“Sleeper issue”: SMEs will soon be swept up under a new mandatory climate reporting regime

Big business is largely ready for climate disclosure but thousands of suppliers may be unaware they’re about to be swept up in a new mandatory reporting regime.

A climate governance study released on Tuesday by the Australian Institute of Company Directors shows mixed readiness as the Treasury works on aligning the nation’s accounting rules with international sustainability standards.

“The big end of town is better prepared than the rest, and that stands to reason,” the institute’s CEO Mark Rigotti told AAP.

“They’ve got more resources and they’ve probably been focused on this for longer.”

Almost three-quarters (72%) of respondents expected to be subject to mandatory climate reporting and said they were “somewhat” or “well” prepared.

But less than half (43%) of listed and a quarter of unlisted companies had a transition plan and targets, the survey of more than 1000 directors found.

Most (80%) were concerned about climate change as a material risk for their business, while half said nature and biodiversity was a material risk.

Some 60% wanted their boards to pay more attention to climate governance.

Companies that were more mature on adapting to investor and consumer demands have moved the climate function away from the marketing department and into the chief financial officer’s responsibilities.

Putting climate reporting on par with traditional “financials” will begin in 2024/25 for Australia’s largest companies and biggest not-for-profit organisations as part of a broader phase-in over several years.

Rigotti said he was concerned for smaller businesses who may not be aware clients will soon require climate data.

He said it was a “sleeper issue” for many because even if a firm believed itself too small to report, its emissions were likely to be relevant for another company along the supply chain.

The Australian Securities and Investments Commission warned eight months ago that companies had no excuse for being unprepared for one of the biggest changes to financial reporting and disclosure standards in a generation.

The Business Council of Australia has already called for a delay, including a one-year grace period from whenever new laws are passed so companies can get their climate “training wheels” on.

But others warn the window to hold global warming as close as possible to 1.5C is narrow and closing after years of denial.

Rigotti said most boards wanted to move “from ambition to execution” on climate but were worried about policy complexity and which minister would administer what laws.

He said the drafting of standards to align them with Australia was an opportunity for regulators to remove barriers to collaboration.

“It’s complex and there are some settings in there that may not suit the ultimate purpose, which is to help decarbonise the environment and to have sensible reporting around it,” he said.

The federal government is considering whether the July 1 start date should be deferred to January 1, 2025.

This article was first published by AAP.