What SMEs Need to Know About Sustainability Reporting

The business landscape in Australia is evolving rapidly, with new sustainability reporting standards set to be enforced from 1 January 2025. For CEOs, directors, and board members, regardless of the size of your organisation, understanding these changes and taking the necessary steps to prepare and comply is essential.

There’s a lot of information out there so in this article I aim to give you the ‘stock cube’. An overview of the new regulations, how it impacts small-medium sized organisations, tips on how you can prepare, and why embracing sustainability is good for business.

New Sustainability Reporting Standards for 2025

From 2025, mandatory sustainability reporting will be introduced in Australia, aligning with international standards such as the Global Reporting Initiative (GRI) and the Task Force on Climate-Related Financial Disclosures (TCFD). These standards focus on Environmental, Social, and Governance (ESG) factors, requiring businesses to disclose their performance on:

• Carbon emissions: Direct emissions (Scope 1), indirect emissions from purchased energy (Scope 2), and supply chain emissions (Scope 3).
• Energy consumption: Tracking total energy usage and renewable energy adoption.
• Water and waste management: Reporting water consumption, recycling, and waste disposal methods.
• Social impact: Metrics around labor practices, diversity, and corporate governance structures.

These reporting requirements reflect Australia’s commitment to achieving net-zero emissions by 2050. The new standards will first focus on companies with a significant environmental footprint—primarily larger organisations. The Mandatory Climate-Related Financial Disclosures Policy expands on reporting obligations by integrating climate risk management and strategy into required disclosures. This regulatory shift is part of a global trend toward greater corporate transparency and accountability in the face of climate change.

Why SMEs Should Start Adopting Sustainable Practices

While the new sustainability reporting regulations primarily apply to large companies—those with significant revenue, assets, or employee counts—small to medium-sized enterprises (SMEs) will inevitably be influenced by these changes. Larger organisations, especially those in high-impact sectors like manufacturing, energy, and transportation, and publicly listed companies, will expect their suppliers and partners to demonstrate sustainability efforts.

If your business operates in a supply chain with larger corporations or international partners, you may already be feeling pressure to provide Environmental, Social, and Governance (ESG) data. As sustainability reporting becomes the norm, smaller businesses that act now will be better positioned to meet client and investor expectations and grow business.

Why start now?

1. Client and Investor Expectations: Large companies increasingly demand sustainability from their suppliers. SMEs that can demonstrate their ESG practices will maintain stronger relationships and attract new business from environmentally conscious partners and investors.
2. Future Proofing: Sustainability reporting regulations are expected to expand over time to include smaller businesses. By voluntarily starting now, SMEs can stay ahead of the curve and prepare for future compliance.
3. Competitive Advantage: Early adopters of sustainable practices can differentiate themselves in a marketplace where consumer demand for sustainable products is growing. Highlighting your sustainability efforts gives you an edge, especially when competing for contracts with larger or working with international companies.
4. Operational Efficiencies: Sustainable practices often reveal areas where businesses can reduce waste, improve efficiency, and save money. Even though reporting is not yet mandatory for Australian SMEs, it is a smart business move that can drive cost savings and operational improvements.

Even if your company does not fall under the immediate scope of the 2025 reporting requirements, it is only a matter of time before sustainability becomes a requirement across the board. The sooner your organisation adopts these practices, the better prepared you will be to meet future expectations, comply with evolving regulations, and capitalise on the benefits of sustainability.

Why Sustainability is Good Business

Sustainability is not just a regulatory obligation—it’s a strategic opportunity. I’ve previously shared some insights on how building sustainable business models is key to long-term success. Companies that focus on sustainability, incorporating environmental, economic, and social considerations, are better positioned for resilience and growth.

By embedding sustainability into business models, companies ensure they remain competitive and relevant in today’s market. A great example of an Australian company that I have been working with, which is implementing sustainable practices, is iconic trailer manufacturer GLT led by CEO Shay Chalmers. You can read more about this journey here.

Practical Steps to Take

To ensure your company meets upcoming reporting requirements, it’s crucial to start taking action now. Here’s a quick step-by-step guide to help you prepare:

1. Understand Your Obligations: Review your specific obligations under the new ESG reporting framework. You can find sector-specific details through the Australian Securities and Investments Commission (ASIC).
2. Assess Current Sustainability Practices: Identify what data your company is already tracking (e.g., energy consumption) and where there are gaps, particularly in areas like indirect emissions (Scope 3) and social impact metrics.
3. Set Up Data Collection Systems: Implement systems to track and manage sustainability data. This may involve automating data collection for energy usage, emissions, and waste management. Assign internal teams or hire external consultants to oversee the compliance process.
4. Engage Stakeholders: Transparency is key. Regularly communicate with your internal and external stakeholders about your sustainability efforts, and involve them in shaping your ESG strategies.
5. Share Your Story: Tell others, encourage others. This is a global effort and everyone has their part to play. Don’t be shy in telling others about your sustainability journey, what you are doing and the challenges you may be facing. This may just be what differentiates your business from competitors.

To Wrap Up

The 2025 sustainability reporting regulations will apply to a range of companies, from large corporations to SMEs, especially those in high-impact industries. While the primary focus is on larger organizations, all businesses should consider voluntary reporting as a way to stay ahead of regulations, meet stakeholder expectations, and enhance operational efficiencies.

By adopting sustainability practices across environmental, economic, and social dimensions, businesses can not only ensure compliance but also improve their reputation, unlock cost savings, and secure a competitive advantage. 

Now is the time to begin preparing for these changes to protect your business and seize the opportunities that sustainability offers. Don’t have the time or team resources available? Get in touch to learn how I and my team at Small and Mighty Group can assist.