Relief, proportionality and exemption rules under AASB S2

The three mechanisms, and which is which

1. Transition relief: Appendix C, first annual reporting period only.

Three paragraphs allow for transition relief in Year 1:

• Comparatives. Paragraph C3: you are not required to provide disclosures for any period before the date of initial application, so no comparative information is required in your first year.
• Emissions measurement method. Paragraph C4(a): if you used a method other than the Greenhouse Gas Protocol Corporate Standard in the period immediately before initial application, you may continue to use it.
• Scope 3. Paragraph C4(b): you are not required to disclose Scope 3 emissions, including the additional financed emissions information if you participate in asset management, commercial banking or insurance activities.

Paragraph C5 then permits an entity that used C4(a) or C4(b) to continue using that relief when presenting that information as comparative information in later periods.

2. Proportionality mechanisms: Permanent, affecting scale depth not coverage.

There are two, and the AASB describes them as: using all reasonable and supportable information available at the reporting date without undue cost or effort, and using an approach commensurate with the skills, capabilities and resources available to you. They attach to six specific requirement areas: identification of climate-related risks and opportunities (CRROs), the scope of the value chain, anticipated financial effects, the approach to scenario analysis, measurement of Scope 3 emissions, and the cross-industry metric categories. The AASB is explicit that they do not exempt an entity from providing disclosures.

3. Exemptions. Permanent, and narrow.

Paragraph 73 relieves you from disclosing information where law or regulation prohibits it, in which case you identify the type of information withheld and explain the source of the restriction. Paragraphs B34 to B37 permit omission of commercially sensitive information about a climate-related opportunity in tightly defined circumstances, and prohibit using that exemption for a risk or as a basis for broad non-disclosure. Using either exemption does not prevent you asserting compliance.

Separately, and often confused with relief, paragraphs 19 to 21 let you provide qualitative rather than quantitative information about financial effects in three defined circumstances, and then require three further things of you. That is a change in what you disclose rather than a reduction, and it is covered here

How it lands on each pillar

Two things follow from that table. Governance and Risk management carry no relief and no proportionality mechanism, so they are the disclosures that have to be right in Year 1. And because governance evidence has to exist across the reporting period, it is also the one that cannot be reconstructed afterwards. There is more on that here.

What evidence you need

1. For each relief used, a record of which one, the paragraph relied on, and why it applies
2. For C4(a), evidence of the measurement method actually used in the period immediately preceding initial application
3. Confirmation of your date of initial application, being the beginning of the annual reporting period in which you first apply AASB S2
4. Where proportionality was applied, the information you did consider and the basis for concluding that further information was not available without undue cost or effort
5. For the commercially sensitive exemption, the assessment against each condition and the annual reassessment
6. For a section 296B statement, the documented materiality assessment behind the no-material-risk conclusion

Common mistakes

• Treating relief as a general first-year easing. It is three specific things. Everything else that feels like relief is proportionality, which is permanent and does not reduce coverage.
• Believing the Scope 3 deferral runs for two years. Paragraph C4(b) applies to the first annual reporting period. Paragraph C5 lets the relief carry into the comparative in later periods, which is where the two-year reading comes from, but the second year's own Scope 3 disclosure is required.
• Assuming there is first-year relief on scenario analysis. There is not. Appendix C does not mention scenario analysis. The flexibility to use a simpler or qualitative approach is proportionality under paragraphs B1 to B18, and it is permanent rather than a first-year concession.
• Using proportionality to leave a disclosure out. The AASB states that the mechanisms do not exempt an entity from providing disclosures. A qualified or qualitative disclosure is compliant. A blank is a gap.
• Not saying you used a relief. If you omit Scope 3 or keep a non-GHG Protocol method, the reader and your assurance provider need to see that stated, with the basis.
• Expecting relief on governance. There is none, and governance is limited-assured from Year 1.
• Reading section 296B as a Group 3 exemption from doing the work. The conclusion still has to be reached under the standard and evidenced.

Trace's viewpoint and approach

Minimum Viable Compliance (MVC) is our core principle: a climate disclosure should be proportionate to your circumstances rather than gold-plated, and that means using the reliefs you are entitled to instead of disclosing past them. MVC is not the smallest possible report. It is the smallest report that fully complies, which is a different and more defensible thing. There is more on the principle here.

Using a relief is not the same as saying nothing. Relief changes what you disclose, almost never whether you disclose, so state the relief in the disclosure, name what you relied on and explain why it applies. A stated omission with a basis reads as a decision. An unexplained gap reads as an oversight, and it is the same amount of text either way.

Keep the three mechanisms separate in your working papers, because assurance will ask which one you relied on. Answering "it was the first-year relief" when you actually relied on proportionality is the kind of answer that produces a follow-up request.

Governance and risk management have no relief of any kind, so treat them as the fixed cost of Year 1, everything else scales over time.

Frequently asked questions

Q: Do we have to report Scope 3 in our first year? No. Paragraph C4(b) means Scope 3 is not required in your first annual reporting period, including financed emissions if you are in asset management, commercial banking or insurance. It is required from your second year. Paragraph C5 lets you carry the relief into the comparative, so your second year's report shows Scope 3 for that year without a restated prior-year figure.

Q: Is our first year assessed more leniently overall? Not by the standard. The three transition reliefs are specific, and everything else is either permanent proportionality or a narrow exemption. The genuine difference in Year 1 is the assurance scope, which is narrower, and that is set out here.

Q: We do not have the capability to model financial effects. Is that covered? Partly. For anticipated financial effects, paragraph 20 means you need not provide quantitative information if you do not have the skills, capabilities or resources to produce it. That is not a free pass: paragraph 21 then requires you to explain why, identify the affected financial statement line items, and give a combined quantitative figure unless it would not be useful. For more information on quantifying financial effects read this article.

Q: Can we skip a pillar if it is not relevant to us? No. Proportionality scales the depth of a disclosure, not whether the pillar is addressed. Where a disclosure genuinely does not apply, the compliant answer is a short explicit statement to that effect rather than silence.

Relevant links

• What assurance applies to your climate disclosure, and when

This is general information about the ASRS regime and is not legal advice. Reliance on transition relief, the exemptions or the section 296B statement should be discussed with your legal adviser and auditor.