The New Rules: Sustainability Reporting for Small Business
As discussed in our previous post, Australia has introduced mandatory sustainability reporting for large businesses and financial institutions. ASIC has produced a useful fact sheet on their website which provides an explanation of how these changes will affect small businesses which we will discuss here.
Under the new framework, very large businesses and financial institutions must provide more information about their material financial risks and opportunities relating to climate change to their investors and lenders.
The new requirements commenced for the largest entities for financial years beginning on or after 1 January 2025 and will gradually apply to other large companies and financial institutions over time to be rolled out in the next 3 years.
Climate-related financial disclosures will be included in the sustainability report alongside the financial report and directors report and will contain information on climate-related governance, risk management, strategy and metrics, and targets.
These reforms align Australia with similar international initiatives and are designed to enhance the quality and transparency of information available to the market, supporting informed decision-making.
Will these sustainable reporting requirements apply directly to small - medium business?
According to ASIC small business being operated as a sole trader or through a partnership or trust, the sustainability reporting requirements will not directly apply to them. For small to medium business using a company structure, these reporting requirements will not directly apply to until 2028 and, even then, only if the company satisfies at least two of the following criteria:
For the financial year ending on 30 June 2028, the company has earned revenue of more than $50 million
As of 30 June 2028, the company has assets of more than $25 million, and/or
As of 30 June 2028, the company has more than 100 employees.’
To summarise, small business falling outside of those criteria, don’t have any mandatory sustainability reporting requirements. However, this does not mean that there are no benefits to be gained by small businesses from larger companies having those mandatory reporting requirements.
How can these new reporting requirements help small to medium business?
The reports mandated for large companies and financial institutions will be available to the public via ASIC’s register. This means that there will be greater transparency, which can provide small businesses with insights into their larger customers, suppliers and competitors plans in respect of climate change over the short, medium and long term.
Many small businesses operate within the value chains of larger organisations. A customer or supplier that is a large business or financial institution, may ask small businesses for information to help them meet their reporting obligations. For example, a large business may need to report on their energy usage. To fulfil that reporting obligation, they may ask for records of the small business’s energy use, such as electricity bills, so they can create a full picture of their own energy use. This example illustrates that small businesses increasingly need to consider climate reporting requirements even if they are not directly subject to mandatory reporting obligations themselves.
Another benefit of the mandatory reporting by larger businesses on how and where they intend to allocate capital toward climate adaptation and resilience initiatives, may potentially create opportunities to source new business for small entities in sectors such as building and construction. Furthermore, being aware of the climate-related risks facing important customers, suppliers, or critical infrastructure will also help small businesses assess how an extreme weather event for example could disrupt supply chains, enabling them to take proactive steps to strengthen their business’s resilience and future proof their business.
It is also possible that having access to greater knowledge of climate related opportunities pursued by large businesses as noted in their sustainability reporting, may create opportunities for small business to generate new income streams through the development of complementary products and/or services.
What to do if a supplier requests sustainability information from a small business?
Many small businesses operate within the supply chains of larger companies. As a result, even if they don’t have direct climate reporting requirements themselves, they may eventually need to address climate reporting issues. This is because a large company’s mandatory reporting on “scope 3” emissions include the emissions generated by its small business suppliers.
In situations where a small business is asked for information from suppliers who need to meet their reporting obligations:
clarify with the supplier the type of documents or records they need (e.g. electricity bills), or
ask the supplier if an estimate of the information they are after can be supplied.
Being aware of what customers and suppliers might required enables small business to meet their suppliers’ expectations and be able to respond to requests efficiently and remain competitive.
For more information and guidance on how you can prepare for a sustainable future, please contact us via our website.
Book your free LCA scoping
If your organisation is committed to making a measurable sustainable impact, staying ahead of the competition, strengthening brand visibility, and achieving globally recognised certification, now is the time to connect with us. Visit our webpage today to get started with a complimentary LCA scoping session and take the first step toward credible, results-driven sustainability leadership.
References: