SMEs & mandatory sustainability reporting 101: Practical guidance and opportunities

In our last article, we outlined the changes to the Corporations Act 2001 (Cth) (the Act) that were brought in by the Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Act 2024 (Cth) (the Act) and indicated some of the challenges facing SMEs in complying with this regime.

That’s only part of the story of course. While implementing the reporting regime will not be an easy, cheap or simple change for SMEs to make, there are opportunities for early adopters of this change.

Key takeaways

• SMEs need to be able to provide information to report into their customer’s supply chains, meaning the SME’s supply chain also needs to report.
• There are certainly challenges in implementing this reporting regime but there are opportunities too, leading to potential improvement to an SME’s business.
• Mandatory sustainability reporting won’t be a ‘set and forget’ – each entity’s approach to climate risk and opportunity management will continue to evolve and mature over time as we all learn more.

Reporting for SMEs

Under Section 296D of the Act, there are 4 broad areas that reporting entities must report on (meaning four areas they will need information from SMEs for).

1. Governance
   Each entity must disclose material climate-related risks and opportunities. The Australian Sustainability Reporting Standards provide that information is “material” if omitting, misstating or obscuring that information could reasonably be expected to influence decisions financiers, lenders and investors make on the basis of those reports. This seems clear, but materiality also needs to be assessed within context (ie. on a per business basis).
2. Strategy
   Climate resilience of the entity’s strategy and business models, informed by scenario analysis which must include at least the scenarios where:

• an increase in global average temperature exceeds 2°C above pre‑industrial levels (per Climate Change Act 2022 (Cth)); and
• an increase in global average temperature limited to 1.5°C above pre‑industrial levels.

3. Risk management
   Responses to anticipated material climate-related physical and transition risks (market shifts, policy changes etc) and opportunities.
4. Metrics and targets
   Any climate-related targets, use of carbon credits and transition plans, and importantly Scope 1, Scope 2 and Scope 3 greenhouse gas (GHG) emissions.

GHG emissions, in accordance with the GHG Protocol Corporate Standard are broken up into three categories, and are defined as:

• Scope 1 emissions (direct emissions from company operations)
• Scope 2 emissions (indirect emissions from electricity consumption and transport)
• Scope 3 emissions (broader emissions across the entity’s value chain, including suppliers) – these can be difficult to assess given their scope.

Opportunities for SMEs undoing mandatory sustainability reporting

It is early days, but studies suggest that sustainable practices can improve a business’s profitability. McKinsey’s 2023 analysis of information from the S&P Global ESG ratings shows that companies that achieve better growth and profitability than their peers while improving sustainability and ESG outgrow their peers and exceed them in shareholder returns. Boston Consulting Group’s annual climate survey 2025 found that over 80% of companies report economic benefits from decarbonization, with some capturing a return on investment that exceeds 10% of revenue.  It also appears that doing nothing costs money – the EY Global Climate Action Barometer estimates that the global cost of inaction averages 15% of annual revenue.  Yes, there is serious work for SMEs to do from the outset, but early results indicate that this work will pay off. Realistic opportunities include:

1. Resilience
   To report, an SME must know its supply chain. That benefits SMEs because it encourages (or requires) active risk identification and management across your business, enhancing your resilience to the next big market shock.

2. Enhanced reputation
   Sustainable practices generally improve a business’s reputation and attract environmentally conscious clients. They also help SMEs recruit and retain staff, according to Deloitte’s “2025 Gen Z and Millennial Survey” which indicated:

• • 70% of Gen Z and Millennials say a company’s environmental credentials are important when choosing an employer.
  • 23% research a company’s environmental policies before accepting a job.
  • 15% of Gen Zs have changed jobs due to environmental concerns.
  • 48% pressure their employers to take action on environmental issues.

3. Access to ‘green financing’
   Sound sustainability credentials can help unlock green financing options and government incentives for low-emission initiatives. There has recently been a shift away from investment in businesses and projects that lack environmental sustainability practices (e.g. potential coal fired power station expansions in Queensland).
4. Collaborative partnerships
   SMEs can reduce costs and improve reporting by partnering with larger firms sharing expertise. It might be possible to achieve this up and down your supply chains, which could help deepen business relationships and industry knowledge.
5. Innovation
   The mandatory reporting regime encourages innovation in low-emission technology and methodologies, driving market differentiation. Companies must revise operations and invest in cleaner technologies to meet global climate goals.
6. New efficiencies
   The regime can also help reduce operating costs by improving efficiency across an SME’s processes. For example:

• Eco-friendly accounting and lifecycle analysis help identify inefficiencies and reduce resource consumption.
• Sustainable manufacturing and operations reduce waste and optimize resource use, which can lower operating expenses.
• Proactive climate reporting helps companies avoid regulatory penalties and stay ahead of tightening environmental laws.

What happens next?

In our next article, we will consider some of the learnings gleaned from the Group 1 experience of implementing this new regime so far. In the meantime, SMEs should prepare strategically for future compliance requirements.

What can SMEs do now?

• Begin by assessing your company’s current capabilities and identifying any gaps.
• Form a dedicated focus group to guide implementation and ensure alignment.
• Establish a clear transition plan.
• Maintain clear and consistent records of GHG emissions metrics including energy consumption, waste management practices and carbon footprint.
• Review contracts for sustainability-related clauses or obligations and foster open dialogue and transparency around ESG.
• Seek expert advice from lawyers, accountants, tax agents, or professional consultants to navigate emerging sustainability reporting requirements.

Advice for getting mandatory sustainability reporting right

To help your business adapt to the new reporting requirements, Macpherson Kelley can assist with reviewing your organisation’s structure and ESG initiatives. Please contact Macpherson Kelley’s ESG Team if you have questions or require expert assistance.

The information contained in this article is general in nature and cannot be relied on as legal advice nor does it create an engagement. Please contact one of our lawyers listed above for advice about your specific situation.