Small doesn’t equal safe: 3 reasons why SMEs need to start thinking about sustainability reporting
Many small to mid-sized companies are still saying, “we’re not caught yet” or “where do we even start?” when it comes to mandatory sustainability reporting. The reality is the foundations for credible sustainability reporting, especially Scope 3 emissions, take time to establish. Even if you’re not directly in scope under the new climate disclosure regime, your data will be needed by clients, banks, and insurers who are subject to compliance with these regimes and who will increasingly look to work with suppliers who can help them comply. With deadlines approaching, SMEs should be laying the groundwork now to avoid playing a painful catch-up game down the track.
Why this Matters?
- Mandatory Reporting is already rolling out.
Australia’s climate-related disclosure regime phases in over three groups starting this year
- Group 1: Largest entities are already caught and must report for financial years beginning on or after 1 January 2025.
- Group 2: Mid-sized entities follow from 1 July 2026. These are entities meeting two of the following three thresholds: ≥250 employees, ≥A$200m revenue, or ≥A$500m assets
- Group 3: SMEs are likely to be part of Group 3 and will be required to report from 1 July 2027. These are entities meeting two of the following three thresholds: ≥100 employees, ≥A$50m revenue, or ≥A$25m assets. Only Group 3 entities with material climate-related risks or opportunities are required to disclose. However, entities that determine they have no material risks or opportunities must make a statement to that effect and explain their reasoning. This statement will still be subject to assurance with a director’s declaration.
For companies that are impacted, the mandatory regime requires annual reporting including disclosures on governance, strategy, risk management, metrics and targets, including Scope 3 emissions disclosures from the second reporting year onwards.
- You’ll be asked for data anyway.
Regardless of whether you are caught by any of the thresholds, if you supply goods or services to larger companies that are part of Group 1 or 2, your emissions are already on their radar. You might not be in scope, but you’re in someone else’s Scope 3 emissions, the indirect emissions that occur in their value chain (as defined in the GHG Protocol).
- Regulators expect early preparation.
ASIC’s message has been consistent: start putting systems, processes and governance in place now.
Where to Start?
If you wait, you will be scrambling later and risking missed opportunities. Build capability now so that you are ready to report when clients or financiers question your sustainability credentials by taking the following easy steps:
- Nominate ownership. Appoint an executive sponsor and ensure climate reporting has board oversight.
- Form a cross-functional working group. You’ll need Finance, Risk, IT, Facilities/Operations, HR and Procurement for supplier data. Ensure roles and responsibilities are appropriately allocated and documented.
- Assess your baseline: Identify and collect data to measure your baseline. A good starting point is to focus on the data you already have such as energy bills, fuel consumption, business travel and waste management before expanding to suppliers and other parts of your value chain. Some starting points for guidance on what to measure and how to calculate are:
- The Australian National Greenhouse Accounts Factors
- GHG Protocol for Scope 3 Calculation;
- Australian Government Climate Active
- Take action: Prioritise quick wins such as waste reduction, clean energy procurement, travel rationalisation, and supplier engagement. Consider offsets.
Treat ESG as an opportunity (not just compliance)
There are many advantages to treating ESG as an opportunity, here are our top three:
- Revenue & tender access. Major customers, lenders, and insurers are asking for emissions data; credible baselines keep you in the conversation. We are already seeing RFPs and procurement scorecards factoring in ESG credentials and MSAs incorporating sustainability clauses.
- Cost & resilience. Energy efficiency, travel rationalisation, and low-waste operations cut costs and reduce exposure to carbon/energy volatility.
- Banking and finance applications. Sustainability risks are increasingly being scrutinised.
Now is the time to act and start getting your head around your ESG footprint. We can help you set up governance and create a sustainability strategy scaled to your size before the deadlines hit.
