The Australian Sustainability Reporting Standards (ASRS), developed by the Australian Accounting Standards Board (AASB), are transforming how companies in Australia account for and disclose climate-related information. Modelled closely on the ISSB's IFRS S2, ASRS aligns domestic reporting with global expectations while staying relevant to the Australian market.
Financial institutions, including banks, insurers, asset managers and superannuation funds, are under scrutiny not only for their own emissions but for the emissions they finance across the economy. For a sector that sits at the centre of capital allocation and risk management, this reaches well beyond a compliance exercise. It gives finance teams a clear reason to embed climate risk into core business processes.
Key takeaways
- ASRS (AASB S2) requires finance companies to disclose financed emissions: Scope 3, Category 15 emissions from loans, investments and underwriting.
- Financed emissions are typically far larger than an institution's own operational emissions, which raises the stakes on data quality and audit readiness.
- PCAF's Global GHG Accounting and Reporting Standard is the reference methodology for calculating and disclosing financed emissions under ASRS.
- Finance teams need board-level governance, scenario analysis capability and auditable data systems to meet ASRS, not just a one-off disclosure exercise.
What ASRS requires from finance companies
ASRS requires finance companies to disclose climate-related risks and opportunities across four areas: governance, strategy, risk management, and metrics and targets.
- Governance: board and management oversight of climate-related risks and opportunities.
- Strategy: how climate risks and opportunities affect the business model and financial position.
- Risk management: how climate risks are identified, assessed and integrated into overall risk processes.
- Metrics and targets: performance measures, including financed emissions, tracked against climate-related goals.
For finance sector entities, this includes reporting on financed emissions (Scope 3, Category 15 under the GHG Protocol), covering emissions associated with loans, investments and insurance underwriting. In many cases, financed emissions are orders of magnitude larger than operational emissions (Scope 1 and 2), which creates a substantial reporting burden and a real need for granular, high-quality data.
Financial institutions must assess emissions exposure across portfolios, asset classes and geographies. ASRS also requires companies to disclose how climate risks influence business strategy, risk assessment and performance targets, supported by integrated, scenario-based analysis.
Financed emissions: the data and methodology hurdle
The main compliance challenge for finance companies under ASRS is data quality, particularly for private, SME or emerging market exposures. Methodological uncertainty adds to this. The Partnership for Carbon Accounting Financials (PCAF) provides the reference methodology for calculating financed emissions, but applying it consistently across diverse portfolios takes deliberate process design.
Institutions need to choose an attribution method for each asset class:
- EVIC (enterprise value including cash): used for listed equity and corporate bonds.
- AUM (assets under management): used for managed funds.
- Outstanding balance: used for loans, mortgages and project finance.
ASRS places weight on transparent methodology and data quality scoring, so institutions need to document how estimates were derived and where the limitations sit.
Platforms like Avarni reduce this friction by automating emissions estimation using current, appropriate emission factors, while flagging data quality issues across portfolio assets. Avarni also gives finance teams ready access to estimated emissions for thousands of asset types, including over 17,000 vehicle makes and models and more than 2,000 Australian address-specific building factors. Centralising, tracing and updating emissions data in one place streamlines compliance and supports consistent disclosures year on year.
Embedding climate risk in financial decision-making
ASRS pushes financial institutions beyond disclosure into strategic integration. The standard requires companies to assess how physical and transition climate risks affect their business models, asset values and financial performance. For finance firms, this means building climate scenario analysis into investment due diligence, underwriting and credit risk processes.
Institutions that build this capability early can identify underpriced climate risk, avoid stranded assets, and direct capital toward companies well-positioned for the transition to net zero.
Scenario analysis is still new for many firms and requires consistent assumptions, modelling capability and internal expertise. Avarni's scenario analysis tools translate emissions data into scenario-aligned projections, including portfolio alignment against 1.5°C or 2°C pathways, helping institutions operationalise these insights without building a bespoke analytics engine.
Meeting stakeholder expectations
ASRS-aligned reporting shapes how investors, regulators, customers and civil society assess a financial institution's climate credibility. Finance companies are expected to manage their own climate risks while supporting decarbonisation across the broader economy.
Institutions that demonstrate proactive climate strategies, credible emissions reductions and transparent reporting build stakeholder trust. Those that fall behind face investor pressure, capital flight and regulatory scrutiny.
Technology platforms like Avarni give finance firms a practical way to track financed emissions, set credible reduction targets and share scenario-aligned insights with stakeholders, all from a single auditable platform.
Building internal capability and governance
ASRS requires strong governance around sustainability reporting, including board-level oversight and internal controls over climate-related disclosures. Financial institutions already operate under strict governance standards and will need to extend that same rigour to climate data and risk management.
This requires cross-functional collaboration between sustainability, finance, risk and IT teams. Climate disclosures need to be accurate, decision-useful, consistent with financial filings, and held to the same scrutiny as financial data.
Building this internal capability takes time. Forward-looking firms can use the ASRS transition period to build scalable data systems, train staff and embed sustainability into enterprise risk frameworks. Avarni supports this by acting as a centralised platform for climate data management, improving traceability and reducing manual effort.
Learn more about Avarni for finance or talk to a specialist about your reporting obligations.
Frequently asked questions
What is financed emissions reporting under ASRS?
Financed emissions reporting is the disclosure of Scope 3, Category 15 emissions associated with an institution's loans, investments and underwriting activities. ASRS (AASB S2) requires finance companies to measure and disclose these emissions as part of their climate-related financial disclosures.
How do financial institutions calculate financed emissions?
Most institutions follow the PCAF Global GHG Accounting and Reporting Standard, applying an attribution method (EVIC, AUM or outstanding balance) to each asset class, then documenting the data quality and estimation approach used.
Does ASRS apply to superannuation funds and insurers?
Yes. ASRS applies to banks, insurers, asset managers and superannuation funds that meet the relevant reporting thresholds under the Corporations Act, alongside other large Australian companies.
What's the difference between operational emissions and financed emissions?
Operational emissions (Scope 1 and 2) come from an institution's own activities, such as offices and vehicles. Financed emissions (Scope 3, Category 15) come from the companies and projects an institution lends to, invests in or underwrites, and are typically far larger.
Summary
- What ASRS requires from finance companies: ASRS requires disclosure across governance, strategy, risk management, and metrics and targets, with financed emissions as a core metric for finance companies.
- Financed emissions: the data and methodology hurdle: Reliable data and consistent methodology, guided by PCAF, are the main compliance challenges. Avarni automates estimation and data quality tracking, with built-in factors for over 17,000 vehicle makes and models and 2,000+ Australian addresses.
- Embedding climate risk in financial decision-making: ASRS requires scenario-based climate risk analysis integrated into investment and lending decisions. Avarni supports this with scenario alignment tools.
- Meeting stakeholder expectations: Transparent, consistent disclosures shape investor and public trust. Institutions that lead on ASRS reporting strengthen their credibility and competitive position.
- Building internal capability and governance: Finance companies need robust governance for climate disclosures, integrated into existing risk and reporting frameworks. Avarni acts as a centralised, auditable source of climate data.
- Frequently asked questions: Financed emissions cover Scope 3, Category 15 activity, are calculated using PCAF methodology, apply to banks, insurers, asset managers and super funds, and are typically much larger than an institution's operational emissions.
By treating ASRS as more than a compliance exercise, Australian financial institutions can use sustainability reporting as a lever for strategic advantage, with the data and governance in place to lead the transition to net zero.
Originally published: 11/19/2025
