Carbon accounting is the process of measuring, managing and disclosing an organisation's greenhouse gas (GHG) emissions. For most Australian businesses, it has historically been voluntary. Under the Australian Sustainability Reporting Standards (ASRS) and AASB S2, it is now mandatory.
Group 1 entities report from 1 January 2025. Group 2 from 1 July 2026. Group 3 from 1 July 2027. For all three cohorts, carbon accounting is not a nice-to-have add-on. It is the foundation on which every other climate disclosure is built.
This guide explains what carbon accounting requires, what ASRS specifically demands, and how to approach it in a way that is audit-ready from Year One.
Carbon accounting refers to systematically quantifying an organisation's GHG emissions across three scopes, using a recognised framework and consistent methodology, so that emissions can be tracked, reported and reduced over time.
The three scopes are:
Scope 1: Direct emissions from sources owned or controlled by the organisation. This includes fuel combustion, company vehicles and on-site manufacturing processes.
Scope 2: Indirect emissions from the generation of purchased electricity, steam, heat or cooling consumed by the organisation.
Scope 3: All other indirect emissions across the value chain. This includes supply chain emissions, business travel, employee commuting, purchased goods and services, and the use and end-of-life of sold products. Scope 3 emissions typically account for the largest share of an organisation's total footprint and are the most complex to measure.
Under the GHG Protocol Corporate Standard, the globally accepted framework for corporate emissions accounting, all three scopes should be measured to give an accurate picture of an organisation's total climate impact.
ASRS S2, aligned with ISSB IFRS S2, sets specific requirements that go beyond general carbon accounting practice. Key requirements include:
GHG Protocol compliance. ASRS requires entities to use the GHG Protocol Corporate Standard as their measurement methodology. This is not optional. Entities using alternative or proprietary methodologies will need to reconcile to the GHG Protocol framework.
All three scopes disclosed. ASRS requires disclosure of Scope 1, 2 and 3 emissions. Scope 3 cannot be omitted on the basis of difficulty. Where data is incomplete, entities are expected to use reasonable estimation and disclose their approach.
Cross-industry metric disclosures. ASRS S2 mandates a set of standard GHG metrics for all entities: absolute Scope 1, Scope 2 (location-based and market-based) and Scope 3 emissions in tonnes of CO2 equivalent, plus GHG intensity ratios.
Assurance requirements. ASRS introduces mandatory limited assurance over Scope 1 and 2 emissions from the first reporting year, stepping up to reasonable assurance over time. This means your emissions data must be verifiable. Spend-based estimates and unaudited activity data will face scrutiny.
Consistency across reporting years. ASRS requires comparability. Once a methodology and boundary is set, it needs to be applied consistently. Changing approach mid-stream without restatement creates compliance risk.
There are two main approaches to calculating emissions:
The spend-based method estimates emissions by multiplying financial expenditure on a product or service by an emissions factor (an average figure for the emissions produced per dollar spent in that category). It is faster and requires less granular data, making it common for Scope 3 Category estimation in Year One. Its limitation is precision. Spend-based figures carry wide uncertainty ranges and are harder to defend under assurance.
The activity-based method calculates emissions using actual physical quantities (kilowatt hours of electricity, litres of fuel, tonnes of material) multiplied by published emissions factors from government or scientific sources. This method produces more accurate and more defensible results. ASRS's assurance requirements strongly favour activity-based data for Scope 1 and 2, and for material Scope 3 categories where data is reasonably available.
In practice, most entities use a combination: activity-based for Scope 1, 2 and high-materiality Scope 3 categories, and spend-based for long-tail Scope 3 categories where supplier-level data is unavailable.
The key question for ASRS compliance is not which method you use in isolation. It is whether your methodology produces data that can withstand limited assurance, and eventually reasonable assurance, in a mandatory reporting context.
Scope 3 is consistently the most complex and most material part of carbon accounting. CDP's supply chain research suggests that supply chain emissions can account for more than five times a company's direct emissions.
ASRS does not allow entities to sidestep Scope 3 disclosure. It requires:
The GHG Protocol Scope 3 Standard is also currently under revision. The proposed update introduces a 95% emissions coverage threshold, a new Category 16 for land-use related emissions, and revised guidance on supplier data quality. These changes are expected to take effect for reporting periods from 2028 onwards. Getting your Scope 3 methodology right now, and documenting it clearly, means you will be better placed to adapt as the standard evolves.
For financial institutions and superannuation funds, Scope 3 Category 15 (financed emissions) is typically the dominant emissions category and carries specific measurement guidance under the PCAF Standard, which ASRS-aligned institutions are expected to follow.
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Trace works with businesses at every stage of their mandatory reporting journey, from first emissions measurement to audit-ready ASRS S2 disclosure. Talk to our team to see how we can help.
For entities approaching their first ASRS-compliant carbon accounting process, the following steps provide a practical starting point. For a full timeline mapped against your reporting group, see Trace's practical 24-month ASRS compliance roadmap.
1. Set your organisational boundary. Decide whether you are using operational control, financial control or equity share as your consolidation approach. This determines which entities and operations are in scope. Document the rationale.
2. Identify your material emissions sources. Not every Scope 3 category will be material to every business. Conduct a high-level Scope 3 screening to identify which categories are likely to be significant, so you can prioritise data collection effort.
3. Collect your base data. For Scope 1 and 2, this means energy bills, fuel records, refrigerant logs and any other direct activity data for your reporting year. For Scope 3, it means supplier invoices, logistics data, travel records and other relevant inputs. Twelve months of historical data is the standard baseline.
4. Select your emissions factors. Use the most current published emissions factors from reputable sources: the Australian Government's National Greenhouse Accounts Factors for electricity and fuel, and internationally recognised sources for other categories. Document the factors used and their publication date. If you choose a good carbon accounting software provider this step will be catered for by the software - see the Best Software for ASRS reporting in Australia here.
5. Calculate and document. Apply emissions factors to your activity data, record your methodology, and retain the underlying data. ASRS assurance requires a clear, auditable trail from raw data to reported figures.
6. Build for consistency. Your Year One methodology becomes your baseline. Future years will be compared against it. Choosing a defensible, activity-based approach now avoids the need for restatements later. Read more on what minimum viable ASRS compliance looks like in Year One.
7. Move from accounting to ongoing management. Once your baseline is established, carbon management becomes the continuous process of tracking, reducing and reporting emissions year on year.
Trace guides entities through each of these steps, with software built to collect, calculate and document emissions data in a format aligned to ASRS S2 disclosure requirements. Finance leaders across Australia are already navigating this process — see what they told us about the biggest challenges.
Carbon accounting software exists on a spectrum, from simple calculators that produce a ballpark figure, to enterprise platforms that support full ASRS-compliant disclosure with assurance-ready audit trails.
For entities subject to mandatory ASRS reporting, the relevant questions are:
For a detailed comparison of the leading platforms available to Australian entities, see best ASRS climate reporting software in Australia (2026).
Trace is rated #1 for Usability (8.86) and #1 for Results (8.58) in the G2 ESG Reporting Index, ranked ahead of Workiva and Denxpert. It is purpose-built for ISSB and AASB standards, meaning the carbon accounting module is designed to feed directly into ASRS S2 disclosure, not to sit as a standalone tool alongside it.
Yes. Under the Australian Sustainability Reporting Standards (ASRS) and AASB S2, carbon accounting is mandatory for Group 1 entities from 1 January 2025, Group 2 from 1 July 2026, and Group 3 from 1 July 2027. Entities in scope must measure and disclose Scope 1, 2 and 3 emissions using GHG Protocol methodology.
ASRS S2 requires disclosure of all three GHG emissions scopes: Scope 1 (direct emissions), Scope 2 (purchased energy), and Scope 3 (value chain emissions across all 15 GHG Protocol categories). Scope 3 cannot be omitted on the basis of difficulty or lack of primary data.
ASRS's assurance requirements strongly favour the activity-based method for Scope 1 and 2, and for material Scope 3 categories. The spend-based method may be used for long-tail Scope 3 categories where supplier-level data is not reasonably available, but must be disclosed as an estimation approach.
ASRS introduces mandatory limited assurance over Scope 1 and 2 emissions from Year One of reporting, stepping up to reasonable assurance over time. This means emissions data must be verifiable by an external auditor, with a clear and auditable trail from source data to reported figures.
For a typical Group 2 or 3 entity, setting up a compliant carbon accounting process takes three to six months, depending on the complexity of the business and the quality of existing data. Given ASRS timelines, most entities need to begin at least 12 months before their first reporting deadline.
Ready to get your carbon accounting right?
Most organisations subject to ASRS have 12 to 18 months to get their first disclosure right. The carbon accounting foundation needs to be in place well before reporting deadlines. Trace can assess where you are now and map the fastest path to audit-ready emissions data.
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