ESG myths exposed: but here’s why SMEs should still calculate emissions

This article was current at the time of publication.

Mandatory climate reporting kicked off for many Australian companies from 1 January this year. The new standard, AASB S2 - Climate-related Disclosures, broadly requires certain entities to report on their exposure to climate risks and opportunities and to outline the actions they are taking to manage them. 

In New Zealand mandatory climate reporting began even earlier for 200 of the most ‘economically significant’ Kiwi entities which were required to report against standards from January 2023.

This kind of mandatory reporting is part of an evolving ESG (environmental, social and governance) landscape, and many SMEs are wondering how they will be affected. Are they required to report under these standards and, if not, should carbon reporting and ESG issues even be on their radar? We’ve sorted the fact from the fiction.

TRUE OR FALSE? SMEs are required to comply with Australia’s mandatory climate-related financial reporting.

FALSE

There are three groups of entities that must report, based on their consolidated revenue, consolidated gross assets and number of employees. 

Group 1, which began reporting from 1 January 2025, includes companies with at least two of the following characteristics:

• Consolidated revenue of A$500 million or more.
• Consolidated gross assets of A$1 billion or more.
• 500 employees or more.

Reporting entities that are also National Greenhouse and Energy Reporting (NGER) Scheme ‘Controlling Corporations’ and meet the NGER Scheme publication threshold are also now required to report.

Group 2 will begin mandatory reporting from 1 July 2026. It will include all other NGER reporters, asset owners with A$5 billion assets under management or more, and entities with at least two of the following characteristics:

• Consolidated revenue of A$200 million or more.
• Consolidated gross assets of A$500 million or more.
• 250 employees or more.

Group 3 will be required to report from 1 July 2027 and will include companies with at least two of the following characteristics:

• Consolidated revenue of A$50 million or more.
• Consolidated gross assets of A$25 million or more.
• 100 employees or more.

SMEs below these relevant size thresholds are exempt from mandatory reporting.

TRUE OR FALSE? As SMEs are not required to report under the mandatory climate reporting scheme, they don’t need to worry about their own ESG issues.

FALSE

Aletta Boshoff, National Leader - IFRS & Corporate Reporting, and ESG & Sustainability at BDO Australia, explains that as mandatory reporting includes metrics around Scope 3 greenhouse gas emissions, reporting entities may be examining their entire value chain.

“This means they may require information from their suppliers and their customers in order to capture their Scope 3 emissions,” she says. “If you are a supplier, they may contact you and ask, ‘What is your carbon footprint? Have you set targets? How are you going to achieve them?’.

“Whether you are required to do mandatory reporting or not is irrelevant,” adds Boshoff. “Do you have customers who want this information or want you to reduce your footprint? Do you want to attract employees who want to work in a sustainable business?

Are you looking for investor money? Are you looking for loans from banks? If you are looking for any of these things, you should think about measuring your carbon footprint, as a very minimum.”

TRUE OR FALSE? Tools developed by Greenhouse Gas (GHG) Protocol can be used to help calculate your GHG emissions.

TRUE

The GHG Protocol is a globally recognised standard for calculating and reporting a company's greenhouse gas emissions. It includes a range of tools, and many feature step-by-step guidance.

“Even though SMEs aren’t required to report under AASB S2, it’s important and very useful to get an understanding of your company’s emissions,” says Boshoff.

“If your customers, investors, or bank have not asked you about your carbon footprint yet, they will ask you about it very soon, so it pays to start measuring it.”