Australia’s uptake of ISSB: ESG standard setting in a multipolar world

Malaysia is among the countries advancing adoption of International Sustainability Standards Board (ISSB) standards. By contrast, the European Union, whose Corporate Sustainability Reporting Directive (CSRD) has been criticized for its scope and extraterritorial reach, has moved to simplify its rules through an Omnibus reform package. Yet, even as regulatory approaches diverge, sustainability information is increasingly central to economic analysis and investment decisions. Australia has opted for a calibrated path.

Australia's adoption of IFRS

At COP 26 in 2021, the IFRS Foundation Trustees announced the creation of the ISSB in response to investor demand for decision-useful, comparable information at scale. The ISSB’s remit is to develop a global baseline of investor-focused sustainability disclosure standards for capital markets. In June 2023, the ISSB issued its first two IFRS Sustainability Disclosure Standards, namely IFRS S1, General Requirements for Disclosure of Sustainability-related Financial Information, and IFRS S2, Climate-related Disclosures. IFRS S1 sets overarching disclosure requirements to help companies communicate the sustainability-related risks and opportunities they face over the short, medium, and long term. IFRS S2 sets specific climate-related disclosure requirements over the same horizons.

In September 2024, Australia adopted local equivalents—AASB S1 and AASB S2, issued by the Australian Accounting Standards Board. Crucially, only AASB S2 (the climate-related standard based on IFRS S2) is mandatory at this stage. Reporting will be phased. Against that backdrop, businesses should (i) ensure their risk registers and ESG priorities reflect current and emerging climate issues, (ii) undertake scenario analysis to test resilience under different climate pathways, and (iii) perform a gap analysis to assess alignment between existing disclosures and the new standards. By contrast, broader sustainability-related reporting under AASB S1 (based on IFRS S1) remains voluntary for now, reflecting the government’s “climate first, but not only” sequencing.

Could the AASB face a similar backlash to the CSRD?

The CSRD has been a focal point of the EU’s recent sustainability simplification initiative. In February 2025, the European Commission proposed substantial revisions to the CSRD, and a final text has now been agreed that, in brief, narrows the scope of covered entities, reduces reportable datapoints, and introduces a cap on third-party reporting obligations.

These changes follow significant pressure to streamline the EU’s sustainability rulebook, driven internally, such as through the Draghi Report on the Future of European Competitiveness, and externally by jurisdictions, including the U.S., concerned about the CSRD’s extraterritorial effects.

No comparable simplification is currently being considered for the AASB standards. There are several reasons. First, AASB S2 focuses on climate, a far narrower remit than the pre-reform CSRD, which required reporting against hundreds of datapoints spanning environmental, social and governance topics. Second, AASB requirements apply to Australian entities only and do not raise the extraterritorial concerns that have fueled resistance to the CSRD. Third, the EU’s impetus for simplification stems from the cumulative burden of multiple, sometimes overlapping, sustainability laws across the bloc; the EU has been a regulatory frontrunner, and the resulting compliance intensity is therefore most acute there.

Australian authorities could eventually face calls to simplify or recalibrate the AASB framework, but no such momentum has emerged to date.

What to expect over the short, medium, and long term

In the short term (6–12 months), more companies in Australia will be caught by the AASB, given that requirements are set to be phased in over financial years commencing on or after January 1, 2025 through to July 1, 2027, with larger listed and other public interest entities entering first, followed by medium and then smaller in-scope entities.

In the medium term (12–18 months), businesses can expect more stringent enforcement of AASB reporting rules. The Australian Securities and Investments Commission (ASIC), which oversees compliance and implementation, has recognized a grace period for reporting of Scope 3 emissions as entities build capability and has signaled a proportionate, pragmatic approach in the near term. As that period ends, in-scope entities should expect deeper scrutiny of their disclosures. To date, ASIC has focused on market integrity in ESG. It has conducted surveillance of climate and sustainability disclosures, issued guidance to help entities avoid greenwashing, and taken enforcement action against misleading or deceptive sustainability claims. For example, in FY2024–25, ASIC’s interventions led to a combined AUD34.7m in penalties across three greenwashing cases, and to 15 companies and four superannuation trustees modifying or removing statements about their sustainability claims and credentials.

Over the long term (18 months–5 years), the trajectory could diverge. Australia may encounter elements of the anti-ESG sentiment seen in parts of the U.S.. Alternatively, authorities could strengthen the framework by making AASB S1 mandatory. Notably, the Australian Accounting Standards Board initially planned to issue AASB S1 with a limited scope of disclosure to only climate-related financial disclosures, replacing all references to “sustainability” with “climate”. However, following pressure from the Australian finance sector and global investors, AASB S1 was released on a voluntary basis aligning as close as possible to IFRS S1. No timetable has been set for making AASB S1 reporting mandatory, but the option remains open. If pro-ESG momentum persists, Australia may be among the jurisdictions that expand their regimes even as early movers elsewhere consolidate or step back.