What mandatory sustainability reporting means for small businesses

Globally, momentum is building for mandatory sustainability reporting by larger entities. The Australian Government’s latest Treasury Consultation Paper proposes a three-year implementation approach for large entities to prepare sustainability reports, including climate-related financial disclosures. By 2027-2028, all large Australian entities (including large proprietary companies lodging financial reports with the Australian Securities and Investments Commission (ASIC) under Chapter 2M of the Corporations Act 2001) are expected to disclose sustainability-related financial disclosures in accordance with the following timeframes:

  • Group 1 entities – 2024-2025 onwards
  • Group 2 entities – 2026-2027 onwards
  • Group 3 entities – 2027-2028 onwards.

Small entities that do not lodge financial statements with ASIC are not necessarily off the hook. Why is this?

Australian and global groups

Small entities that are part of a larger Australian or global group may be required to measure their carbon footprint and prepare sustainability disclosures for their parent entities if the parent entity is subject to compulsory reporting.

Value chains

Many large entities and groups have started publicising decarbonisation commitments such as ‘net zero by 2050’. To achieve these targets, they need to ensure all suppliers, customers and service providers throughout the value chain have similar commitments. We are already seeing instances where small businesses are given no choice but to measure their carbon footprint and prepare sustainability disclosures because customers demand it. And in many cases, assurance is also required.

The saying ‘you can run, but you can’t hide’ is true for small businesses in this predicament. In the short-term, they may be able to avoid, in particular, measuring carbon footprint, but not for long. Eventually, most entities you transact with will require transparency on your carbon footprint, and there will be no escaping.

An entity’s carbon footprint consists of:

  • Scope 1 emissions – those under control of the entity
  • Scope 2 emissions – from purchased electricity
  • Scope 3 emissions – indirect emissions from suppliers of goods and services (upstream activities) and from customers (downstream activities).

Scope 3 emissions comprise about 80 to 90 per cent of most entities’ emissions. Therefore, all organisations, including small businesses, will need to reduce emissions through the value chain. And you can’t manage what you don’t measure, so all entities will need to measure their carbon footprint one way or another.

How BDO can help

If you are a small business, no matter where you are on your sustainability journey, our national team of sustainability experts can help with:

  • Carbon footprint calculations or mandatory climate-related disclosures
  • Carbon emission reduction strategies
  • Sustainability reporting
  • Developing your sustainability strategy
  • Assurance over your carbon footprint or sustainability reporting.

Contact us today.