Directors signing off on a 2026 Sustainability Report are now much closer to the legal firing line, but the law also stipulates the guardrails needed for building a defensible “reasonable steps” story.

The legal context

Commencing in 2025, more than 6,000 entities must prepare an annual sustainability report in line with the Australian Sustainability Reporting Standards (AASB S1 and AASB S2) under section 292A of the Corporations Act, alongside their financial report. Section 1707D (and related provisions) establishes a modified liability regime for “protected statements” in sustainability reports.

This is particularly helpful as some statements are derived from steps in the reporting process (e.g., Scope 3 emissions, scenario analysis and transition plans) that are inherently based on higher levels of uncertainty than others. For these higher‑uncertainty disclosures, private civil actions are barred for a limited three-year period during which only ASIC-led or criminal proceedings can be brought. However it’s important to understand the protection does not extend to statements made outside required AASB S2 disclosures.

You can read more about ASIC’s modified liability guidance here: https://www.asic.gov.au/regulatory-resources/sustainability-reporting/for-preparers-of-sustainability-reports/modified-liability-settings/[asic.gov]

The declaration

Despite modified liability, directors must still sign a formal declaration that, in their opinion, the substantive provisions of the sustainability report comply with the Corporations Act and the applicable sustainability and climate disclosure standards (AASB S1 and S2). This is intended to mirror the weight of the financial statement declaration and ties directors into general duties (care and diligence, misleading or deceptive conduct, and s344 compliance obligations). In practice, a director will be expected to show they relied on robust processes, not blind assurance from management.

The compliance framework

Effective board due diligence going forward means clearly documented robust governance concerning climate and sustainability data and processes, not just a well‑written narrative. Boards are increasingly establishing climate or sustainability committees charged with overseeing: data architecture and controls, procedural alignment with AASB S1/S2 outcomes, appropriate scenario design, and suitable assurance over key metrics and estimates.

For directors, a single source-of-truth comprehensive sustainability reporting and management platform with auditable evidence trails, clear ownership and automated controls is fast becoming the minimum evidence base to support a “reasonable steps” defence.