From 2025, Australian businesses must report climate risks. Here’s a simple guide for SMEs to comply and benefit from the change

Australia’s climate-related financial disclosures are mandated starting January 1, 2025. Companies are divided into groups based on size and financial capabilities, with different reporting timelines.

Group 1, which includes large companies, listed businesses, and entities with $5 billion or more in assets, must start reporting by January 1, 2025. Group 2, consisting of medium-sized companies, will begin reporting by July 1, 2026. Small businesses, categorized as Group 3, have the option to report starting July 1, 2027, though this is not mandatory.

The Australian Sustainability Reporting Standard (ASRS) is split into two sections: AASB S2 and AASB S1. AASB S2 is mandatory and focuses on reporting climate-related risks and opportunities. It includes assessing how climate change might affect your business financially, operationally, or in terms of funding. AASB S1, on the other hand, is voluntary and covers broader sustainability topics, including environmental, social, and governance (ESG) factors, not limited to climate.

Steps to prepare

The first step is understanding when your company falls under the reporting requirement based on its size. Group 1 must start reporting by January 2025, and Group 2 will follow in 2026. Next, your company needs to conduct a thorough assessment of climate risks—whether physical (e.g., extreme weather events) or transitional (e.g., new regulations or market shifts).

Also, identify potential opportunities such as accessing new markets for sustainable products or optimizing operations for greater environmental impact. In many cases, companies will need to upgrade their data collection and reporting systems to track climate-related metrics like emissions, energy consumption, and risk management strategies. This means implementing IT systems that can manage this data effectively. Training the leadership team is crucial so that all involved understand the new requirements and how to comply.

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Penalties for non-compliance

If your company fails to comply with the reporting standards, it could face penalties, including financial fines. Directors may also be held personally liable if the company provides misleading or incorrect information in its disclosures. However, businesses will receive transitional support and guidance during the early years of implementation.

Benefits of reporting under ASRS

• Proper reporting builds trust with stakeholders—investors, customers, and suppliers—by showing your company’s commitment to sustainability and climate risk management. This transparency strengthens relationships and reputation.
• With proper climate-related risk assessments, your company can enhance its resilience. Identifying and mitigating climate risks reduces the likelihood of financial losses or operational disruptions in the future.
• By aligning your reporting with international standards, your company can more easily compare itself to global peers and attract international investors who are focusing on sustainability.
• Sustainability strategies can help companies identify cost-saving opportunities, drive growth, and open doors to new markets. Sustainable practices are no longer just about compliance; they can become a competitive advantage.

For SMEs, integrating climate risk is not just about complying with the law—it’s about leveraging climate risk as an opportunity for innovation and growth.

By proactively managing climate risks, businesses can ensure long-term viability by making their operations and supply chains more resilient. Strong relationships with stakeholders are cultivated by transparent climate reporting, which fosters trust and collaboration. Moreover, SMEs that integrate climate risk into their strategies gain access to capital, as investors are increasingly favoring businesses with robust climate-risk management plans. Additionally, businesses that align with sustainable practices are poised to capitalize on emerging market opportunities as demand for eco-friendly products and services rises.

Integrating climate risk also benefits internal systems. By adopting sustainability goals, SMEs are often able to strengthen their IT infrastructure, improving data management and reporting systems. This leads to more informed decision-making and more effective management of climate-related data.

Role of the board and C-suite

To successfully integrate climate risk, the leadership team must work together. Here’s how each member can contribute to ensuring a successful climate strategy:

The Board needs to ensure compliance with AASB S2 while embedding climate risk into the strategic planning process. The CEO must lead the alignment of sustainability and climate goals with the overall business vision. The CFO is responsible for quantifying the financial impact of climate risks and ensuring accurate reporting. The CRO focuses on identifying, assessing, and managing both physical and transition climate risks. The CHRO plays a critical role in promoting climate literacy across the company. The CIO uses IT systems to integrate climate data and enhance risk management capabilities. The CSO is responsible for leading the climate strategy and ensuring it aligns with business objectives. Finally, the CXO ensures that climate risks are considered in customer experience strategies.

Key questions for SMEs

As leaders in SMEs integrate climate risk into their business strategy, they must be prepared to answer critical questions, including:

• How does the company balance short-term financial goals with long-term climate resilience?
• In what ways are climate-related goals integrated into the broader business strategy?
• What climate risks have been identified, and how is the company managing them?
• How is climate risk being addressed across the supply chain and in investment decisions?

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