‘Wide spectrum’ in preparation for climate reporting, says Xpansiv
The levels of preparation for climate-related reporting still vary significantly across different businesses despite the commencement of the new regime for Australia’s largest entities, according to Xpansiv.
Many large Australian businesses are now required to prepare annual sustainability reports containing mandatory climate-related financial disclosures for financial years commencing 1 January 2025.
The new obligations require businesses to have appropriate governance arrangements and sustainability record-keeping processes to ensure they can meet the new reporting requirements.
Xpansiv chief commercial officer Ben Stuart said while the second and third cohorts of businesses captured under the regime will not be required to start preparing sustainability reports for this year, they should start preparing and capturing data now.
Under transitional arrangements, the second and third reporting cohorts will be required to prepare annual sustainability reports for the financial years commencing on or after 1 July 2026 and 1 July 2027 respectively.
Stuart said the levels of preparation for climate-related reporting vary significantly across different businesses.
"Where some of these businesses form the supply chain of larger entities, they're further up the curve because a lot of these requirements from a Scope 3 emissions point of view have been pushed down onto them. So they're probably a little bit more prepared than others," Stuart said.
Stuart said most businesses now have a detailed understanding of their carbon footprint and are quite advanced in understanding their impact in terms of Scope 1 and Scope 2 emissions.
"[However], the Scope 3 element for smaller entities is probably more difficult," he said.
"There's a spectrum, some are much further up the education curve than others. That's even the case at the larger end of town where there's still some organisations looking to manage this stuff on spreadsheets so there's a bell curve of sophistication at all levels in terms of preparing for these reporting obligations."
For smaller entities outside of the three cohorts captured under the new regime, climate-related reporting may still be a critical consideration where they form part of a supply chain for a large business, according to Stuart.
Stuart said traditionally large entities have given weight to what kind of climate-related reporting a smaller entity undertakes when choosing between different suppliers.
"That's going to become significant going forward because ultimately that top company is being required to report and is going to need that information," he said.
"So it will become critical across the whole economy and will have an effect across all levels of the economy because you're going to be a supplier of someone somewhere and you'll need to translate that information to them so they can meet their requirements."
Stuart said a lot of preparation will also need to occur at the auditor level for the companies being audited on these reporting obligations.
"Everyone is learning together and there's a lot of upskilling that will need to happen within the assurance firms to get them to the right level so they can manage it and try and reduce the costs.
"Education between now and the time when the first audits need to occur, which is roughly 15 months away, will be important.
"It's about getting an understanding of what infrastructure is out there and what technology may help you meet some of the requirements."
Stuart said some areas will be easier to audit than others.
"Make sure you leverage those information segments where there is quite a lot of detailed information and rigour behind that information. There's going to be some parts of this where there is less transparency and less auditability of the information and the data being provided," he said.
"It's finding out where they can get the easy wins and be efficient in certain places while understanding that in other areas it will be a harder, manual process."
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