Small businesses should prepare for indirect climate disclosures: Grant Thornton

As mandatory climate disclosure requirements take effect from 1 January 2025, large businesses in Australia will need to disclose their climate-related financial risks, opportunities, plans and strategies.

Small businesses may see indirect reporting obligations as large businesses track down information required to complete their own reports, Grant Thornton said.

“As the regulatory landscape continues to evolve, it's crucial for small businesses in Australia to stay updated on new compliance requirements,” Grant Thornton wrote.

“While these regulations may not directly apply to small businesses, understanding their implications is essential for maintaining strong commercial relationships and ensuring future compliance.”

To fulfil their Scope 3 reporting requirements, large businesses may require information from small businesses, including energy usage data, waste management practices, supply chain transparency and carbon footprint information, Grant Thornton said.

Scope 3 emissions are those produced in a company’s supply chain relating to the production, use and disposal of products. Analysis by McKinsey Sustainability estimated that these emissions typically represent 90 per cent of a company’s total emissions.

Mandatory reporting of Scope 3 emissions would give businesses a better understanding of their overall climate impacts, including the emissions associated with the materials they purchase and the use of their products.

ASIC also said climate reporting requirements were set to benefit small businesses by boosting transparency regarding climate risks and opportunities present in their supply chains.

For example, the heightened focus on climate risks would enable small businesses to better predict how climate issues could affect their future insurance arrangements and supply chains.

The requirements could also unearth new business opportunities by highlighting how and where large companies plan to invest in climate change adaptation and resilience measures.

To prepare for compliance, Grant Thornton urged small businesses to keep accurate records of their energy usage, engage with customers and suppliers to understand their reporting needs, and consult with accountants, tax agents or professional advisers where further guidance was needed on the sustainability reporting requirements.

It also outlined a series of resources available for small businesses, including government websites that provide guidance on integrating environmental, social and governance practices in business.

ASIC’s sustainability reporting webpage also offered detailed information on the incoming reporting requirements and how they may affect small businesses.

“Staying informed about sustainability reporting requirements is essential for small businesses to navigate the evolving regulatory environment,” Grant Thornton said.

“By understanding these requirements and preparing accordingly, small businesses can ensure they remain compliant and maintain strong relationships with larger business partners.”