Australia’s first mandatory climate reports are now in, giving Group 1 and incoming Group 2 reporters their first real view of how AASB S2 is working in practice.
Reviews of the first wave of reports found that the assurance opinions issued were unmodified.¹ ² But there is an important qualification: very little of that assurance covered Scope 3 emissions, and Category 1 - purchased goods and services, usually the biggest slice of a company's carbon footprint - was the category most entities were allowed to skip.
AASB S2 gave Group 1 entities transitional relief from disclosing Scope 3 emissions in their first report, allowing them to focus initially on governance, strategy, climate risk and Scope 1 and 2 reporting.³
Unsurprisingly, most first-year reports concentrated on those areas.
For Group 1 reporters, the second year changes the equation. Scope 3 can no longer be deferred, and many businesses will now need to build the data foundations they postponed in year one.
What year one actually showed
KPMG's review of 30 first-wave reporters found just 33% disclosed Scope 3 emissions.¹ PwC's independent review of 22 ASX-listed Group 1 reporters reached a similar conclusion, with nearly entities applying the available transitional relief and only a handful voluntarily going further.² Two firms, one story: the market used its warm-up lap exactly as expected.
The catch is what happens next.
Scope 3 becomes mandatory for every Group 1 entity's second report, with no comparative-year relief to soften the transition.¹ Assurance requirements will also continue to expand under the Australian sustainability assurance timetable.
For manufacturers, developers, construction businesses and other organisations with material supply chains,Category 1 Purchased goods and services, will often be where the estimation is thinnest and the judgement calls biggest.²
Why Category 1 is the one that matters
Category 1 Purchased goods and services typically accounts for 50% or more of total Scope 3 emissions for manufacturers, retailers and any business with a material supply chain.⁴ For product-based businesses, this can include raw materials, components, finished goods, packaging, professional services and other inputs used across the organisation and its value chain.
For banks, insurers and other financial institutions, Category 15 - Financed emissions, on property and mortgages can be over 90%. The underlying data challenge, however, is similar: the emissions often occur outside the organisation’s direct control and rely on information from other businesses.
This is where many Scope 3 inventories run into a fundamental problem. They are based on what the organisation spent, rather than what it actually purchased and how it was produced.
There are three ways to calculate Category 1 emissions
- Spend-based method mulitpliesprocurement dollars by an industry-average emissions factor. It’s fast, complete, and therefore seductive to the accountants. But it is only loosely connected to the materials, products and services actually purchased. A higher emissions result may simply reflect a price increase rather than a change in the underlying carbon impact..⁵
- Activity-based method uses real quantities (tonnes, litres, kilometres) against a generic materials emissions factor.⁵
- Supplier-specific methods go further by incorporating information from suppliers or individual products. This may include primary manufacturing data, verified Product Carbon Footprints, environmental product declarations or other product-level evidence.This approach provides a stronger foundation for comparing products, tracking improvements and setting credible emissions reduction targets.⁶
The supplier data gap
The scale of the Scope 3 problem is well documented.
CDP puts disclosed Scope 3 emissions at roughly 26 times operational emissions, yet finds only around four in ten companies engage suppliers on climate at all.⁷
That gap matters.
A business cannot meaningfully reduce Category 1 emissions if it cannot distinguish between suppliers, products or materials .
A spend-based estimate may show that steel, concrete, timber, furniture or packaging is a major emissions source. It cannot show which supplier is performing better, whether recycled content has reduced the result or whether a lower-carbon product alternative is available.
Buyer engagement has been linked to tens of millions of tonnes of measured emissions reductions, while structured supplier programs make companies several times more likely to set credible Scope 3 targets.⁷ ⁸ The organisations furthest ahead on Category 1 are treating supplier carbon data as part of the procurement relationship, not as an annual reporting exercise. They are asking for evidence through tenders, contract negotiations and product selection, while helping suppliers understand what information is required and how it will be used.
Maturity in companies’ supplier engagement program is low in this market compared to overseas, by the pace of change is increasing.
The uncomfortable assurance question
Who actually has the expertise to assure this?
Scope 3 assurance will require more than conventional audit capability alone.
Category 1 calculations can involve supplier questionnaires, procurement records, product-level carbon data, emissions factors, allocation methods, estimates and life-cycle assessment principles.
Australia's new assurance standard, ASSA 5000, is explicitly practitioner-neutral. It doesn't require a traditional financial auditor.⁹ Its international equivalent, ISSA 5000, was built the same way for a reason. As one Asia-Pacific standard-setting adviser put it, a climate engineer or scientist can be the auditor now, not just an accountant.¹⁰
That's the profession admitting it doesn't yet have the carbon-data depth this standard demands. Consequently firms are hiring carbon specialists, engineers, life-cycle assessment practitioners and quantity surveyors to cover the gap, while questions remain about whether traditionally-trained financial auditors can properly review that specialist work.¹¹
None of this means the Big 4 sit this out, they hold the client relationships and the quality frameworks boards want on an assurance report.
But Category 1's supplier-specific and activity-based methods sit closer to procurement and life-cycle assessment than to financial audit. That skill set is currently scarce..
A new tier of specialist advisers, focussed on carbon data infrastructure rather than audit sign-off will be required to fill the gap. Organisations need a clearly documented methodology, defined data boundaries, evidence supporting key assumptions and controls over how information is collected, reviewed and approved.
Second-year reporters will need assurance and specialist carbon expertise working together. That is where Rebuilt’s quantity surveying, carbon science and product-level data advisory services can help strengthen the evidence behind Category 1 calculations.
The opportunity hiding in the data
Better Scope 3 data is not only about compliance.
CDP has linked stronger supply chain climate action with significant opportunities through efficiency, product innovation, supplier collaboration and improved resilience. ⁸
Good Category 1 data can help procurement teams understand:
- which materials and suppliers are driving emissions
- where price and carbon exposure overlap
- where lower-carbon alternatives are available
- whether a product change has delivered a real reduction
- which suppliers are improving over time
- where carbon requirements should be included in contracts and tenders.
Spend-based estimates cannot provide that level of insight.
They tell an organisation what it paid. They do not reliably explain how the product was made, what materials it contains or whether a lower-carbon alternative would perform better.
That distinction will become increasingly important as customers, rating tools and government tenders ask for more specific and verifiable product information.
What second-year reporters need to do now
Companies must move off spend-based data for your highest-impact suppliers first; the 20% of spend that typically drives 80% of Category 1 emissions.⁴ ⁵
Build a basis-of-preparation methodology now, before your first assurance conversation.¹ Engage your assurance provider early on judgement calls, restatement risk in year two is higher than most preparers expect.²
And don't wait for suppliers to volunteer better data; ask for it, make it easy to give, and treat it as a procurement lever, not a compliance favour.⁷
Group 2 is already rolling on
While Group 1 tackles its second report, Group 2 is entering the chat.
Their first reporting periods started 1 July 2026, now, with reports due through 2027.¹² Its thresholds are lower too: $200 million revenue, $500 million assets or 250 employees, against Group 1's $500 million, $1 billion and 500.¹³
That pulls in a bigger, more varied cohort than Group 1's 259 first reports, including large asset owners and super funds with $5 billion or more under management that sat outside Group 1 entirely.¹⁴ Many of these entities have thinner sustainability teams than the ASX giants that went first.
The lesson from Group 1 is clear: the Scope 3 grace period is a head start, not a holiday.
Category 1 data takes six to twelve months of supplier engagement to build properly, and assurance capacity is already stretched.¹³
Waiting until the grace period ends means walking straight into the spend-based scramble Group 1 is now fixing. Spend year one instead settling a Category 1 methodology, opening the supplier conversation early, and getting assurance-ready before assurance is mandatory.
How Rebuilt can help
Whatever the Scope 3 challenge, whether it is spend-based data that cannot support decisions, a Category 1 result with limited supplier detail, fragmented systems, an assurance process that has not yet been tested or gaps in internal capability, Rebuilt Advisory services can help organisations build capability and a clearer and more defensible position. Get in touch today.
Sources
KPMG Australia, AASB S2 First Impressions: Early findings from the first wave of AASB S2 sustainability reporters in Australia (FAST30), March 2026.
PwC Australia, AASB S2 unpacked: how did Australia's Group 1 climate reporting fare?, review of 22 first-wave Group 1 reporters, March 2026.
Anthesis Group, ASRS and AASB S2: A Guide to Mandatory Climate Reporting in Australia, 2026.
Normative, Scope 3 Emissions Explained, 2026.
Normative, How to calculate scope 3 emissions: from spend data to supplier data, 2026.
GHG Protocol, Technical Guidance for Calculating Scope 3 Emissions, Chapter 1 — Category 1: Purchased Goods and Services.
CDP, Strengthening the Chain, 2024 supply chain disclosure analysis.
CDP, Corporates' supply chain scope 3 emissions are 26 times higher than their operational emissions, press release.
AUASB, ASSA 5000 General Requirements for Sustainability Assurance Engagements and implementation guidance, auasb.gov.au.
INTHEBLACK (CPA Australia), ISSA 5000: What accountants need to know, 2025.
AUASB Research Report 13, University of Sydney / Deakin University, Sustainability Assurance Quality, 2025.
Terrascope, Navigating Australia's Mandatory Climate Reporting, 2026 (259 first-wave Group 1 reports lodged with ASIC by 6 May 2026).
eco-shaper, AASB S2 Group 2: Are You in Scope for 2026?, 2026.
Greenbase, AASB S2 Explained: A Comprehensive Guide to Mandatory Climate Reporting in Australia, 2025 (asset owner and superannuation fund thresholds).