A survey of over 140 businesses found that many are not prepared for mandatory climate reporting, while those who act may enjoy competitive advantages.

Three-quarters (75 per cent) of middle-market businesses surveyed by Pitcher Partners were not at all prepared or only somewhat prepared for incoming mandatory climate reporting requirements.

“Many middle-market businesses assume the rules won’t impact them in the short term, given the first companies required to report are also Australia’s largest, and perhaps better prepared to disclose their greenhouse gas emissions,” Jyotika Rangel, partner at Pitcher Partners Sydney, said.

“But that could change as more businesses need to report not only Scope 1 and Scope 2 emissions but Scope 3 impacts in their supply chains.

“A real sleeper issue for businesses that may not be required to mandatorily report is that they find themselves caught up in the Scope 3 reporting of their largest customers.”

While small businesses – those earning less than $50 million in revenue annually, with under $25 million in assets or under 100 employees – would be exempt from climate disclosure requirements, they may have to provide emissions information to the larger businesses in their value chains.

Large businesses, such as those with annual revenue of $500 million or more, would be required to report on their Scope 3 emissions, or those produced in their value chains, from the 2025–26 financial year.

The inclusion of Scope 3 emissions in mandatory climate reporting requirements may lead large businesses to factor in emissions performance when choosing suppliers, in order to boost their environmental credentials.

This means that smaller businesses that act to minimise their environmental impacts could secure competitive advantages over unprepared peers when dealing with larger businesses.

“Overlooking or underestimating this could be a costly mistake if it results in losing a customer to a more prepared competitor,” Rangel said.

Climate financial disclosures are set to be mandatory from the 2024–25 financial year for large businesses ($500 million or more in annual revenue), and from the 2027–28 financial year for smaller businesses ($50 million or more in annual revenue).

Pitcher Partners’ survey found that mid-sized businesses are concerned about the resources they would have to commit to meet climate requirements.

Roughly a third agreed that they would need to spend more to meet climate requirements, noting struggles with constraints on resources including time, budget and staff. They also highlighted a lack of internal expertise needed to deal with the complexity of the new guidelines.

Businesses that are yet to act on ESG requirements are twice as likely to view mandatory reporting as a negative step. However, Pitcher Partners noted that sustainability measures could benefit businesses through cost savings and efficiency.

“Real value can arise when you set clear objectives, allocate resources efficiently, reduce waste and continuously monitor operations,” Peter Lawrence, a Partner at Pitcher Partners Newcastle, said.

“We find that the review of processes and operations needed to achieve compliance can deliver real benefits. For instance, businesses can adopt energy-efficient technologies, streamline operations to reduce waste, and explore alternative materials that have a lower environmental impact.”