From Compliance to Opportunity: Preparing for Mandatory Climate Reporting
by The Growth Activists 14/10/2025
A Sustainability Journey, Business Services, Social & Environmental Services
by The Growth Activists 14/10/2025
A Sustainability Journey, Business Services, Social & Environmental Services
This article was contributed by The Growth Activists.
Climate reporting is reshaping supply chains and turning compliance into an opportunity for Australian businesses.
Mandatory climate reporting has arrived, and it’s changing how Australian businesses measure and manage environmental impact.
The shift is significant. For the first time, climate risk will sit alongside financial risk in company reports. That means climate disclosure is no longer a side project. Rather, it’s now a board-level responsibility with direct implications for company strategy, supply chains, business models, and even company valuations.
The new rules bring challenges, but they also create opportunities, especially for those that move early. Businesses that prepare early are best placed to turn these requirements into a competitive edge.
Australia’s evolving mandatory climate reporting rules are reflecting global advances in disclosures. New domestic rules are set out in the Australian Sustainability Reporting Standards (ASRS). These standards require companies to disclose their climate risks, emissions, climate change management strategy, and governance practices. Reports must be published each year at the same time as financial statements, and directors must sign them off with the same level of attention.
The ASRS framework is being phased in over three years from January 2025. Group 1 entities began first. These are large companies with $500 million or more in revenue, $1 billion in gross assets, or at least 500 employees. They will be followed by Group 2 entities in 2026. This covers medium-sized organisations that meet thresholds of $200 million in revenue, $500 million in assets, or 250 employees. Finally, Group 3 entities, the smallest businesses in scope with $50 million in revenue, $25 million in assets, or 100 employees, will begin reporting from 2027.
Even though Group 3 entities have the longest runway, many are already being asked as suppliers to larger businesses to provide emissions data as a pre-emptive measure to fulfill scope 3 obligations in the second year of reporting.
ASRS is aligned with international guidelines developed by the International Sustainability Standards Board (ISSB). These include IFRS S1 (voluntary), which sets general requirements for sustainability reporting, and IFRS S2 (mandatory), which focuses specifically on climate. This means Australian businesses will be reporting in a way that allows investors to compare businesses side-by-side more easily. Eventually, this will become a model that is familiar globally.
But some other markets are going further than just climate change focus. Europe’s Corporate Sustainability Reporting Directive (CSRD) requires not only climate data but also disclosures on other environmental issues such as biodiversity, social impacts like human rights, and governance. Australian companies that export into Europe, supply to European clients may therefore face additional requests for their emissions data and broader social and environmental data from their large customers in Europe. Australian businesses with a large presence in Europe may also need to fulfill their own reporting requirements.
Climate disclosures cover three categories of emissions. Scope 1 is direct emissions such as fuel used in company vehicles. Scope 2 is emissions from purchased energy. Scope 3 covers all Scope 1 and 2 emissions from suppliers across the value chain.
That means Scope 3 is the hardest to measure because it requires visibility across their entire supply chain, which involves collecting data from suppliers who may not be tracking their own emissions. This is an opportunity to partner with suppliers for mutual benefit. For businesses that aren’t yet measuring their emissions, it’s motivation to start. For those already measuring, it can be a competitive advantage in the eyes of clients or their potential clients.
In practice, smaller businesses can’t afford to wait. Even if they are not legally required to report yet, or at all, they risk being left out of supply chains if they cannot provide credible emissions data when larger customers ask for it.
This data also comes with the opportunity for businesses to identify their own emission reductions, which comes with a range of benefits as detailed below.
In many cases, even businesses that are preparing early are finding climate reporting more complex than expected. The first common challenge is rounding up all the data from the many sources around the business, and establishing consistency in quality. The second challenge is building the in-house skill to translate the data into the financial story and implications.
Once the data story is complete, the next challenge is using the data to develop the right strategies to manage risk and to progressively decarbonise. Failing to do so may affect their ability to attract investment or lower cost capital. Other benefits include attracting and retaining good staff, partners, and customers.
One aspect of the reporting is scenario analysis. Standards require organisations to assess at least two climate scenarios, including one aligned to 1.5 degrees of warming. This means companies must also consider the impact of how temperature increases the incidence and severity of climate events such as flooding, bushfires, or extreme heat, and the impact these could have on assets, supply chains, and financial performance.
Many organisations are unsure whether a narrative with assumptions is enough, or whether detailed modelling is expected. Some variation in reporting detail is inevitable and accepted, as seen in the first reports coming out of the EU for example. In the early years, regulators’ focus will be on progress over perfection.
Organisations might find it useful to look at the Australian Federal Government’s first National Climate Risk Assessment, released on 15 September 2025. This outlines scenarios with interactive data models that can be used to identify potential risks.
Finally, businesses are balancing adequate data disclosure without releasing commercially sensitive information, such as internal carbon pricing.
While the rules apply broadly to all industries, their implications differ significantly between sectors. For example, financial services face unique challenges in measuring the environmental footprint of investment portfolios.
For manufacturing, apparel, and technology companies, the focus is squarely on supply chains, and understanding emissions, resilience, and climate-related risks in regions where raw materials are sourced or products are assembled. The next focus will be on introducing circularity into product design to ensure minimal or no elements end up in landfill.
Food and beverage businesses are among the organisations that are already experiencing direct impacts, from floods and bushfires to crop failures that affect both raw materials and production facilities. These examples illustrate the breadth of risk exposure, from asset damage to supply disruption to workforce vulnerability.
What unites all industries, however, is the need to move quickly from theory to practice in order to ensure governance, data, and risk management structures are robust enough to withstand both regulatory scrutiny and market expectations. Critically, organisations must also turn attention to how mandatory reporting compels businesses to identify areas where reductions can be made and innovations can be developed. This is the aspect of the regulation that is easy to overlook, but essential for market disclosures and to attract stakeholder attention from investors, employees, customers, and supply chain partners.
Much of the conversation so far has focused on risk. But mandatory reporting also creates opportunities. Being reporting-ready can win new business, as large organisations increasingly appreciate suppliers who can provide clean data. Strong ESG credentials also unlock better financing, with banks offering favourable rates to companies that can demonstrate low climate risk.
Circular economy initiatives are another opportunity. Sector-wide collaborations, such as apparel recycling schemes, are creating new infrastructure that lowers costs and opens revenue streams. By working together, businesses can reduce waste, avoid penalties, and build resilience against future carbon pricing.
Innovation is also being sparked in unexpected ways. Cross-disciplinary teams are already creating new products, services, and business models that respond to sustainability needs. Mathematicians working with fashion designers to create sustainable made-to-order clothing, for example, shows how cross-disciplinary thinking can spark new products, services, and business models.
In merger and acquisition deals, companies with well-organised ESG plans may be given higher market valuations.
In short, compliance is only the beginning. The real advantage lies in leveraging climate reporting to innovate, collaborate, and strengthen long-term resilience.
For organisations wondering how to begin, the first step is to carry out a maturity review. This involves establishing a reliable baseline for Scope 1 and 2 emissions and preparing for the inevitable Scope 3 requests from clients. It also means ensuring boards are educated and ready to sign off disclosures, and that governance and assurance processes are already in place.
While assurance levels differ during the first three years of mandatory climate reporting under ASRS, during the initial three years, company directors must declare whether ‘reasonable steps’ have been taken to ensure compliance. After three years of reporting, directors must provide a full assurance level and can no longer rely on ‘reasonable steps’.
A Materiality Assessment should also be undertaken to identify the most significant risks and opportunities that could affect financial performance. At the same time, businesses need to consider whether their climate data is being translated into financial implications that stakeholders can easily understand.
These considerations help organisations understand not only their compliance position but also their readiness to use reporting as a strategic tool. Those that begin early will not only avoid risks but also become more attractive partners, investors, and employers.
Specialist guidance can make the process more manageable. Expert consultants can assess current emissions footprints, conduct materiality and risk assessments, and develop strategies and action plans to decarbonise while creating commercial value.
They can also support scenario analysis, resilience planning, and the design of transition pathways. Many also extend into stakeholder engagement to ensure alignment with employees, suppliers, investors, and customers.
But the most effective partnerships go beyond compliance checklists and connect emissions data to broader strategy, thus identifying opportunities for innovation, circularity, and resilience. With targeted guidance or end-to-end support, businesses can move beyond compliance to future-proof operations.
In this way, mandatory climate reporting represents a profound shift in the way businesses operate. Organisations that treat disclosure as more than a compliance task will uncover efficiencies, access better financing, attract top talent, and strengthen their market position.
Now is the time to act. The Growth Activists can help your business find a clear path to move beyond compliance and unlock the opportunities of a low-carbon future. Get in touch to find out how.
This is an article from a SustainabilityTracker.com Member. The views and opinions we express here don’t necessarily reflect our organisation.