Sustainability disclosure risks catching out slow-moving businesses

Businesses who have not begun preparing for mandatory climate reporting risk being left out of supply chains as larger companies tighten their sustainability requirements. 

But those who have started are reaping tangible gains such as streamlined operations, according to the latest Pitcher Partners Business Radar report.  

The survey of more than 140 middle-market businesses found a widening gap in both perceptions and action on mandatory climate reporting and other ESG initiatives.  

Under changes made to the Corporations Act 2001 that kicked in from January 1, Australia’s largest businesses need to include a sustainability report alongside their financial report, directors’ report and auditor’s report. 

So far, the sustainability report is limited to climate-related disclosures, including an assessment of risks and opportunities, its climate transition plan, and climate-related metrics such as Scope 1 and Scope 2 greenhouse gas emissions. 

Over time, the sustainability report is expected to require other disclosures relating to a company’s ESG.  

The changes only currently affect organisations with consolidated revenue of $500 million or more, with the next tier (revenue of $200-500 million) starting from 1 July 2026. 

While awareness of the changes is relatively high, action is low.  

Six in 10 businesses say they have some level of familiarity with the new requirements, and more than half feel confident that they know what needs to happen for their business to reach compliance.  

However, 75% say they’re not at all prepared or only somewhat prepared for mandatory climate reporting at this stage — despite the fast-approaching deadlines. 

Roughly a third of businesses agree they will need to spend more to meet these requirements, will struggle with constraints on resources, such as time, budget and staff, or lack the internal expertise needed to deal with the complexity of new guidelines. 

Jyotika Rangel, a Partner at Pitcher Partners Sydney, says there seems to be a disconnect between what businesses believe needs to be done and the speed at which they think it can be achieved.  

“Business leaders think they know what might be required of them, but they are also quick to say they haven’t really started preparing or assessing the work needed to be compliant,” she says.  

“Many middle-market businesses assume the rules won’t impact them in the short term, given the first companies required to report are also Australia’s largest, and perhaps better prepared to disclose their greenhouse gas emissions.  

“But that could change as more businesses need to report not only Scope 1 and Scope 2 emissions but Scope 3 impacts in their supply chains.  

“A real sleeper issue for businesses that may not be required to mandatorily report is that they find themselves caught up in the Scope 3 reporting of their largest customers. 

“Overlooking or underestimating this could be a costly mistake if it results in losing a customer to a more prepared competitor.” 

While broader ESG activities are not mandated, just over half of businesses reported they are implementing and reporting on ESG measures or have incorporated ESG measures in a strategy or roadmap.  

Among these businesses taking action, 60% view ESG measures positively, with few negatives and a range of positives including increased efficiency, lower energy costs and improved reputation.  

Businesses that are yet to act on ESG matters are twice as likely to view mandatory reporting as a negative step but action can yield surprising results, says Peter Lawrence, a Partner at Pitcher Partners Newcastle. 

“To meet these new mandates requires effective governance and planning but these should be seen as positives, given the impact they can make on the strategic position of a business,” he says.  

“Real value can arise when you set clear objectives, allocate resources efficiently, reduce waste and continuously monitor operations.  

“We find that the review of processes and operations needed to achieve compliance can deliver real benefits. For instance, businesses can adopt energy-efficient technologies, streamline operations to reduce waste, and explore alternative materials that have a lower environmental impact.  

“Compliance should not be seen as a box-ticking exercise, but a way for businesses to benefit from cost savings, operational efficiencies and the competitive differentiation that arises by being proactive on sustainability.”