Driven by consumer expectations, supplier demands and regulatory requirements, it is now expected that all businesses communicate and report their environmental, social and governance (ESG) performance to stakeholders to remain competitive.

For companies that argue they do not have the expertise, financial resources or capabilities to do this, time is running out. Aside from consumer demand, mandatory requirements for climate-related disclosures are already in place for large entities in New Zealand and kick in on 1 January 2025 in Australia.

The Australian Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill 2024 was introduced to the Australian Federal Parliament by Treasurer Jim Chalmers in March. It is the first step under a proposed framework that will cover thousands of companies and organisations in coming years.

“This legislation will introduce standardised, internationally aligned reporting requirements for businesses, to ensure they are making high quality, climate‑related financial disclosures, Chalmers said in a statement. “These new laws will modernise our financial system, provide greater information and clarity to investors, and incentivise investment in the net zero transformation.”

Initially flagged to begin on 1 July 2024, reporting requirements have now been pushed back to 1 January 2025 for Australia’s largest listed and unlisted companies, and financial institutions, says Clare Luehman FCA, executive general manager natural capital, finance and technology at Niche.

“The start date was delayed after industry feedback highlighted that businesses needed more time to develop robust reporting processes and better integrate these into their systems. Hopefully by January, they’ll be in a better position to start reporting and maybe even get ahead of the curve,” she says.

While the new reporting legislation is a significant step forward, Australia is still playing catch-up, Luehman says.

“We are catching up. New Zealand is ahead of Australia, in fact many other developed economies already have mandatory reporting,” she says.

In New Zealand, some large entities have been required to publish disclosures from financial years commencing on or after 1 January 2023, in accordance with climate standards published by the External Reporting Board (XRB).

The XRB’s standards are aligned with the Task Force on Climate-related Financial Disclosures (TCFD) recommendations that were issued in 2017 as guidelines for voluntary climate-related disclosures. They were aimed at helping entities communicate their climate-related financial risks to investors, lenders and insurers.

Other jurisdictions have or will be introducing mandatory sustainability-related disclosures, which may also impact entities based in Australia or New Zealand if they trade with, are listed or operate in these jurisdictions, says Luehman.

“While the focus right now is on climate-related risks, businesses should also be aware that broader environmental factors, such as biodiversity and nature-related risks, may soon become part of these reporting requirements.”

Reporting requirements in Australia

The new reporting requirements in Australia mean that large entities that are required to prepare and lodge annual reports under Chapter 2M of the Corporations Act 2001 will need to disclose information about climate-related risks and opportunities, including their greenhouse gas (GHG) emissions.

Companies are grouped into one of three categories, which take into account revenue, number of employees and assets.

Most Australian small and medium enterprises (SMEs) will not be directly impacted by these reporting requirements in the near term. However, as SMEs are part of the supply chains for larger firms, they might still need to address climate reporting. This is because the scope 3 emissions of a large company, which are emissions from its supply chain, include the emissions from its smaller suppliers.

Climate-related mandatory reporting in Australia

First annual reporting periods starting on or after	Large entities and their controlled entities meeting at least two of three criteria			National Greenhouse and Energy Reporting (NGER Reporters)	Asset owners
	Consolidated revenue	EOFY consolidated gross assets	EOFY employees
1 January 2025 Group 1	A$500 million or more	A$1 billion or more	500 or more	Above NGER publication threshold	N/A
1 July 2026 Group 2	A$200 million or more	A$500 million or more	250 or more	All other NGER reporters	A$5 billion assets under management or more
1 July 2027 Group 3	A$50 million or more	A$25 million or more	100 or more	N/A	N/A

What needs to be reported?

Businesses that are subject to mandatory climate-related reporting are required to disclose information each year about their climate-related financial risks, opportunities, plans and strategies. This includes information on the governance structure for managing climate-related risks, including the roles of the board and management.

They also need to detail how they identify, assess and manage risks, and integrate them into their overall risk management processes. Reports also include the impact of climate factors on the organisation’s strategy and financial planning, as well as metrics, and targets for managing climate-related risks, including GHG emissions.

Accountants and auditors should be part of the project teams nominated within a reporting entity, says Luehman.

“You need to understand where your emissions lie and have a robust way of collecting that information. Businesses need to build a process that you can replicate, rather than just trying to catch all the data in the first year. That’s where the finance team comes in,” she says.

The reporting process also provides businesses with the opportunity to prepare a strategy to reduce their climate-change impact, she argues.

“If you are tracking that data, you will find there are many benefits that come from that process from a cost perspective, an employee engagement perspective and potential new revenue, for example.”

There are multiple risks with not adhering to the reporting requirements, says Luehman – not only fines.

“Aside from any government penalties, there will obviously be issues for the directors of those companies because if they don’t report, then they won’t have met their legal requirements. But a third area of risk is reputational because if your competitors are disclosing and you are not, then you will be left behind,” she says.

A further risk is investment related. Failing to report is a governance issue, which Luehman argues is a red flag for investors.

“Investors are particularly focused on governance risks and if a company is not meeting its mandatory requirements, that’s a governance fail,” she says.

“Basically, anything you spend money on has a footprint and your actual dollar amount is a really good proxy for your GHG emissions.”

SMEs exempt, but not off the hook

While smaller businesses are exempt from mandatory reporting on the basis they don’t meet the current criteria, in a similar fashion to the reporting requirements of the Modern Slavery Act 2018, they will be scooped up as part of the value chain for larger businesses.

This provides accountants with a huge opportunity to work with SME clients to leverage insights across the business’s operations, identify the data needed, look for ways to reduce GHG emissions and meet reporting requests from suppliers, says Karen McWilliams FCA, sustainability and business reform leader at CA ANZ.

“It might initially be a request for GHG emissions data, but it may subsequently form part of the requirements to tender for work. And, as small businesses turn their attention to this, they’ll ask their trusted adviser for help,” McWilliams says.

Accountants already have the skills to help their clients start measuring their carbon emissions for reporting purposes, says Luehman.

“The basis of accounting is the provision of financial data to enable decision making. Accountants really need to be thinking about climate-change reporting in the same way and try to help their clients manage the data.

“How can they reduce emissions and where can they reduce them? There will be different costs and different values from reducing climate impact across different parts of their business,” Luehman says.

“While the focus right now is on climate-related risks, businesses should also be aware that broader environmental factors, such as biodiversity and nature-related risks, may soon become part of these reporting requirements as frameworks like the Task Force on Nature-related Financial Disclosures continue to develop,” adds McWilliams.

Understanding ESG

“Accountants already have access to all the data needed to measure a GHG footprint. All they need is a framework and an understanding of what ESG means in practice for their clients,” says Cat Long, founder and CEO of Trace, a digital platform that specialises in helping businesses track their GHG emissions.

Measuring GHG emissions, employee engagement, customer satisfaction and how a business engages with the community are all examples of ESG issues that affect a business’s ongoing productivity and profitability, she says.

“ESG is very broad. E is the environmental aspect, which includes carbon, water and the circular economy. Social impact can be anything from diversity and inclusion metrics to philanthropic giving, and then governance is related to the structure, policies and processes a company adopts to stay accountable to ESG metrics,” says Long.

“There will be different costs and different values from reducing climate impact across different parts of their business. It really does take someone with expertise to guide them on the journey – there is value in understanding your carbon footprint.”

Who is asking?

Understanding where the demand for information is coming from will help a business, as will determining what is materially important to the business, says McWilliams.

“Firstly, look at where the requests are coming from – is it from their suppliers, customers or providers of finance? What information are they asking for?” she says.

Rather than applying every potential ESG factor, different industries are expected to look at the elements of ESG that are material to their own activities and impacts, says McWilliams. In ESG terms, materiality defines the social, environmental and governance topics that matter most to an organisation and its stakeholders – those most likely to affect the operating performance of the business.

“The next step is to look at the organisation’s operations and value chain to identify where the material risks and opportunities in relation to ESG sit,” she says.

Mapping emissions

Often the request for information will be related to GHG emissions, Long says, and for most companies big and small, over 70% of GHG emissions come from their supply chain.

“Every company has a footprint, so I advise starting your ESG journey by understanding your GHG emissions. Luckily, it’s not as scary and costly, or time-consuming as a lot of small businesses think it is.”

Using available software that accesses data from your accounting platform makes it a lot more straightforward, streamlined, cost-effective and can be used to track your progress, Long adds.

“Basically, anything you spend money on has a footprint and your actual dollar amount is a really good proxy for your GHG emissions. How much you spend on domestic travel, on electricity, on petrol, for example, can be used to estimate your footprint and help you understand where to reduce your emissions,” she says.

The next step is to engage and select suppliers with plans to reduce their emissions, because their emissions are your emissions.

“Accountants are well placed to help companies make informed choices about which suppliers to choose and measure their progress,” adds Long.

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What is ESG?

Environmental factors

Water use and quality, air pollution, energy use, greenhouse gas emissions and climate change, raw material use, waste generation, land degradation and biodiversity.

Social factors

Labour practices, health and safety, human rights and freedoms, wellbeing and quality of life, inclusion and non-discrimination, social cohesion and community resilience.

Governance factors

Business ethics, bribery and corruption, anti-competitive behaviour, data privacy, lobbying activity, tax transparency and integration of environmental, and social objectives and commitments into business governance practices such as decision-making structures, performance measurement, audits, disclosure and executive incentives.

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