Mandatory climate reporting is coming. Almost every Australian business, no matter its size, will be impacted by these changes.
Every business is already impacted by climate change and the national and global move to a more decarbonised economy. As we respond to climate change, even small to medium size businesses will feel the effects on their business models, supply chains, risk management and attitudes of customers and staff. This is particularly the case for businesses whose customers include larger businesses or emission generating businesses, who will have to understand and report on the emissions of their suppliers.
What are the climate reporting changes?
The International Sustainability Standards Board (ISSB) is expected to release the first stage of its international sustainability-related financial reporting standards in June this year.
The new ISSB rules will be stricter than existing standards. Businesses will be required to have increased and much more explicit disclosure of emission reduction targets. They will need to explain how these targets relate to international agreements.
Businesses will also need to report on assets vulnerable to climate risks and aligned to climate opportunities.
At the same time Australian Government agency, Treasury, has been consulting about the introduction of mandatory climate reporting to start in Australia in the 2024/2025 financial year. While this is likely to be aimed at large listed entities and financial institutions the scope could be broader.
How will mandatory reporting impact my business?
For every business, there will be far greater scrutiny on climate reporting and far less tolerance of greenwashing by regulators, financial institutions, other business lenders and by customers.
Don’t be fooled into thinking mandatory climate reporting will only impact larger businesses or those with high emissions. The new climate reporting measures will mean these businesses will have to report on not just their own emissions but emissions across their entire value chain – upstream and downstream. They will need data on their suppliers’ and customers’ emissions and may well require them to lower their emissions to be able to continue to do business with them.
There is also a potential upside for businesses who act early to meet mandatory climate reporting. You could open opportunities for new customers, products or services.
What should I do to be ready for climate reporting changes?
Start by asking these questions.
- Do you understand your business’ climate risks and opportunities?
- Do you have the competency and capability at a governance and managerial level to navigate the impacts of climate change, including mandatory climate reporting?
- What are your business’ major sustainability risks and opportunities?
- Are your systems, work processes, staff and data up to the task of responding to a lower carbon business environment and changes in climate reporting?
For most businesses, the answer to some of these questions will be ‘no’. Every business will need to enhance their capability in this area.
Start preparing for climate reporting and a lower carbon business environment NOW!
Internationally and nationally, many businesses that have started looking at this issue are saying they had wished they had done so earlier. That’s the experience of the local clients that our advisors are helping too.
Responding to these changes will be challenging. Here are three steps your business should take to be ready for greater scrutiny of their climate reporting and their approach to sustainable development and climate change.
Step 1. Review your governance in relation to climate change. Do you understand and are you staying up to date with the ISSB Standards and Treasury proposals on mandatory reporting?
Step 2: Identify your business’ gaps in relation to data and disclosure. Is your current data accurate and reliable, do managers and staff have sufficient skills in this area and do your systems need improving? Prepare an action plan to get where you need to be.
Step 3: Have a well-defined strategy for sustainable development and respond to all impacts of climate change, including climate reporting.
This sounds daunting but is essential risk management planning. The future of your business could depend on getting this right. The good news is there are business advisors with expertise in sustainability that can guide you through the process.