As of January 1, Australia’s largest businesses are now required to track and disclose their carbon emissions under new climate reporting legislation. While at this stage, the rules mainly apply to businesses with more than 100 employees, their impact will ripple through the economy — which includes small businesses operating within their supply chains.
Here’s what you need to know about disclosing Scope 1, 2, and 3 emissions, and how this big change could affect your annual reporting and sustainability strategies for the future.
Although small businesses aren’t yet directly governed by these regulations, those supplying goods or services to large companies are likely to feel the ripple effects, according to Tam Somers, general manager of sustainability at Xero.
“If you supply to a large business, you are caught up in their Scope 3 emissions,” Somers explains.
“These include all the emissions related to creating and supplying your product that come from your value chain, including the materials and energy you use.”
This dynamic is already playing out in sectors like agriculture, where suppliers are being asked to provide emissions data to meet the requirements of major retailers.
“Progressively, over the next three years, the thresholds for who has to report will get smaller and smaller,” adds Somers.
“Small businesses that supply to large companies will likely be asked for their carbon emissions data.”
However, Somers reassures business owners that tracking isn’t as complicated as it sounds. And while you might not be legally obligated to report yet, being proactive about how you manage your emissions will put you in a better position in a world that increasingly values sustainability.
Rather than seeing climate reporting as a burden, small businesses can use it as an opportunity to drive new efficiencies and appeal to environmentally conscious customers. Recent research from Deloitte found two-thirds of gen Z and millennial consumers are willing to pay more for sustainable products and services.
“Small businesses have the agility to make decisions quickly about where to prioritise their spend and effort,” says Somers.
“We’re conscious that the vast majority of small businesses have a lot on their plate as it is. But there are definitely opportunities for those that want to make sustainability part of their brand, and we are seeing that consumers are gravitating towards those businesses more and more.”
If you decide to go down this route, having data to back up your sustainability claims will support your overall transparency, adds Somers, who suggests taking advantage of apps and tracking tools to make the job easier.
If the idea of tracking your business emissions feels overwhelming — especially when time and resources are already stretched thin — Somers reassures business owners that getting started is simpler than it seems.
“For those using accounting software like Xero, much of the data you need – probably 70% or more — is already at your fingertips,” she says.
“For that reason, the simplest way to calculate your carbon emissions is to take what you’ve spent on categories like electricity, materials and production, and multiply it by an emissions factor, which represents the average emissions for your sector at a given point in time and place.”
To simplify the process even further, Xero allows for integration with apps like Sumday and Greenly, which connect directly with the Xero platform and use existing data to calculate your emissions automatically.
“We’re working closely with Sumday to make this process even easier for Xero small business customers, with more coming soon,” adds Somers.
In the meantime, resources like the Sumday Academy and Xero’s Small Business Sustainability Hub have a broad range of education and tools to tap into.
Although the topic of climate reporting is gaining traction, the new legislation isn’t just about ticking boxes. These changes are signalling to businesses – big and small – that improving sustainability practices is the way of the future.
“Try to think of this as an opportunity,” says Somers.
“It’s about understanding where you’re spending money and identifying areas where you could save. Importantly, it could be the difference between winning or losing a contract.”
For small businesses unsure about where to begin, Somers has one simple piece of advice: “Just start somewhere. You don’t need to solve every sustainability challenge on the planet today. Work out what your biggest area of impact is and focus on that.”
She also urges small business owners to accept that this is not a short-term change – but rather a shift in the way reporting is done.
“Just like when the GST was introduced, it was a bit overwhelming and scary, but now it’s business as usual. We really think carbon accounting will be just like that.”
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