Climate reporting rules have passed the Senate. Here's what SMEs need to know

Mandatory climate reporting laws for businesses have passed in the Senate, promising to change the way companies disclose their greenhouse gas emissions — including those contributed by small business suppliers.

The Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill passed in the Upper House on Thursday, clearing the way for its passage into law when Parliament returns in September.

Under the proposed legislation, large companies will need to measure and report their climate-related risks and potential opportunities, in addition to their traditional financial disclosures.

“These critical reforms provide investors and companies the clarity and certainty they need to support the net-zero transformation and further strengthen Australia’s reputation as an attractive destination for international capital,” Treasurer Jim Chalmers said in a statement.

Major companies meeting at least two of three criteria — consolidated annual revenue over $500 million, gross assets over $1 billion, or more than 500 employees — will need to comply with those reporting rules from January 1, 2025.

Reporting requirements for smaller entities will phase in over 2026 and 2027.

Given their size, the vast majority of small businesses will not be directly affected by those new requirements.

However, the need for reporting entities to include their Scope 3 climate risks — that is, climate risks contributed by partners up and down the supply chain — will require some small businesses to explain their emissions to big business partners.

The proposed legislation gives those small businesses some leeway, stating: “For Scope 3 emissions reporting, this will mean that entities will not be required to disclose exact data or detailed information that their customers or suppliers cannot provide easily”.

There are also additional transitional measures embedded in the law.

Scope 3 emissions reporting will begin in the second year of the scheme, giving companies time to assess how best to assess the climate risks of their small business partners.

The proposed legislation will also introduce a three-year ‘modified liability’ period, giving reporting entities, their directors, and auditors time to develop climate reporting skills before they are exposed to private litigation.

Statements regarding Scope 3 emissions will continue to be protected during that three-year buffer.

Only the Australian Securities and Investments Commission (ASIC) will be empowered to launch civil proceedings against rulebreakers in that period.

For its part, ASIC says it will work with small businesses to help them understand the rules, even as it cracks down on corporate greenwashing claims.

“Once the new laws come into effect, ASIC will work with small business representatives to develop practical guidance for small businesses in relation to the requirements of the new laws and how the new laws may impact them,” ASIC deputy chair Sarah Court said in March.

“ASIC will take a pragmatic and proportionate approach to the supervision and enforcement of this new regime,” the regulator added on Friday.

“We will engage closely with industry as we develop appropriate guidance to help it build the capability required to meet the new obligations.”

The Australian Accounting Standards Board is also developing climate reporting rules aligned to international standards, which will provide more certainty for reporting entities.

Despite those transitional measures, the Coalition fears the Scope 3 reporting requirements will lump small businesses with extra reporting requirements.

In a statement, Shadow Treasurer Angus Taylor on Thursday described the measure as additional “green tape” on SMEs.

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