Carbon Credits in Climate Reporting: What You Need to Disclose Under AASB S2

Many Australian organisations have set net zero or carbon neutral targets that rely partly on carbon offsets — purchasing credits that represent emissions reductions or removals elsewhere to compensate for residual emissions. AASB S2 doesn’t prohibit this, but it does require detailed disclosure of how and to what extent you’re relying on carbon credits.

Here’s what the standard requires and why the quality of your offsets matters for disclosure purposes.

What AASB S2 requires on carbon credits

When an entity uses carbon credits (offsets) to meet its net emissions targets, AASB S2 requires disclosure of:

• Reliance on carbon credits — the extent to which the entity’s net zero or net emissions target depends on purchasing carbon credits rather than reducing gross emissions
• Type of carbon credit — whether credits represent emissions reductions (preventing future emissions from occurring) or carbon removals (actively removing CO₂ from the atmosphere)
• Verification scheme — which standard or scheme issued or verified the credits (ACCUs under the Emissions Reduction Fund, Gold Standard, Verra VCS, Climate Active, etc.)
• Credibility and integrity factors — the quality and permanence of the credits, including any risks of reversal (e.g., a forest offset being destroyed by fire)

The intent is to allow investors and stakeholders to distinguish between:

• Genuine gross emissions reductions (the primary goal)
• Use of high-quality, verified offsets to address residual emissions that can’t yet be reduced
• Heavy reliance on offsets as a substitute for actual decarbonisation

Australian Carbon Credit Units (ACCUs)

The primary offset instrument in Australia is the Australian Carbon Credit Unit (ACCU), issued under the Emissions Reduction Fund (ERF) and regulated by the Clean Energy Regulator (CER).

ACCUs come in two main types:

Sequestration ACCUs: Represent carbon stored in vegetation or soil (forests, savanna burning, soil carbon). Carry permanence risk — if a forest burns, the stored carbon may be released.

Avoided emissions ACCUs: Represent emissions prevented (avoided landfill methane, agricultural practice changes). Considered more permanent than sequestration types.

For AASB S2 disclosure, the type of ACCU matters. A net zero claim supported primarily by sequestration offsets with high reversal risk will attract more scrutiny than one supported by avoided emissions credits or direct carbon removal.

Climate Active certification

Climate Active is the Australian government’s carbon neutral certification scheme. Businesses that achieve Climate Active certification for their operations have had their offset use verified against the Climate Active Carbon Neutral Standard.

Climate Active certification provides a credibility signal — it means your offset purchases and net emissions calculation have been independently verified. This is relevant to AASB S2 because it supports the credibility and integrity disclosure requirements.

However, Climate Active and AASB S2 are different frameworks with different purposes. Having Climate Active certification doesn’t automatically satisfy AASB S2 disclosure requirements, but it does provide supporting evidence for the integrity of your offset programme.

The “real reductions first” principle

AASB S2 disclosure requirements are designed to make it visible when organisations are relying heavily on offsets rather than reducing gross emissions. The GHG Protocol and most credible net zero frameworks emphasise a clear hierarchy:

1. Reduce gross emissions — through operational changes, technology, energy efficiency, electrification
2. Switch to low-carbon alternatives — renewable energy, electric vehicles, low-carbon materials
3. Use high-quality offsets for residual emissions that cannot yet be eliminated

An entity that claims a net zero target but plans to achieve it primarily through purchasing cheap offsets while maintaining high gross emissions will face increasing scrutiny — from ASIC under AASB S2, from investors, and from a growing body of greenwashing enforcement activity.

What to document

For AASB S2 offset disclosure, maintain records of:

• The quantity of carbon credits purchased and retired per reporting period
• The registry reference for each batch of credits (ACCU serial numbers, Gold Standard certificate IDs, etc.)
• The verification scheme and project type
• Any permanence risk disclosures from the credit provider
• The role of offsets in your target structure — are they for residual emissions only, or are they the primary mechanism?

This documentation supports the integrity disclosure in AASB S2 and provides evidence for assurance.

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