SMEs ‘must lift game on ESG’ as regulations bite big end of town
With incoming international regulations and national mandatory reporting, firms will need to throttle emissions throughout the supply chain.
SMEs will be forced to reinvigorate their ESG practices and restrict their carbon footprints as large listed firms become subject to international regulations and domestic mandatory reporting, says BDO.
Advisory partner Aletta Boshoff said when the International Sustainability Standards Board (ISSB) framework was enforced it would impact businesses from top to bottom of the supply chain regardless of size.
“The introduction of mandatory sustainability disclosures will be a game-changer for Australian companies, giving them a clear picture of what they need to achieve and report,” said Ms Boshoff, presenting to the Accounting Business Expo in Melbourne.
“Entities should start getting ready now, because if you have to report 30 June 2025, you have to start to capture the data and have systems and processes in place by 1 July next year – that’s not very far.”
“So it’s more about a call to action, don’t leave this, it’s coming.”
Ms Boshoff, who is BDO national leader of IFRS (International Financial Reporting Standards) and corporate reporting, said mandatory reporting would require large firms to disclose their scope one, scope two, and scope three emissions.
This in turn would force suppliers and SMEs to tighten up their sustainability activities to help those up the supply chain to meet the incoming reporting standards.
“If mandatory reporting is coming for the big end of town, when they do their carbon footprint, and they look at scope three, which are the suppliers, they will expect suppliers to reduce their footprint in order for the big end of town to reduce their total footprint,” she said.
“So if the SMEs are not reducing their footprint, the large end of town can’t reduce their footprint because the SMEs are captured in scope three often, so I don’t think SMEs can avoid it, they’ll have to get on the front foot in order to stay suppliers for a lot of these large entities.”
“I think a lot of entities making small changes, collectively we’ll get to the big impact, the big end of town cannot do it on their own.”
Ms Boshoff said for SMEs adopting greater sustainability or ESG goals would be a business decision as those that do not reduce or adjust their footprint would see business from larger firms move on.
“The big end of town will either reduce their footprint, the scope three part, by either by finding a better supplier with a lower footprint or they will try and engage with the supplier to reduce its footprint,” said Ms Boshoff.
“It’s easy for them to say there are two suppliers, one uses renewable energy and the carbon footprint is very low, and the other supplier has a high carbon footprint, for example, it would be very easy to swap from one to the other.
“It’s not just about your superior product and your superior service and the costs associated with it, it will now also be about your carbon footprint as another consideration.”
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