Customer Climate Reporting Requirements: Why Growing Businesses Need to Understand Their Customers' Climate Expectations
Climate reporting can sound like an issue for large corporates. For many SMEs, the immediate reaction is that the new Australian climate reporting requirements do not apply to them, so there is nothing they need to do.
That is only part of the story.
An SME may not have a direct obligation to prepare a climate-related financial report, but its customers may. As larger organisations increasingly assess their value chains, they may ask suppliers for information about emissions, energy use, environmental risks and other climate-related matters.
For an SME supplying larger organisations, climate reporting can therefore become a commercial and governance issue before it becomes a regulatory requirement.
"You may not be required to report climate information, but your customers may need information from you."
This is where customer climate reporting becomes relevant.
Climate Reporting Does Not Stop With the Reporting Entity
Australia's mandatory climate-related financial reporting regime is being phased in for entities that meet the relevant thresholds.
ASIC makes clear that the mandatory requirements do not directly apply to most small and medium-sized businesses. However, the organisations that are required to report must consider their climate-related risks and opportunities across their value chains.
AASB S2 requires relevant reporting entities to consider their value chain when assessing climate-related risks and opportunities and when measuring Scope 3 greenhouse gas emissions. The standard recognises that supplier-specific information can form part of that assessment.
This creates a flow-on effect. A large customer may need information from its suppliers to support its own reporting. The SME may therefore find itself receiving questions such as:
What are your greenhouse gas emissions?
How much electricity or fuel does the business use?
What are your major sources of emissions?
Do you have an emissions reduction plan?
Can you provide information about the environmental impact of the products or services you supply?
The business may not be legally required to prepare a climate report. But it may still need to provide information.
Why Should an SME Care?
The first reason is commercial.
Large businesses are increasingly looking at their supply chains when considering climate-related risks and emissions. For an SME, this can affect customer questionnaires, procurement processes, tenders and supplier reviews.
A business that cannot provide the information requested by a major customer may find itself having more difficult conversations.
This does not mean that every large customer will immediately require a detailed emissions report, but it does mean that expectations are changing.
"Customer requirements can arrive before regulatory requirements."
For SMEs that rely heavily on larger customers, understanding these expectations is becoming part of good commercial risk management.
Scope 3 Is Where SMEs May Become Involved
Scope 3 emissions are emissions associated with activities elsewhere in an organisation's value chain. For example, a large business may need to consider emissions associated with purchased goods and services, transportation, waste, business travel and other activities within its value chain.
AASB S2 specifically identifies purchased goods and services as one of the Scope 3 categories that may be relevant to a reporting entity. This means an SME supplying goods or services to a larger organisation may become part of that customer's emissions data exercise.
The customer may ask for information because it wants to use supplier-specific data rather than relying entirely on industry averages or estimates. AASB S2 allows the use of estimates and secondary data, but it also recognises that primary data from specific activities within the value chain can provide a more representative basis for measuring emissions.
That creates an incentive for larger organisations to understand what information their suppliers can provide.
This Is a Governance Issue, Not Just an Environmental Issue
It is easy to assume climate information belongs with the person responsible for sustainability or environmental management. For many SMEs, there may not even be such a person.
The information may instead sit across finance, operations, procurement, fleet management and facilities. Electricity costs may sit in the accounting system. Fuel records may sit with fleet administration. Waste information may sit with operations. Supplier information may sit with procurement. The business may already have much of the information it needs. It simply has not brought it together.
This is where governance becomes relevant.
"Good governance means knowing what information matters to the business, where it comes from and who is responsible for it."
An SME does not necessarily need a dedicated sustainability function. It does need enough ownership and structure to respond confidently when customers start asking questions.
The Risk of Waiting for the Customer Questionnaire
One of the most common problems is waiting until a customer asks. A questionnaire arrives.
The deadline is four weeks away. Someone in the business starts looking for electricity bills.
Another person searches for fuel records. Finance extracts information from the accounting system. Operations tries to determine how much waste was generated.
Nobody is quite sure what period the information should cover or how it should be calculated.
The result is a rushed, manual exercise.
"The problem with collecting data for the first time is that you discover how much you do not know."
A little preparation can make the process significantly easier. The objective does not need to be a comprehensive climate reporting system. It can simply be knowing what information exists, where it is held and how it can be consistently collected.
Start With the Information You Already Have
For many SMEs, the sensible starting point is not sophisticated software. It is a data review.
Look at the information already captured through normal business activities. Finance may already have records relating to:
Electricity
Fuel
Freight
Business travel
Waste services
Purchased goods and services
Operations may have information about production, projects, vehicles, equipment and facilities. The first step is understanding what is available and what is missing.
From there, the business can decide whether additional measurement is worthwhile.
"Good climate reporting starts with good business information."
This approach also has a broader benefit. Improving the quality of operational data can improve financial reporting, cost management and decision-making at the same time.
Do Not Build a Reporting Machine You Do Not Need
Another risk is overreacting. An SME receives a request from a large customer and immediately assumes it needs a complex sustainability reporting system. That may not be necessary.
The appropriate level of information will depend on the customer's requirements; the nature of the business and the information being requested.
The goal should be proportionate.
Understand the requirement.
Identify the relevant information.
Establish a sensible collection process.
Document assumptions.
Keep records.
Then improve the process as customer expectations develop.
"Good governance is not about creating more paperwork. It is about creating enough structure to manage risk."
Customer Climate Reporting Can Become a Competitive Advantage
There is also an opportunity here. An SME that can respond quickly and confidently to customer requests may have an advantage over a competitor that cannot.
This could become relevant in procurement and tendering, particularly where larger organisations are assessing their suppliers against broader environmental, governance and risk criteria.
Being able to say, "We have the information, we know how it was calculated, we can provide it consistently." can demonstrate a level of organisational maturity.
For growing businesses, that can support customer confidence.
"The ability to provide reliable information can become part of the value proposition."
What If Your SME Is Heading Towards Group 3?
For some businesses, customer requests may not be the only reason to start preparing.
A business that is approaching the Group 3 thresholds should also consider whether mandatory climate reporting could become relevant in the next few years.
Under Australia's current framework, Group 3 entities commence mandatory climate reporting for financial years beginning on or after 1 July 2027. Broadly, an entity may fall within Group 3 where it meets at least two of the relevant size thresholds, including consolidated revenue of $50 million or more, consolidated gross assets of $25 million or more, or 100 or more employees, subject to the applicable requirements and exclusions.
For a business approaching these thresholds, waiting until the reporting obligation formally applies may create an unnecessary scramble. Climate-related reporting requires more than calculating emissions. It requires reliable information, defined responsibilities, appropriate governance and processes for gathering and reviewing data.
That means the preparation should begin before the first report is due.
"If your business is growing towards Group 3, climate reporting should become part of the growth plan before it becomes a compliance deadline."
This does not mean an SME approaching Group 3 needs to immediately build a large corporate sustainability function. A more practical approach is to progressively build the underlying capability.
Start by understanding what information is already available. Identify gaps in energy, fuel, emissions and operational data. Establish ownership. Consider how information will be collected and reviewed. Then develop the process as the business grows.
This has another benefit.
Businesses approaching Group 3 are likely to be increasing in size and complexity generally. The governance, data and reporting disciplines developed for climate reporting can therefore strengthen the broader financial and operational control environment.
The question is not simply:
"When do we have to report?"
It is:
"What capabilities will we need as the business grows, and how early should we start building them?"
For a business that is already approaching the Group 3 thresholds, the answer is likely to be sooner rather than later.
What Should SMEs Be Doing Now?
The appropriate response will vary between businesses, but there are several sensible questions for leadership teams to consider.
Do major customers currently ask for climate or sustainability information?
Are any customers likely to have mandatory climate reporting obligations?
Where is relevant environmental data currently held?
Is the information reliable and consistent?
Who is responsible for collecting it?
Could the business respond to a significant customer request within 30 days?
If the answer to the final question is no, there may be a useful governance exercise to undertake.
Not because the business necessarily needs to report now.
Because it may need to provide information sooner than expected.
Climate Reporting Is One More Reason to Improve Business Data
There is a broader lesson for SMEs. Businesses often think about information only when someone asks for it. A bank requests a forecast. A customer requests a sustainability questionnaire. A tender asks for evidence. A board asks for operational metrics.
Suddenly, the business needs information it has never systematically collected.
Building better data practices creates resilience well beyond climate reporting. It improves the organisation's ability to respond to customers, lenders, investors and other stakeholders.
"The businesses that know their numbers are usually better prepared for whatever question comes next."
Final Thoughts
Most SMEs will not be directly required to prepare climate-related financial reports under Australia's mandatory reporting regime. ASIC specifically identifies the new requirements as applying to larger businesses rather than SMEs.
But that does not mean climate reporting can be ignored.
For SMEs supplying larger organisations, customer climate reporting requirements may increasingly flow through the supply chain.
The sensible response is not to create unnecessary bureaucracy or attempt to replicate the reporting systems of a large corporate.
It is to understand what customers may need, identify the information already held by the business and establish practical processes for collecting reliable data.
"You do not need to become a large corporate to be ready for the questions large corporates may ask."
For growing SMEs, that is the real opportunity. Build the governance and information capability before the request becomes urgent.
Need Support?
If your business supplies larger organisations and you are unsure what climate information customers may expect, now is a good time to review your data and governance processes.
At Ordinis Advisory, we help growing businesses understand emerging reporting expectations, identify information gaps and build practical governance processes without creating unnecessary complexity.
If you want to understand how customer climate reporting could affect your business, get in touch for a conversation.
Disclaimer
This article is general information only and is not legal, accounting, sustainability or financial advice. The application of Australia's climate-related financial reporting requirements depends on the specific circumstances of each entity. Businesses should obtain appropriate professional advice regarding their reporting obligations and any information requested by customers or other stakeholders.
Comments