New sustainability reporting puts ESG’s ‘E’ and ‘G’ – environmental impact and governance – front and centre for Australian manufacturers.
With legislation outlining mandatory sustainability reporting passing federal parliament in September, from January 1 2025 many manufacturers must measure the climate risk and emissions generation within each individual business and across their entire supply chain.
Businesses that fail to adhere to the reporting requirements will expose themselves to penalties and the new levels of transparency may lead to significant reputational risk among customers and other stakeholders.
Business will be broken down into three tiers depending on size, determined by at least two of the three key group reporting criteria. The first and largest group will be required to prepare annual sustainability reports from 1 January 2025 with the second and third groups required to report after 1 July 2026 and 1 July 2027 respectively.
- Group one businesses: consolidated revenue of $500m or more, EOFY consolidated gross assets of $1b or more, or EOFY employees of 500 or more.
- Group two businesses: consolidated revenue of $200m or more, EOFY consolidated gross assets of $500m or more, or EOFY employees of 250 or more.
- Group three businesses: consolidated revenue of $50m or more, EOFY consolidated gross assets of $25m or more, or EOFY employees of 100 or more.
Manufacturers should act now
The first question for manufacturers is: does this affect me? ASIC has established a dedicated sustainability reporting page with information about the new regime.
It can be complex, so at RSM Australia we are introducing many manufacturing clients to our ESG & Climate Services team including partner, Linda Romanovska, to guide them in this journey.
Romanovska says manufacturers need to start preparing for the new regulations immediately.
She says it can take anywhere from six to 24 months of prep work for the average Australian business to meet the new requirements, depending on the company’s complexity, size, structure, business activities, global scale and existing level of preparedness.
It is essential businesses start putting processes in place, particularly around their internal governance and data systems to ensure they have a clear understanding of their emissions and risks when the new legislation comes into effect.
Romanovska recommends manufacturers take three key actions now to prepare for the new reporting requirements:
- Understand your climate risks
At their core, the new requirements demand manufacturers have a comprehensive understanding of the climate risks they face in their business.
This includes physical risks, such as storms, floods, bushfires and drought, as well as transition risks which take into consideration how well the business is adjusting to the changing regulatory environment as they transition towards a low-emissions future.
Physical risks are evaluated on the impact to a business’s primary place of work plus related secondary impacts on the business throughout the value chain.
For example, a manufacturing business with a strong reliance on heavily affected overseas crops or ingredients will result in a high physical risk rating.
Manufacturers will also need a firm grasp on how these risks translate to financial impact on their business.
- Map out your greenhouse gas (GHG) emissions
Manufacturers must have a clear picture on where their greenhouse gas emissions occur and the drivers behind them.
Under the new law, manufacturers must demonstrate whether emissions are part of their core operations, such as emissions from fuels used in production machinery or from an external electricity grid (Scope 1 and 2 emissions), or are occurring further upstream or downstream in their supply chain, be it through transport and distribution, leased assets, use of their products or end-of-life activities (Scope 3 emissions).
Scope 3 emissions will need to be broken down into one of fifteen categories as defined by the GHG Protocol – an international GHG emissions accounting standard.
This will be a complex and time-consuming task for food and beverage manufacturers who will likely have many touchpoints across the fifteen categories throughout their supply chain, including downstream transport and distribution, waste generated in operations, use of sold products or product end-of-life activities.
- Revisit targets and commitments
Any existing climate change resilience, emissions reduction commitments or energy targets as well as transition plans will now be captured as part of the mandatory reporting requirements, providing a good opportunity for manufacturers to revisit, update or renew these targets.
Depending on the structure and governance of the business, this can be a lengthy process and manufacturers are advised to start early to ensure they are fully prepared for mandatory reporting in the new year.
Louis Quintal is the National Leader, Manufacturing and a Partner in the Audit and Assurance division in Sydney for RSM Australia, one of Australia’s leading professional services firms. Manufacturers can reach him via email.
