What is mandatory sustainability reporting?

Mandatory sustainability reporting is a newly introduced regulatory requirement for large Australian businesses and financial institutions to prepare a sustainability report as part of their annual corporate reporting obligations.

This sustainability report must set out climate-related financial disclosures including greenhouse gas emissions associated with business activities, emissions targets, climate-related financial risks and opportunities, and strategies for managing them.

While this mandatory reporting currently only applies to large businesses, it contains requirements to report on ‘Scope 3’ emissions, which include indirect emissions of business’s supply chain, which will often include smaller businesses. This, combined with changing market expectations and procurement requirements around sustainability, means small businesses are also facing increasing pressures to understand and track their sustainability efforts.

Sustainability reporting demystified

Sustainability reporting involves documenting and disclosing a company’s environmental, social, and governance (ESG) performance. It typically includes:

• Greenhouse gas emissions reporting: Measuring and reporting emissions from direct operations, energy usage, and supply chain activities.
• Energy and resource use: Tracking energy consumption, water usage, and waste management to identify efficiency opportunities.
• Sustainable business practices: Implementing policies for responsible sourcing, employee well-being, and corporate governance.

  Climate-related risks and opportunities: Assessing how climate change may impact the business financially and strategically.

• Compliance with regulations and frameworks: Aligning business operations with government mandates, industry standards, and voluntary sustainability initiatives.

Opportunities for small business to capitalise on mandatory sustainability reporting

Initially for small businesses, sustainability reporting may seem overwhelming. However, it essentially just means tracking resource use, setting achievable goals to reduce environmental impact, and transparently sharing efforts with stakeholders.

In fact, the implementation of mandatory reporting represents an opportunity for small businesses to engage with the framework and prepare to meet or exceed stakeholder expectations.

By demonstrating leadership with their sustainability goals, reducing their carbon footprint, managing climate-related risks, and addressing their environmental impact, small businesses can also generate cost savings, operational efficiency, and leverage greater opportunities to win work and achieve resilient business growth.

Strengthened supply chain relationships

As a result of ‘Scope 3’ emissions reporting requirements, large businesses may favour suppliers who understand the implications of mandatory sustainability reporting and actively work to measure and reduce their own emissions. Small businesses that can align with these requirements by tracking and demonstrating progress in their sustainability efforts will position themselves as preferred partners, increasing their chances of securing contracts and building long-term business relationships.

Cost savings and operational efficiency

Assessing carbon emissions can help identify inefficiencies in business operations, which, when addressed, can lead to reduced energy consumption, waste generation, and increased cost savings. This could include:

• Energy efficiency: Implementing LED lighting, upgrading to energy-efficient appliances, and optimising heating and cooling systems can significantly cut utility bills.
• Waste reduction: Streamlining procurement processes to minimise waste, reusing materials, and increasing recycling efforts can reduce disposal costs and environmental impact.
• Process improvements: Identifying inefficiencies in logistics, production, and service delivery can lead to leaner operations and financial benefits.

Improved brand reputation and market competitiveness

Customer loyalty, brand perception, and new customer attraction can all be elevated by adopting sustainable practices that align with sustainability reporting requirements being implemented by both the Australian Government and internationally. Demonstrating environmental responsibility and transparency with sustainability strategies can differentiate a business in the market and attract the growing cohort of environmentally conscious customers and investors.

Opportunities include:

• Marketing and public relations: Businesses that showcase sustainability initiatives through website updates, social media, and sustainability reports gain credibility and customer trust.
• Consumer preferences: Customers increasingly prefer to buy from environmentally responsible, socially conscious and ethical businesses, leading to a competitive advantage.
• Investor and partner interest: Sustainable practices make businesses more attractive to investors, lenders, and corporate partners seeking responsible investments.

Access to sustainable finance

Small businesses that demonstrate efforts aligned with mandatory reporting by, for example, considering their greenhouse gas emissions and other environmental issues, can find it easier to secure financing at more favourable interest rates from banks offering sustainable financing arrangements.

Many financial institutions offer green loans or sustainability-linked financing, providing businesses with capital at lower rates if they meet specific environmental goals. Engaging in sustainability reporting can also open opportunities for government grants and subsidies designed to encourage environmentally conscious business practices.

Reduced business risk and future-proofing

Understanding and engaging with both voluntary and mandatory sustainability disclosure frameworks enables small businesses to anticipate related risks and opportunities, remain a resilient part of supply chains, and foster long-term business viability. This can lead to additional benefits including:

• Regulatory preparedness: Future-proofing against potential regulatory expansions ensures businesses stay ahead of compliance requirements.
• Operational resilience: Identifying climate-related risks (e.g., extreme weather impacts on supply chains) allows for proactive mitigation strategies.
• Industry leadership: Businesses that adopt sustainable practices early position themselves as industry leaders rather than playing catch-up.

Practical steps small businesses can take today

1. Start small

Understanding your current energy, water and waste consumption, and carbon footprint is the first step. Many organisations, including Business Chamber Queensland, offer training, advice and support to help small businesses analyse their sustainability performance.

2. Set realistic goals

Define some sustainability targets. Keep them simple to begin with. For example, aim to reduce energy consumption by 20% over five years, implement a recycling program, or commit to sourcing 50% of materials from sustainable suppliers.

3. Implement sustainable practices

Put your plans into action:

• Switch to energy-efficient appliances and LED lighting
• Install water-saving initiatives such as low-flow taps and rainwater harvesting
• Reduce waste by sourcing packaging that is recyclable or compostable
• Make sustainability part of your business strategy and everyday operations

4. Keep track of what you do

Record initiatives you implement each financial year including:

• Steps taken
• Investments made
• Outcomes achieved

This will not only help in tracking progress but will also demonstrate your commitment when engaging with larger businesses or financial institutions.

5. Report transparently

Be open about your sustainability journey and understand you will have both successes and areas for improvement. Share progress through:

• Company website updates
• Sustainability sections in annual reports
• Social media and email newsletters

Transparency fosters trust and credibility among customers, suppliers, and stakeholders, particularly when it comes to climate-related disclosures.

6. Seek expert support

Business Chamber Queensland understands the impact of mandatory sustainability reporting requirements on small businesses. Our expert advisors offer guidance and support for small businesses trying to understand mandatory climate reporting and the types of information needed by larger businesses that are required to disclose climate related risks. We can help your business remain a critical component of value chains by implementing efforts to achieve sustainability goals. We offer:

• Resources and toolkits
• Workshops and training programs
• One-on-one consulting for tailored sustainability strategies

Flip your thinking: Find opportunity where others see burden

Mandatory sustainability reporting means opportunity for small business. It presents not only a shift towards a more sustainable, responsible way of doing business, but also offers increased chances for you to win work, attract more customers and retain valued staff. The journey towards sustainability can enhance your business’s reputation, lead to operational savings, and open up new market opportunities.