It's the story, not the numbers, that's mandatory (for now)
Super funds know their first mandatory climate report is coming, and most are being well advised on it, by their consultants and auditors. What is still settling across the market is exactly what that first report needs to contain. It is worth being precise, because the answer is more interesting than it looks: in year one, it is the story that is mandatory, not the numbers. For a fund reporting on the period ending 30 June 2027, the fuzzy part is not the deadline, it is the substance.
AASB S2 organises a climate disclosure into four areas. For an asset owner's first report, three of them are about the story, and the fourth, the portfolio number most of the attention goes to, is largely deferred.
• Governance: How the board and management oversee climate-related risks and opportunities, and the processes and controls that sit behind that oversight.
• Strategy: The climate-related risks and opportunities the fund has identified, over which time horizons, their effects on its strategy and business model, and an assessment of the portfolio's resilience using scenario analysis across at least two pathways, one around 1.5 degrees and one above 2 degrees.
• Risk management: How the fund identifies, assesses, prioritises and monitors climate-related risks, and how that work is integrated into its broader risk management.
• Metrics and targets: Scope 1 and 2 emissions, which for an investor is its own modest operational footprint, plus any targets it has set. The big one, Scope 3 – which for an asset owner is the financed emissions across its portfolio – has transitional relief in the first year and becomes mandatory the year after. Comparative figures are not required in year one either.
So, the parts that carry the first report are governance, strategy and risk management. Three quarters of the framework is narrative. The portfolio emissions figure – the number most preparation tends to orbit – is the one piece a fund can defer.
That is where it gets interesting, and where we would caution against reading ‘deferral’ as ‘reprieve’. A narrative about how you manage climate risk is only as good as the evidence underneath it. You cannot credibly describe how you assess and manage a risk you have not measured, and "we manage this carefully" does not survive a reader who asks how you know. ASIC made a version of this point in its early observations on the first reports, noting entities that overlooked climate information they already held, such as prior weather-related losses. We wrote about what those findings mean for super funds here. Relief from reporting the financed emissions number is not relief from knowing it. In year one it stops being the published headline and becomes the evidence base for everything you do say.
For asset owners, that evidence is mostly not theirs to generate directly. They invest through third-party fund managers, and at times directly in large assets, so the substance behind the narrative has to come up through those managers: the emissions, but also the company's transition plan, its position in the value chain, and the engagement behind the numbers. The first-year requirement quietly resets what an asset owner needs from its managers, well beyond the legacy mandate. And here is the friction we are seeing. Just as asset owners need richer and more candid information, some managers are moving the other way, retreating to smaller, made-safe disclosures built to survive scrutiny rather than to inform. We argued in the first article in this series that liability pressure pushes disclosure towards the defensible rather than the useful. When that happens one layer down, in the managers an asset owner depends on, it directly weakens the fund's ability to substantiate its own story.
The other shift hidden in the narrative requirement is that it asks for far more than emissions data. To explain how a risk is managed, a fund draws on transition plans, value-chain position (a business buying a lot of electricity carries a different risk from one generating it), engagement and voting history, physical risk and geographic exposure, and the judgement that turns all of that into a view. Emissions are one input among many, and the first report will quietly reveal how much of that wider context a fund can actually assemble. Scenario analysis sits at the hard end of this: it is required, and in its current state it is close to unworkable across a real portfolio. It deserves its own treatment, and we will come back to it.
The funds that handle year one well will treat it as the year to build the evidence-and-context layer, not the year to chase a single number. None of this is a solved problem, for anyone, and we would be wary of anyone who claimed to hand it over finished. What matters more in year one is working with people who understand the context a super fund operates in, and can help build that evidence layer underneath the narrative. That is the role Pathzero plays, alongside many of Australia's largest super funds: bringing portfolio data together from managers and providers, reconciling it to the fund's own records, and keeping methodology and data quality with every figure, so the finance and responsible investment teams work from the same trusted base.
Year one looks like a reprieve on the numbers. It is really the year to make the story true, and provable, before the numbers are required to back it.