As of January 1, this year, Australia’s largest corporations across financial, mining, construction, and other sectors are required to include climate-related financial disclosures in their annual reports. These disclosures must address climate-related risks, metrics and targets (including greenhouse gas emissions), and details on strategy and management pertaining to these elements.

The flow-on effect of mandatory reporting requirements

As Australia’s mandatory climate reporting has come into effect, discussion has primarily focused on how it will impact big business. But the new reporting regime is already driving flow-on effects for the country’s small and medium enterprises (SMEs) which play a fundamental role in larger supply chains. And while these businesses don’t need to navigate the regulatory complexities on the same scale, many lack the understanding, capability, or capacity to meet the increase in market expectations.

At last year’s United Nations Global Compact Uniting Business Live, amid some incredibly powerful sustainability initiatives and positive action, I was struck by the lack of accountability for the capacity building of our SMEs. These businesses do – and will continue to – play a critical role in contributing to the Australian Government’s climate goals and yet, they’re not being provided with the support they need to build sustainability skills.

In Queensland alone, there are more than 490,000 SMEs, representing 99.8% of all businesses across the state. While the majority of them won’t be large enough in size (revenue, assets and employee numbers) for mandatory reporting, there are growing concerns amongst SMEs about indirect impacts and their ability to respond to similar requirements imposed by export markets and customers. In fact, Business Chamber Queensland data found 22.7% of businesses have major or critical concerns about meeting wider market environmental sustainability expectations. And shouldn’t the ultimate goal be to empower all businesses to go beyond simply meeting the requirements of sustainability policy?

If so, work needs to be done to arm them with the resources and support they need to improve sustainability practices, address market needs and remain resilient into the future.

An urgent need for SME sustainability capacity building

As it stands, the sustainability maturity of Queensland businesses sits firmly within the ‘obligation’ stage, where most businesses are making decisions beyond their industry’s minimum legal compliance due to external pressures such as consumer demand and the current push for sustainable supply chains. While this is an encouraging result, our sustainability data also found almost 1 in 5 (19.2%) are not making decisions based on environmental or social factors at all, leaving them at risk of being left behind.

The main barriers include cost of compliance, regulatory changes, knowledge about sustainable practices and a lack of interest, plus one in four businesses (26.22%) are still unsure what, if any, barriers exist for their business. Add to that, 97% of Queensland SMEs have less than 20 employees, meaning business owners are often acting as CEO, CFO, CHRO and risk and compliance manager all-in-one.

The apparent expectation of both government and industry that these businesses should set about educating themselves poses several critical risks to the state’s future competitiveness, diversification of the business landscape and downstream supply.

The critical role of capacity development

Currently, only 8.3% of Queensland businesses agree or strongly agree that the level of support and resources to adopt sustainable practices is sufficient – and there is a clear gap in ownership, leaving SMEs to fall by the wayside in the fight for corporate sustainability. Beyond the commercial risks posed by the introduction of mandatory reporting, businesses are also missing out on the opportunity to realise the cost-savings and efficiency gains made possible through the implementation of sustainable business practices.

The risks also extend beyond the SMEs themselves if capabilities are not developed properly. Already boxes are being ticked without a full understanding of what compliance looks like, leaving capacity gaps and laying shaky foundations beneath already volatile supply chains.

The attempts made by government and industry to address this challenge have so far have fallen short. Creating a platform for inputting data might help big business with supply chain reporting, but it doesn’t help SMEs understand what they need to do to truly become sustainable, or build their working knowledge of sustainable business practices.

True capacity development will require collective effort – with government, industry, the private sector, and not-for-profits working together to deliver accessible, effective and comprehensive services to SMEs. Presently, frontline support and resources are being delivered by industry bodies and chambers of commerce, who already have the networks, reach and established partnerships to understand SMEs’ needs. However, a lack of funding makes it difficult for these programs to gain real traction.

Recognising that capacity building is essential to improving sustainability across Queensland and securing national and international supply chains, this funding should really be coming from public-private partnership.

Enabling the next generation of businesses and building capacity for sustainable innovation

Getting ahead of the curve in corporate sustainability can support innovation, set businesses apart from their competition, and position them for future procurement opportunities such as those coming through the 2032 Games pipeline. These procurement opportunities can act as a valuable catalyst to drive business engagement and action, but this must be partnered with comprehensive support to manage the potential risks.

Additional socio-environmental and regulatory changes are also on the horizon, so if we want the next generation of Queensland SMEs to grow into large, successful and influential businesses, we must ensure they have the right knowledge and processes in place from the outset.

Queensland has an opportunity to lead the way in corporate sustainability, but we won’t get there without lifting up our SME community.

History has shown collective action is necessary to achieve meaningful impact. Sustainability is fast becoming business critical and the risk of a missed opportunity to build the capacity of our SMEs today will have broad repercussions into the future. The fight for corporate sustainability is one where Queensland should lead the way, not lag behind, and we need engaged and empowered SMEs to do that.