AASB S2 financed emissions for asset financiers

Mandatory climate reporting under the Corporations Act applies to large entities in three groups. Reports are prepared under AASB S2 Climate-related Disclosures.

In the first annual reporting period under AASB S2, an entity is not required to disclose Scope 3 emissions, including financed emissions. Financed emissions are reported from the second reporting period.

AASB S2 requires additional information about Category 15 emissions, those associated with an entity’s investments (financed emissions), where its activities include asset management, commercial banking or insurance.

AASB S2 refers to the GHG Protocol standards for measuring emissions. It does not name the PCAF Standard, which many lenders use to calculate financed emissions by asset class.

An entity with commercial banking activities discloses:

• Absolute gross financed emissions, by Scope 1, Scope 2 and Scope 3, for each industry by asset class
• Gross exposure to each industry by asset class
• The percentage of gross exposure included in the financed emissions calculation, with an explanation of any exclusions
• The methodology used, including the allocation method

Industry is classified using the Global Industry Classification Standard (GICS) at the six-digit level, in the version with amendments to August 2024. Asset classes include loans, project finance, bonds, equity investments and undrawn loan commitments.

Equipment loans to borrowers in transport, construction, mining and agriculture fall in different industries. Asset-level records for each financed machine support the industry by asset class breakdown.

AASB S2025-1 amends AASB S2 for annual reporting periods beginning on or after 1 January 2027, with earlier application permitted. It allows an entity to limit its Category 15 measure to financed emissions, to exclude emissions attributable to derivatives, and to classify counterparties using an industry classification system other than GICS, disclosing the system used.

Emissions from assets an entity owns and leases to others, not already in its Scope 1 or Scope 2, are reported under Category 13, downstream leased assets. The treatment depends on the lease and the entity’s reporting boundary.

• Category 13 downstream leased assets for lessors

Asset-level financed and leased emissions for each machine you finance or lease, grouped by industry and asset class for the paragraph B62 disclosures, with an evidence pack for your auditor.

• An asset schedule, machine by machine
• Your reporting share for each financed or leased asset
• An emissions supporting pack for your assurance practitioner
• A calculation workbook with live formulas and a data improvement plan

• Financed emissions for equipment finance
• Evidence example