Australia's New Mandatory ESG Reporting Requirements for Business

From 1 July 2024, Australia will introduce mandatory ESG reporting requirements for businesses.

The legislation will require large Australian corporations and asset managers to make mandatory climate-related financial disclosures in their annual reports at the end of each financial year. This represents a significant shift in corporate transparency and environmental responsibility, bringing Australian companies into line with global ESG standards.  

As a business owner, here’s what you need to know and how you can prepare. 

Which businesses does this apply to and when? 

Mandatory reporting will be phased in based on the size and revenue of businesses. This allows businesses to gradually prepare for and implement the necessary reporting systems. 

Here’s a breakdown of the timeline. 

• 2024-25 Reporting Year (Beginning 1 July 2024)

Group 1: Large, listed entities and financial institutions with revenue above $500 million. 

• 2025-26 Reporting Year

Group 2: Large, unlisted companies and entities with revenue above $250 million. 

• 2026-27 Reporting Year

Group 3: Smaller entities, potentially including medium-sized companies with revenue above $50 million. 

What are the key requirements for businesses?

1. Scope and Reporting Standards: Businesses will be required to report on a wide range of ESG factors, including environmental impact, labour practices, and governance issues. The reports must adhere to internationally recognised standards such as the Global Reporting Initiative (GRI) and the Sustainability Accounting Standards Board (SASB). 
2. Materiality Assessment: A materiality assessment helps companies identify and prioritise the ESG issues that are most relevant to their business and stakeholders. This ensures that their sustainability reporting focuses on the most significant risks and opportunities, providing meaningful insights rather than generic data.
3. Climate-Related Disclosures: Businesses will need to disclose their greenhouse gas emissions (Scope 1, 2, and eventually Scope 3 – see below for more on this), climate-related risks and opportunities, governance around climate issues, and strategies for managing these risks. These disclosures will be aligned with the standards set by the Australian Accounting Standards Board (AASB) and the International Sustainability Standards Board (ISSB).
4. Verification and Assurance: Initially, the sustainability reports will be subject to limited assurance, but this is expected to evolve, requiring more rigorous verification over time.

What’s the Difference Between Scope 1, 2 and 3 Emissions and How Can Solar Help Reduce Them? 

• Scope 1: These are direct emissions from owned or controlled sources. For businesses that rely on fossil fuels for power generation (e.g., diesel generators), installing onsite solar can reduce or eliminate these emissions by providing a clean energy alternative. 

• Scope 2: These are indirect emissions from the consumption of purchased electricity, steam, heat, and cooling. Onsite solar and storage reduce Scope 2 emissions by generating renewable energy on-site, decreasing the amount of electricity the business needs to purchase from the grid, which is often generated from fossil fuels. 

• Scope 3 (Indirect): While solar and storage primarily impact Scope 1 and 2 emissions, they can also help reduce certain Scope 3 emissions, such as those related to the transmission and distribution losses of electricity. Additionally, they can indirectly reduce upstream and downstream emissions by contributing to a business's overall decarbonisation strategy. 

What’s the Implication of The New Reporting for Companies?

The introduction of these reporting requirements means that eligible companies will need to implement robust systems to track, manage, and report on their sustainability efforts. This could be challenging, particularly for smaller enterprises, which might face additional compliance burdens. 

However, this shift also presents an opportunity for businesses to demonstrate leadership in sustainability. Investing in clean energy solutions such as solar and storage systems can significantly reduce carbon footprints, making it easier to meet these reporting requirements.  

By proactively adopting renewable energy technologies, businesses can not only comply with the new regulations but also enhance their reputation as responsible and forward-thinking organisations. 

How Can We Help?

At Smart, we understand that navigating these new sustainability reporting requirements can be complex, but we’re here to help. One of the most effective ways to meet your sustainability goals and reporting obligations is by investing in commercial rooftop solar and storage solutions. By generating your own clean energy, you can significantly reduce your Scope 1 and 2 greenhouse gas emissions, a critical component of the new reporting standards. 

We offer tailored Solar Feasibility and Energy Analysis studies to help businesses identify impactful strategies for reducing their carbon footprint with clean energy. Our experts can assess your current energy usage and design a solar and storage solution that aligns with your sustainability objectives, helping you not only comply with the new regulations but also reduce operating costs and enhance your environmental credentials. 

Get started on your sustainability journey with an Energy Analysis today and take a proactive step towards a more sustainable and compliant future. 

References: 

Draft legislation released for mandatory climate reporting framework | Clayton Utz 

Towards mandatory sustainability reporting in Australia | Deloitte Australia | Audit updates 

Climate reporting rules pass Senate: What SMEs need to know (smartcompany.com.au)