model in pursuit of the entity’s strategic purposes and from the external environment in which the entity operates. These interactions take place within an interdependent system in which an entity both depends on resources and relationships throughout its value chain to generate cash flows and affects those resources and relationships through its activities and outputs—contributing to the preservation, regeneration and development of those resources and relationships or to their degradation and depletion. These dependencies and impacts might give rise to sustainability-related risks and opportunities that could reasonably be expected to affect an entity’s cash flows, its access to finance and cost of capital over the short, medium and long term.

For example, if an entity’s business model depends on a natural resource—such as water—the entity could both affect and be affected by the quality, availability and affordability of that resource. Specifically, degradation or depletion of that resource—including resulting from the entity’s own activities and from other factors—could create a risk of disruption to the entity’s operations and affect the entity’s business model or strategy and could ultimately negatively affect the entity’s financial performance and financial position. In contrast, regeneration and preservation of that resource—including resulting from the entity’s own activities and from other factors—could positively affect the entity. Similarly, if an entity operates in a highly competitive market and requires a highly specialised workforce to achieve its strategic purposes, the entity’s future success will likely depend on the entity’s ability to attract and retain that resource. At the same time, that ability will depend, in part, on the entity’s employment practices—such as whether the entity invests in employee training and wellbeing—and the levels of employee satisfaction, engagement and retention. These examples illustrate the close relationship between the value the entity creates, preserves or erodes for others and the entity’s own ability to succeed and achieve its goals.

Resources and relationships that an entity depends on and affects by its activities and outputs can take various forms, such as natural, manufactured, intellectual, human, social or financial. They can be internal—such as the entity’s workforce, its know-how or its organisational processes—or they can be external—such as materials and services the entity needs to access or the relationships it has with suppliers, distributors and customers. Furthermore, resources and relationships include, but are not limited to, the resources and relationships recognised as assets in the entity’s financial statements.

An entity’s dependencies and impacts are not limited to resources the entity engages with directly, and to the entity’s direct relationships. Those dependencies and impacts also relate to resources and relationships throughout the entity’s value chain. For example, they can relate to the entity’s supply and distribution channels; the effects of the consumption and disposal of the entity’s products; and the entity’s sources of finance and its investments, including investments in associates and joint ventures. If the entity’s business partners throughout its value chain face sustainability-related risks and opportunities, the entity could be exposed to related consequences of its own.

An entity shall use all reasonable and supportable information that is available to the entity at the reporting date without undue cost or effort (see paragraphs B8–B10):

(a) to identify the sustainability-related risks and opportunities that could reasonably be expected to affect the entity’s prospects; and

(b) to determine the scope of its value chain, including its breadth and composition, in relation to each of those sustainability-related risks and opportunities.

In identifying the sustainability-related risks and opportunities that could reasonably be expected to affect its prospects, an entity shall apply the requirements on sources of guidance in paragraphs 54–55.

Reasonable and supportable information used by an entity in preparing its sustainability-related financial disclosures shall cover factors that are specific to the entity as well as general conditions in the external environment. In some cases—such as in identifying sustainability-related risks and opportunities that could reasonably be expected to affect an entity’s prospects—reasonable and supportable information includes information about past events, current conditions and forecasts of future conditions. Other Australian Sustainability Reporting Standards may specify what is reasonable and supportable information in specific cases.

An entity may use various sources of data that may be both internal and external. Possible data sources include the entity’s risk management processes; industry and peer group experience; and external ratings, reports and statistics. Information that is used by the entity in preparing its financial statements, operating its business model, setting its strategy and managing its risks and opportunities is considered to be available to the entity without undue cost or effort.

An entity need not undertake an exhaustive search for information to identify sustainability-related risks and opportunities that could reasonably be expected to affect the entity’s prospects. The assessment of what constitutes undue cost or effort depends on the entity’s specific circumstances and requires a balanced consideration of the costs and efforts for the entity and the benefits of the resulting information for primary users. That assessment can change over time as circumstances change.

On the occurrence of a significant event or significant change in circumstances, an entity shall reassess the scope of all affected sustainability-related risks and opportunities throughout its value chain. A significant event or significant change in circumstances can occur without the entity being involved in that event or change in circumstances or as a result of a change in what the entity assesses to be important to users of general purpose financial reports. For example, such significant events or significant changes in circumstances might include:

(a) a significant change in the entity’s value chain (for example, a supplier in the entity’s value chain makes a change that significantly alters the supplier’s greenhouse gas emissions);

(b) a significant change in the entity’s business model, activities or corporate structure (for example, a merger or acquisition that expands the entity’s value chain); and

(c) a significant change in an entity’s exposure to sustainability-related risks and opportunities (for example, a supplier in the entity’s value chain is affected by the introduction of a new regulation that the entity had not anticipated).

An entity is permitted, but not required, to reassess the scope of any sustainability-related risk or opportunity throughout its value chain more frequently than required by paragraph B11.

Paragraph 17 requires an entity to disclose material information about the sustainability-related risks and opportunities that could reasonably be expected to affect the entity’s prospects. Materiality of information is judged in relation to whether omitting, misstating or obscuring that information could reasonably be expected to influence decisions of primary users of general purpose financial reports, which provide information about a specific reporting entity.

The decisions of primary users relate to providing resources to the entity and involve decisions about: 

(a) buying, selling or holding equity and debt instruments; 

(b) providing or selling loans and other forms of credit; or 

(c) exercising rights to vote on, or otherwise influence, the entity’s management’s actions that affect the use of the entity’s economic resources.

In respect of not-for-profit entities, the following are examples of decisions of primary users relating to providing resources to an entity:  

(a) parliaments deciding on behalf of constituents whether to fund particular programmes for delivery by an entity; 

(b) taxpayers deciding who should represent them in government; 

(c) donors deciding whether to donate resources to an entity; and 

(d) recipients of goods and services deciding whether they can continue to rely on the provision of goods and services from the entity or whether to seek alternative suppliers.

The decisions described in paragraph B14 depend on primary users’ expectations about returns, for example, dividends, principal and interest payments or market price increases. Those expectations depend on primary users’ assessment of the amount, timing and uncertainty of future net cash inflows to the entity and on their assessment of stewardship of the entity’s economic resources by the entity’s management and its governing body(s) or individual(s).

In respect of not-for-profit entities, the decisions described in paragraph AusB14.1 depend on primary users’ expectations about returns and a not-for-profit entity’s ability to continue providing goods or services. Those expectations depend on primary users’ assessment of the amount, timing and uncertainty of future net cash inflows to the entity and on their assessment of stewardship of the entity’s economic resources by the entity’s management and its governing body(s) or individual(s).

Assessing whether information could reasonably be expected to influence the decisions made by primary users requires consideration of the characteristics of those users and of the entity’s own circumstances.

Sustainability-related financial disclosures are prepared for primary users who have reasonable knowledge of business and economic activities and who review and analyse information diligently. At times, even well-informed and diligent users may need to seek the aid of an adviser to understand sustainability-related financial information.

Individual primary users may have different, and sometimes even conflicting, information needs and desires. Information needs of primary users may also evolve over time. Sustainability-related financial disclosures are intended to meet common information needs of primary users.

Materiality judgements are specific to an entity. Consequently, this Standard does not specify any thresholds for materiality or predetermine what would be material in a particular situation.

To identify material information about a sustainability-related risk or opportunity, an entity shall apply, as the starting point, the requirements of the Australian Sustainability Reporting Standard that specifically applies to that sustainability-related risk or opportunity. In the absence of an Australian Sustainability Reporting Standard that specifically applies to a sustainability-related risk or opportunity, the entity shall apply the requirements on sources of guidance specified in paragraphs 57–58. Those sources specify information, including metrics, that may be relevant to a particular sustainability-related risk or opportunity, to a particular industry or in specified circumstances.

An entity shall assess whether the information identified in applying paragraph B20, either individually or in combination with other information, is material in the context of the entity’s sustainability-related financial disclosures taken as a whole. In assessing whether information is material, an entity shall consider both quantitative and qualitative factors. For example, an entity might consider the magnitude and the nature of the effect of a sustainability-related risk or opportunity on the entity.

In some cases, Australian Sustainability Reporting Standards require the disclosure of information about possible future events with uncertain outcomes. In judging whether information about such possible future events is material, an entity shall consider: 

(a) the potential effects of the events on the amount, timing and uncertainty of the entity’s future cash flows over the short, medium and long term (referred to as ‘the possible outcome’); and 

(b) the range of possible outcomes and the likelihood of the possible outcomes within that range.

When considering possible outcomes, an entity shall consider all pertinent facts and circumstances. Information about a possible future event is more likely to be judged as being material if the potential effects are significant and the event is likely to occur. However, an entity shall also consider whether information about low-probability and high-impact outcomes might be material either individually or in combination with information about other low-probability and high-impact outcomes. For example, an entity might be exposed to several sustainability-related risks, each of which could cause the same type of disruption—such as disruption to the entity’s supply chain. Information about an individual source of risk might not be material if disruption from that source is highly unlikely to occur. However, information about the aggregate risk—the risk of supply chain disruption from all sources—might be material.

If a possible future event is expected to affect an entity’s cash flows, but only many years in the future, information about that event is usually less likely to be judged material than information about a possible future event with similar effects that are expected to occur sooner. However, in some circumstances, an item of information could reasonably be expected to influence primary users’ decisions regardless of the magnitude of the potential effects of the future event or the timing of that event. For example, this might happen if information about a particular sustainability-related risk or opportunity is highly scrutinised by primary users of an entity’s general purpose financial reports.

An entity need not disclose information otherwise required by an Australian Sustainability Reporting Standard if the information is not material. This is the case even if the Australian Sustainability Reporting Standard contains a list of specific requirements or describes them as minimum requirements.

An entity shall disclose additional information when compliance with the specifically applicable requirements in an Australian Sustainability Reporting Standard is insufficient to enable users of general purpose financial reports to understand the effects of sustainability-related risks and opportunities on the entity’s cash flows, its access to finance and cost of capital over the short, medium and long term.

An entity shall identify its sustainability-related financial disclosures clearly and distinguish them from other information provided by the entity (see paragraph 62). An entity shall not obscure material information. Information is obscured if it is communicated in a way that would have a similar effect for primary users to omitting or misstating that information. Examples of circumstances that might result in material information being obscured include: 

(a) material information is not clearly distinguished from additional information that is not material; 

(b) material information is disclosed in the sustainability-related financial disclosures, but the language used is vague or unclear; 

(c) material information about a sustainability-related risk or opportunity is scattered throughout the sustainability-related financial disclosures; 

(d) items of information that are dissimilar are inappropriately aggregated; 

(e) items of information that are similar are inappropriately disaggregated; and 

(f) the understandability of the sustainability-related financial disclosures is reduced as a result of material information being hidden by immaterial information to the extent that a primary user is unable to determine what information is material.

An entity shall reassess its materiality judgements at each reporting date to take account of changed circumstances and assumptions. Because of changes in the entity’s individual circumstances, or in the external environment, some types of information included in an entity’s sustainability-related financial disclosures for prior periods might no longer be material. Conversely, some types of information not previously disclosed might become material.

When an entity applies Australian Sustainability Reporting Standards, it shall consider all facts and circumstances and decide how to aggregate and disaggregate information in its sustainability-related financial disclosures. The entity shall not reduce the understandability of its sustainability-related financial disclosures by obscuring material information with immaterial information or by aggregating material items of information that are dissimilar to each other.

An entity shall not aggregate information if doing so would obscure information that is material. Information shall be aggregated if items of information have shared characteristics and shall not be aggregated if they do not have shared characteristics. The entity might need to disaggregate information about sustainability-related risks and opportunities, for example, by geographical location or in consideration of the geopolitical environment. For example, to ensure that material information is not obscured, an entity might need to disaggregate information about its use of water to distinguish between water drawn from abundant sources and water drawn from water-stressed areas.

Law or regulation might specify requirements for an entity to disclose sustainability-related information in its general purpose financial reports. In such circumstances, the entity is permitted to include in its sustainability-related financial disclosures information to meet legal or regulatory requirements, even if that information is not material. However, such information shall not obscure material information.

An entity shall disclose material sustainability-related financial information, even if law or regulation permits the entity not to disclose such information.

An entity need not disclose information otherwise required by an Australian Sustainability Reporting Standard if law or regulation prohibits the entity from disclosing that information. If an entity omits material information for that reason, it shall identify the type of information not disclosed and explain the source of the restriction.

If an entity determines that information about a sustainability-related opportunity is commercially sensitive in the limited circumstances described in paragraph B35, the entity is permitted to omit that information from its sustainability-related financial disclosures. Such an omission is permitted even if information is otherwise required by an Australian Sustainability Reporting Standard and the information is material.

An entity qualifies for the exemption specified in paragraph B34 if, and only if: 

(a) information about the sustainability-related opportunity is not already publicly available; 

(b) disclosure of that information could reasonably be expected to prejudice seriously the economic benefits the entity would otherwise be able to realise in pursuing the opportunity; and 

(c) the entity has determined that it is impossible to disclose that information in a manner—for example, at an aggregated level—that would enable the entity to meet the objectives of the disclosure requirements without prejudicing seriously the economic benefits the entity would otherwise be able to realise in pursuing the opportunity.

If an entity elects to use the exemption specified in paragraph B34, the entity shall, for each item of information omitted: 

(a) disclose the fact that it has used the exemption; and 

(b) reassess, at each reporting date, whether the information qualifies for the exemption.

An entity is prohibited from using the exemption specified in paragraph B34 in relation to a sustainability-related risk or as a basis for broad non-disclosure of sustainability-related financial information.

Paragraph 20 requires that sustainability-related financial disclosures shall be for the same reporting entity as the related financial statements. For example, consolidated financial statements prepared in accordance with Australian Accounting Standards provide information about the parent and its subsidiaries as a single reporting entity. Consequently, that entity’s sustainability-related financial disclosures shall enable users of general purpose financial reports to understand the effects of the sustainability-related risks and opportunities on the cash flows, access to finance and cost of capital over the short, medium and long term for the parent and its subsidiaries.

Paragraph 21 requires an entity to provide information in a manner that enables users of general purpose financial reports to understand connections both between the items to which the information relates and between disclosures provided by the entity in its general purpose financial reports.

Connected information provides insight into connections between the items to which the information relates. For example: 

(a) if an entity pursued a particular sustainability-related opportunity and that resulted in an increase in the entity’s revenue, connected information will depict that relationship between the entity’s strategy and its financial performance; 

(b) if an entity identified a trade-off between two sustainability-related risks it is exposed to and took action on the basis of its assessment of that trade-off, connected information will depict the relationship between those risks and the entity’s strategy; and 

(c) if an entity committed to a particular sustainability-related target, but that commitment has not yet affected the entity’s financial position or financial performance because the applicable recognition criteria have not been met, connected information will depict that relationship.

Connected information includes: 

(a) connections between various types of information about a particular sustainability-related risk or opportunity, such as: 

(i) between disclosures on governance, strategy and risk management; and 

(ii) between narrative information and quantitative information (including related metrics and targets and information in the related financial statements). 

(b) connections between disclosures about various sustainability-related risks and opportunities. For example, if an entity integrates its oversight of sustainability-related risks and opportunities, the entity shall integrate the disclosures on governance instead of providing separate disclosures on governance for each sustainability-related risk and opportunity.

Drawing connections between disclosures involves, but is not limited to, providing necessary explanations and cross-references and using consistent data, assumptions, and units of measure. In providing connected information, an entity shall: 

(a) explain connections between disclosures in a clear and concise manner; 

(b) avoid unnecessary duplication if Australian Sustainability Reporting Standards require the disclosure of common items of information; and 

(c) disclose information about significant differences between the data and assumptions used in preparing the entity’s sustainability-related financial disclosures and the data and assumptions used in preparing the related financial statements.

For example, in providing connected information an entity might need to explain the effect or likely effect of its strategy on its financial statements and financial planning, or explain how that strategy relates to the metrics the entity uses to measure progress against targets. Another entity might need to explain how its use of natural resources or changes within its supply chain could amplify or, in contrast, reduce its sustainability-related risks and opportunities. The entity might need to link the information about its use of natural resources or changes within its supply chain to information about current or anticipated financial effects on the entity’s production costs, its strategic response to mitigate those risks and its related investment in new assets. The entity might need to link narrative information to the related metrics and targets and to information in the related financial statements.

Other examples of connected information include: 

(a) an explanation of the combined effects of the entity’s sustainability-related risks and opportunities and its strategy on its financial position, financial performance and cash flows over the short, medium and long term. For example, an entity might face decreasing demand for its products because of consumer preferences for lower-carbon alternatives. The entity might need to explain how its strategic response, such as closing a major factory, could affect its workforce and local communities, and the effect of such a closure on the useful lives of its assets and on impairment assessments. 

(b) a description of the alternatives that an entity evaluated in setting its strategy in response to its sustainability-related risks and opportunities, including a description of the trade-offs between those risks and opportunities that the entity considered (see paragraph 33(c)). For example, an entity might need to explain the potential effects of its decision to restructure its operations in response to a sustainability-related risk on the future size and composition of the entity’s workforce.

Information required by an Australian Sustainability Reporting Standard might be available in another report published by the entity. For example, the required information could be disclosed in the related financial statements. Material information can be included in an entity’s sustainability-related financial disclosures by cross-reference, provided that: 

(a) the cross-referenced information is available on the same terms and at the same time as the sustainability-related financial disclosures; and 

(b) the complete set of sustainability-related financial disclosures is not made less understandable by including information by cross-reference.

Information included by cross-reference becomes part of the complete set of sustainability-related financial disclosures and shall comply with the requirements of Australian Sustainability Reporting Standards. For example, it needs to be relevant, representationally faithful, comparable, verifiable, timely and understandable. The body(s) or individual(s) that authorises the general purpose financial reports takes the same responsibility for the information included by cross-reference as it does for the information included directly.

If information required by an Australian Sustainability Reporting Standard is included by cross-reference: 

(a) the sustainability-related financial disclosures shall clearly identify the report within which that information is located and explain how to access that report; and 

(b) the cross-reference shall be to a precisely specified part of that report.

In the interest of timeliness and cost considerations, and to avoid repetition of information previously reported, an entity may be required or choose to provide less information at interim dates than it provides in its annual sustainability-related financial disclosures. Interim sustainability-related financial disclosures are intended to provide an update on the latest complete set of annual disclosures of sustainability-related financial information. These disclosures focus on new information, events and circumstances and do not duplicate information previously reported. Although the information provided in interim sustainability-related financial disclosures may be more condensed than in annual sustainability-related financial disclosures, an entity is not prohibited or discouraged from publishing a complete set of sustainability-related financial disclosures as specified in this Standard as part of its interim general purpose financial report.

Paragraph 70 requires an entity to disclose comparative information in respect of the preceding period for all amounts disclosed in the reporting period.

In some cases, the amount disclosed for a metric is an estimate. Except as specified in paragraph B51, if an entity identifies new information in relation to the estimated amount disclosed in the preceding period and the new information provides evidence of circumstances that existed in that period, the entity shall: 

(a) disclose a revised comparative amount that reflects that new information; 

(b) disclose the difference between the amount disclosed in the preceding period and the revised comparative amount; and 

(c) explain the reasons for revising the comparative amount.

In applying the requirement in paragraph B50, an entity need not disclose a revised comparative amount: 

(a) if it is impracticable to do so (see paragraph B54). 

(b) if the metric is forward-looking. Forward-looking metrics relate to possible future transactions, events and other conditions. The entity is permitted to revise a comparative amount for a forward-looking metric if doing so does not involve the use of hindsight.

If an entity redefines or replaces a metric in the reporting period, the entity shall: 

(a) disclose a revised comparative amount, unless it is impracticable to do so; 

(b) explain the changes; and 

(c) explain the reasons for those changes, including why the redefined or replacement metric provides more useful information.

If an entity introduces a new metric in the reporting period, it shall disclose a comparative amount for that metric unless it is impracticable to do so.

Sometimes, it is impracticable to revise a comparative amount to achieve comparability with the reporting period. For example, data might not have been collected in the preceding period in a way that allows retrospective application of a new definition of a metric, and it might be impracticable to recreate the data. If it is impracticable to revise a comparative amount for the preceding period, an entity shall disclose that fact.

Paragraph 83 requires an entity to correct material prior period errors.

Such errors include: the effects of mathematical mistakes, mistakes in applying the definitions for metrics or targets, oversights or misinterpretations of facts, and fraud.

Potential reporting period errors discovered in that period are corrected before the sustainability-related financial disclosures are authorised for issue. However, material errors are sometimes not discovered until a subsequent period.

If an entity identifies a material error in its prior period(s) sustainability-related financial disclosures, it shall disclose: 

(a) the nature of the prior period error; 

(b) the correction, to the extent practicable, for each prior period disclosed; and 

(c) if correction of the error is impracticable, the circumstances that led to the existence of that condition and a description of how and from when the error has been corrected.

When it is impracticable to determine the effect of an error on all prior periods presented, the entity shall restate the comparative information to correct the error from the earliest date practicable.